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Ignoring Gen Y prospects a generation gaffe

Younger generation needs financial planning guidance and present opportunity for long-term relationships

Feb 25, 2013 @ 3:44 pm

By Darla Mercado

NextGen, investors, RIAs
+ Zoom

You might want to think twice about turning away those Gen Y financial planning prospects. It could be a bad business move.

Sure enough, it happened to me. My husband and I decided we would search for an adviser, ideally someone who specialized in plain-vanilla financial planning and taxes. Late last month, we thought we found “the one,” a fee-only adviser and CPA in New York City who was referred to us by a colleague.

Unfortunately, we ended up burned after he stood us up on our introductory meeting. Two weeks and many apologies later, the adviser botched the rescheduled meet-up when he failed to tell us he couldn't make the appointment because he was out sick. We received no warning from the office and only found out after I checked in with his receptionist that morning.

The whole episode was an exercise in frustration, but we came to realize that the real loss was on the part of our almost-adviser: The opportunity to establish a trusted financial planning relationship that could last for decades was there for him, including a shot at helping us build our asset base and prepare us for life insurance planning as we start a family.

And now that opportunity is gone.

Standing at nearly 80 million strong, the Millennials — born between 1977 and 1995 — are presenting the next potential area of growth for financial advisers. Many of us are burdened by student loan debt — as the average student borrower in 2012 owed $23,829, up 30% since 2007, according to TransUnion LLC.

Still, older members of the cohort are in their early 30s, have been in their careers for a few years and are reaching a point when financial planning becomes pivotal.

“There's a lot of opportunity, and not just from the young professional side where you'll have assets to manage in five or 10 years,” said Sam N. Paglioni, partner at Integer Wealth Advisors Group LLC. “There are a lot of young clients with 401(k)s and who have no clue about them. They may need insurance. Also, a lot of people at that age don't have their wills set.”

Advisers have shied away from younger clients for a number of reasons: Sometimes it's a matter of just struggling to tap that younger audience. But other times, it's because your typical 30 year old hasn't reached his or her peak earnings yet and hasn't accumulated sufficient assets to be a profitable client.

“Advisers wax poetic about getting rid of the bottom 20% of their clients,” said Nicholas W. Stuller, chief executive of Meridian-IQ. “Long term, it sends a bad signal: These younger investors will be caregivers and trustees one day.”

“If you don't bring them into the conversation now, while they're in their 20s and 30s, they will replace you with someone else when their parents die,” warned Stewart Koesten, an adviser at KHC Wealth Management. “From the firm's point of view, it's critical that we establish that relationship now to preserve [those clients] later,” he added.

Those who tackle the younger client base do so because it will pay off in the long run — and they adjust their service offerings and pricing to accommodate these budding investors.

Stephanie Bruno, an adviser at an eponymous firm, has some clients whose wealth is tied up in their retirement plan and are unable to pay an asset-based fee. She charges them a quarterly fee or an annual retainer. Young couples generally pay no more than $2,000 a year for Ms. Bruno's services on retainer, which include financial planning, education and guidance on investing within the client's 401(k).

Laying down that planning groundwork now is a win-win for the future of the practice and the younger client.

“A lot of my clients are going to die or retire at some point, and I need to replace them,” Ms. Bruno said. “Younger people are the ones getting the jobs: People are hiring 35-year-olds, not 50-year-olds.

Time and resource management also are important for advisers hoping to work with these young clients. Mr. Paglioni is preparing a 22-year-old junior associate to work with Millennials as soon as he wraps up his CFP coursework.

“By the time he's 25, he'll be working with his generation; his contacts either from school or through his family,” said Mr. Paglioni. “And we'll start him on the path to reaching out to our clients' children and introducing himself.”

Mr. Koesten is in the process of adjusting his service model to handle younger clients, providing a combination of education and advice that can be provided remotely via WebEx or phone. About half of the firm's clients don't live anywhere near the firm. “We try to see those more well-heeled clients once or twice a year, which is impossible to do with a younger group that isn't as wealthy,” Mr. Koesten said. He also plans to build up his web presence with blogs.

A final word of caution: With younger prospects, you never know which ones will hit the big time and become the millionaire next door. In 2011, there were 8,100 filers under age 35 who made more than $1 million in adjusted gross income, according to the Internal Revenue Service.

Indeed, Mr. Paglioni's firm received an Internet query from a couple in their early 30s — a teacher and a stay-at-home mom — who had a total inheritance of $10 million in assets.

“They have this wealth they inherited and needed help managing it,” he said. “If you didn't know anything else about them, you'd think they were as middle class as toast.”


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