Don’t fear millennials

HENRYs who carry debt will probably become your best clients

Here’s something to think about: Some estimates peg the cumulative student debt in the U.S. at $1.5 trillion — second only to mortgage debt — with the average college graduate starting their working lives $25,000–$30,000 in the hole.

No wonder advisers aren’t rushing to sign up millennial clients.

It’s a double-edged sword: Many recent grads don’t think much about investing while they’re still carrying sizable debts, while many advisers tend to avoid clients who don’t have significant investible capital. In fact, our most recent Independent Advisor Survey showed that only one in five advisers are catering to so-called HENRYs (High Earners Not Rich Yet) — people who may have high-paying jobs, but also may have debt or minimal assets.

In a way, it’s understandable. After all, who wants to spend time marketing to clients with little money to invest?

But in a world where financial advice is increasingly commoditized, targeting millennials and showcasing your ability to help such clients manage debt while investing for the long term can set you apart from the crowd — and give you an edge in a budding segment of the market that could be the foundation of your advisory business in a few short years. The key is to address the elephant in the room right off the bat — their overwhelming debt, and fully integrate it into your marketing efforts and conversations with millennial clients.

Here are three ways to begin transforming debt-laden millennials into great clients:

1. Get their full financial picture.

2. Consider alternate fee structures.

3. Education and outreach.

Debt can influence investment decisions, so looking at the client’s full balance sheet is critical. Tools like account aggregation allow you to bundle everything from 401(k) and traditional brokerage accounts with student loans and other debt to create a complete financial picture. (As a bonus, these tools allow clients to do some of the work themselves, freeing up the adviser.)

Of course, every client is unique. In some cases, it may be better to pay down debt aggressively. In others, paying it down more slowly, while simultaneously investing, may be a better option. In terms of investments, it may be worthwhile to start HENRY-type clients with simple portfolios that require very little maintenance — less AUM, but also less legwork on the adviser’s end. When it comes to fees, it could even make sense to consider a subscription model. Initially, the client is charged an annual fee, then, when AUM increases, you can switch to a more traditional asset-based fee structure.

Education is essential in helping debt-strapped millennials learn how to spend less when paying down loans, but keep in mind that a two-hour seminar in a lecture hall might not appeal to them. Like other demographics, millennials are more likely to appreciate initiatives that complement their lifestyle — think in terms of a “cocktails and conversation” event.

Finally, proactive outreach to current clients’ children is just as essential as educating nonclients. Plan ahead: Statistics show that the overwhelming majority of children leave an adviser after the primary family contact passes away. The best way to add value to your business is by getting to know all the members of the household and laying the groundwork for future relationships early.

By taking the approach outlined here, advisers can ensure they are meeting millennials on their turf and focusing on initiatives that will have the highest ROI for this demographic.

The most important thing to remember is that putting forth this targeted effort now can return outsized dividends later. Think of it in terms of two larger, interconnected principles that all advisers should keep in mind: servicing the needs of an entire household and ensuring longevity.

So, don’t overlook millennials carrying debt. They’ll probably be your best clients before you know it.

Lindsay Faussone is vice president of strategic business development at E*Trade Advisor Services.