Twenty years ago, investment adviser Greg Merlino woudn't take on clients unless they had at least $250,000 of investible assets. For one young man, however, he made an exception, and it turned out to be one of the best decisions he ever made.
Mr. Merlino, whose firm manages $75 million, put the 30-year-old client on a systematic savings program. Today, the client holds the biggest chunk of the assets the adviser manages — $25 million.
“If I told him he didn't meet my ideal situation, he never would have grown into this great client,” Mr. Merlino said. “I thought this guy would be successful, but I didn't think he'd turn into the type of client he is now.”
Many advisers don't market their services to younger people, because working with them is not as profitable as handling money for middle-age and older individuals. Those advisers who do relax guidelines on minimum assets often put young clients through a rigorous screening process and establish different fee structures and protocols to make sure they can still make money while satisfying their clients' expectations. The hope is that these customers will thrive financially and eventually can be treated like other clients.
To determine whether a young client has the potential to increase his or her net worth substantially, pre-screening is a must, said Brian Peardon, a wealth adviser at Harrison Financial Group, which manages $200 million in assets. His firm turns away younger clients who don't want to be coached and who don't meet savings requirements.
SUPER SAVERS
Evan Shear, a certified financial planner and branch manager for The CrossleyShear Group, which manages $300 million, sets aside his firm's $200,000 minimum requirement for younger clients if they are willing to save about 20% of their earnings a year.
“My view is [that] someone who is 30 and has the ability to put that money away will be one of my best clients by the time they're 50,” he said.
Advisers who do take a chance say their young clients are open to being coached.
“Ultimately, they follow our advice to the T more so than clients of other age groups,” said David Hefty, chief executive of Cornerstone Wealth Management, which manages $125 million in assets. “They're more engaged in terms of wanting to build the financial plan and follow the plan.”
Still, Mr. Hefty concedes that taking on these younger clients often means spending extra time with them, dealing with such matters as student loans, tax-planning, mortgage-financing and estate-planning issues.
Accepting the fact that these clients may take more of an adviser's time also means accepting the fact that advisers may not earn much profit from these clients in the near term, said Chris Michalak, a principal at Moneta Group, which manages $7.2 billion in assets.
'ONE RELATIONSHIP'
Mr. Michalak said his firm takes on young clients, regardless of the size of their investible assets, if they are the children of older clients. “If they're the children of current clients, there's not a lot we can do,” he said. “We tend to look at the family as one relationship.”
“Some years, it'll be extremely profitable, and some years, you'll lose money with these relationships,” he said.
Mr. Peardon said the only way his firm can devote attention to these younger clients is to develop a less costly way to serve them. While his firm offers its younger clients the same services it does the older ones, it has discovered that most of the former prefer e-mail and demand fewer office visits, which reduces the firm's costs.
“We've been able to reduce the time and money so that everything is operating more efficiently and we can get a profit from this age range,” he said.
Mr. Merlino offers clients who don't meet the firm's minimum-assets guideline a pared-down version of a financial plan, which ordinarily costs up to $8,000, and charges commissions rather than asset management fees.
Having a cost-effective system of working with younger clients is essential, agrees Don DeWaay, founder and chief executive of DeWaay Capital Management, a registered investment advisory firm, and DeWaay Financial Network, a broker-dealer. The two firms manage $900 million in assets.
His firm's younger advisers build their practices by working with younger clients.
“The problem with younger clients is [that] seasoned advisers don't have the time or interest to work with these people,” he said. “These young investors aren't getting compromised by working with younger advisers, because they have backup from more seasoned advisers.”
NOT THEIR DAD
Younger advisers also often have more in common with younger clients, said Justin Smith, 29, an adviser with Jonathan Smith & Co., which manages $23 million in assets. The firm belongs to his father, but he oversees the younger clients.
“I can sit down and have this conversation with them, and they don't feel like it's their dad telling them what to do,” he said. “I tend to enjoy it. I know if we can get these clients thinking like they should about markets and investments, they're going to be our easiest clients in 10 to 15 years.”
One adviser who targets younger customers said he has reaped unexpected dividends from his relationship with them.
“When I decided to go into this market segment, I was reading in books that it's hard to make a living in this segment,” said Lyman Jackson, president of Jackson Financial Management, which oversees $12 million. “And certainly there's a lot of truth to that.”
“But many of these young families have referred us to their parents,” he said. “Just in the first two months of the year, we got two sets of parents referred by younger clients. You start serving other family members if you're doing a good job for people.”
E-mail Lisa Shidler at [email protected].
Hilary Johnson contributed to this story.
