What do Advisors Get Wrong about Young Clients?

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To the industry’s older generations, millennials can seem difficult to understand. But some of the industry’s youngest advisors realize that these potential new clients are worth getting on board.

What do financial advisors get wrong about millennials?

‘Virtually everything,’ jokes Aaron Schaben, executive vice president at $6.9 billion RIA roll-up Carson Group.

His firm has already spent $52 million investing in its technology stack, and it plans to spend $80 million more by 2020. However, that investment isn’t just about attracting clients from the generation that everyone seems to love to hate.

‘The first thing the industry gets wrong about millennials is the idea that to grow your business, you have to attract the next generation,’ 32-year-old Schaben explains. The real key, he says, is delivering a client experience that works for every age group.

‘If you’re able to do that, you’re not only going to keep the $19 trillion of baby boomers’ assets that are going to continue to grow, but because you have that experience, you’re going to attract the next generation too.’

Schaben’s firm has already spent plenty of time learning how the millennial mind works. It organizes regular sit-down sessions with an advisory council of millennials from various professional backgrounds, with the next one coming up in December. The aim is to go right to the source and ask younger investors exactly what they want out of their relationship with their advisor.

The answer, Schaben says, isn’t much different from what the firm’s older clients say. Millennials want comprehensive financial planning too.

‘Our clients – millennials included – aren’t saying “I want to buy this stock, I want to sell this stock,”’ he says. ‘The conversation is “I’m going to buy my first house. I’m expecting my second child. My parents are going through X, and I may have to care for them later in life. How do I prepare for these things?” Those are the things that are more meaningful to them and will add value, and they see that.

The next wave

Market sentiment indicates that advisors expect millennials to make up a bigger part of their client base in the near future. A survey by TD Ameritrade in May indicated RIAs estimate that baby boomers currently make up 46% of their client base, while millennials account for just 9%. However, those same advisors expect millennials to make up 14% of their clients in five years’ time, at which stage baby boomers will represent 43% of their clients.

So how are RIAs preparing? Some, like Carson Group, are making investments in their technology and user experience. For example, Rose Capital Advisors, a $300 million firm in the Miami area, is developing its own robo advisor for the children of its legacy clients and for independently wealthy millennials.

‘Our goal is to help the millennial generation fully grasp the core financial process and make it an exciting task, rather than a daunting thing that you put to the side for a while, which means you’re not financially prepared in the future,’ says 24-year-old David Storch, an investment associate at the firm.

Rose Capital Advisors also goes one step further to help demystify the process. It holds monthly calls with second-generation clients to see how things are going, and it is in the process of rolling out a counseling program under the ‘Pioneer’ brand name to educate clients’ children about the basic concepts of personal finance and investing. The program includes everything from an introduction to the lingo of the markets to basic lessons on budgeting, risk management and retirement planning.

‘When you graduate from school and get your first job, so many things are thrown at you,’ Storch says. ‘Bills, your work retirement plan, saving, budgeting, doing your investments – there’s a ton of components there. When you take a step back and breathe, it’s pretty easy to pick it all up, but you need to have the right program to do so.’

New boomers

Of course, it’s worth considering that the millennials that RIAs are already advising may not be totally representative of the age demographic in the US. Although many millennials are burdened by student loan debt – the St. Louis Fed estimates there is about $1.5 trillion in student loan borrowings on the books across the nation – that’s not usually a concern for the children of high-net-worth clients or newly affluent millennials working in tech or finance jobs.

‘Because I’m working in tech, my clients are fairly affluent. It isn’t the typical millennial client,’ says Evan Schmidt, a vice president at $400 million Bay Area RIA Schmidt Financial Group. ‘My clients are wealthy or are coming into a good bit of wealth. They’re young, so they may not have the financial sophistication of someone who is 50 or 60, but they’re generally pretty highly educated. They’re taking it seriously. It’s more money than they’ve ever had in their entire life, so they want to make sure they manage it well.’

The main challenge for RIAs trying to attract millennials may be crossing the wealth gap – or the perception thereof – and convincing them that they are a better option than low-cost robos such as Betterment. While some firms such as Ritholtz Wealth Management have their own robos, others are trying to democratize access to face-to-face advice. Carson Group, for example, has no account minimums.

‘It’s one of the perception issues of our profession,’ Schaben says. ‘The traditional advisor thinks, “This is the son or daughter of a large client, so I have to do more for them.” That kind of thinking holds advisors back from delivering great service to a millennial or someone who’s creating wealth, who may not have the money or the assets of their parents.’

CityWire USA

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