Unlikely Clients

The new client sitting across from Sheryl Garrett was frustrated. There had been so many good opportunities to invest in the stock market over the past several years, he said, but he didn't take advantage of them. Could Garrett help him put together a plan? The client was only 27."When I was 27, I was just starting to think that maybe an IRA would be nice to have," says Garrett, a baby boomer generation

The new client sitting across from Sheryl Garrett was frustrated. There had been so many good opportunities to invest in the stock market over the past several years, he said, but he didn't take advantage of them. Could Garrett help him put together a plan? The client was only 27.

"When I was 27, I was just starting to think that maybe an IRA would be nice to have," says Garrett, a baby boomer generation investment adviser in Overland Park, Kan. "The younger generation is doing the right things about planning their financial futures right out of college."

It wasn't supposed to be that way. As the first wave of generation Xers came of age in the mid-1980s, experts labeled them cynical slackers. Garrett says she expected to be dealing with "spoiled brats" when her first gen X clients came through the door. Now she has a better description. Gen X investors, she says, are optimistic and opportunistic. They desire financial security and aren't shy about asking for help to achieve it.

"They're much more committed to retirement savings," says Phillip Cook, a CFP with Financial Network Investment Corp. in Torrance, Calif. "Boomers had to buy their Mercedes first."

Cook, a 25-year veteran rep, has gen X clients because they sought him out. Many met him in networking groups or found his name on the Internet: Cook is the president of his local Institute of Certified Financial Planners chapter, which has a Web page. "These people are finding that all the financial information on the Internet hasn't given them more knowledge," he says.

In large part, gen X clients are motivated to plan because of their employment situation. They worry about job stability and expect to have a variety of careers. "I have one self-employed man around 30 who said to me right away, 'I want to plan my finances right. Tell me the next step,'" Cook says. "It's refreshing."

Stephen Spector says that young investors come to him well-informed about personal finance, but are confused about what to do. "They know what their goals are, but don't know what they want to do with investments," says Spector, a 16-year rep with Prudential Securities in Boston. "They want a blueprint for their plans." For that reason, gen X prospects accept his role as fee-based adviser more readily than their parents do. "The older generation is used to needing someone to get them information and handle execution," he says.

New Mind-set The opportunity to serve investors with a different mind-set attracted Garrett. She left a financial planning practice of high-net-worth investors to focus on gen X. She'd grown tired of turning away people she wanted to work with who didn't meet the firm's minimum assets. She also couldn't find other planners willing to take on young investors.

In January 1998, Garrett opened a fee-only investment advisory firm with an hourly rate structure. Unlike baby boomer clients who love handing off management of their portfolios, younger clients don't want to hire someone on an ongoing basis, Garrett says. "These young clients want to know once a year they can meet with me three to four hours to review their plans, and that I can be available if something changes and they need to call me," she says. Half of her referrals come from other financial advisers.

Garrett spends lots of time strategizing with gen X clients. Their attitudes seem to reflect their grandparents' sensibilities, she says. Like the World War II generation, they prize financial security, handle credit wisely and are committed to building their communities.

Yet they view the future far differently. "They laugh when I ask when they want to retire," Garrett says. "They think of life as a series of transitions. 'From now to age 40, I'll do this job, maybe then I'll run my own business.' I have a young engineer who wants to run a bed-and-breakfast inn. We're planning to have him retire at 55, then do the bed-and-breakfast for 10 years."

Reality Checks Although gen Xers are aware of financial planning's benefits early on, they are still young enough to lack perspective about the market. That's were savvy reps can help.

Spector says that his gen X clients aren't aggressive investors. They have 401(k)s, but have far too little in stocks. However, the task is not to get young investors in stocks, Spector says, but to get them to understand the long-term realities of stock investing. "They don't feel they need to deal with a possible bear market," he says.

To better educate these young people, Spector picks a period of time in which the market went down. He asks: "What would a 100,000 dollar portfolio have been worth in two years during this time? How would you feel if you saw this on your monthly statement?"

Paul Hrisko says he's surprised by how little gen X investors understand investing despite having read so much about it. "They particularly need help with risk management," says Hrisko, an affiliate with RIA firm Independence Capital in Cleveland Heights, Ohio. They're likely participating in a 401(k) plan, but can't answer what their allocation is. "I've seen where they have 50 percent in bonds or everything in company stock," he says. "I tell them that even though their time at this company may be short, their investment life is long. I show them stock charts over the past 60 years."

One 22-year-old single man came to Hrisko with a 200,000 dollar inheritance. "I sat him down and said, 'You have a rare opportunity to set money aside and let it grow. See the gray hairs on my head? Someday you'll have them.'"

Young Money Reps may ignore gen X clients thinking their asset levels don't warrant attention, but they do so at their own peril. The booming economy has made gen Xers the beneficiaries of rich estate plans while it's made others their own fortune early on.

About 10 percent of Spector's clients now are under 35 years old. They come to him largely as a result of his estate planning for their parents. The pre-retirees realize their children will be managing the estate plans Spector created for them. Some tell their children to call him and some participate in estate planning meetings.

Forty-two-year-old Dana Jackson targets a lucrative niche within gen X. He helps young Silicon Valley engineers manage new wealth that, in some cases, already tops 20 million dollars. Like other gen X investors, this group doesn't like to be sold things, says Jackson, a broker for the past five years with Salomon Smith Barney in Menlo Park, Calif. They value a financial adviser's recommendations as long as they feel they're participating in them. "They look at me as an educator to explain their options," he says. "Their idea of the future, though, is next month and everything must be done yesterday."

Clients mainly need help navigating their stock option plans and diversifying their portfolios away from heavy concentrations in company stock. At that point, Jackson says, they're open to creating an overall financial plan.

So far, Jackson says he finds no interest in estate planning beyond setting up living trusts for children. "I do a lot of education about the market since they've never seen a bear market," Jackson says. "We look at the ups and downs in the past, but I don't think any charts and graphs will prepare them for a downturn."

Tough Customers Beware: Gen Xers have an independent streak. Hrisko says they ask questions more readily and are more open about their finances. But the same thing that brings them to advisers--a quest for knowledge--can also cause them to look elsewhere for help.

A series of studies by Dow Jones Newswires reveals affluent gen X investors aren't too happy with their financial advisers and are moving their accounts online. The 1999 Investor Satisfaction Study found 37 percent of gen X investors with at least 100,000 dollars to invest are doing online trading. That jumped from 29 percent in the 1998 study. Gen X is the only generation that showed increased online trading interest.

In 1998, on the topic of satisfaction with their brokers, only one-third said they were extremely or very satisfied with their brokers. That number jumped to 48 percent by 1999. But even though more gen X investors are happy with their brokers, they have a long way to go compared with other generations surveyed, says Larry Joyce, Dow Jones Newswires marketing director. Senior investors age 66 and over report satisfaction levels around 76 percent.

"If loyalty isn't built now," the study concludes, "generation X will potentially be lost for good." Brokers like Garrett, Spector and Jackson understand that and are making these up-and-coming investors their clients today.

Yes, says Internet analyst Stephen Cummings. The field of financial services holds great opportunity for young people like his son.

Dear Cole, It's a big world out there, my beautiful boy, and you can do anything you want. I truly believe it. You ask should you become a stockbroker? Hah! That term will fade in favor of "financial planner" due to dramatic technology changes. But no matter what your job title might be, the field of financial services will hold a lot of opportunity for you.

It took awhile, but brokerage firms have finally accepted that the Internet is here to stay. Merrill Lynch is leading the way in changing by introducing online trading. The industry will fully embrace the Internet and realize a great irony about it: What it feared most--that it would make brokers less relevant to investors--will never come to pass. Instead, because of the Internet, brokers will have more influence over their customers than they ever had before.

The Internet will create a myriad of complex investment vehicles with all kinds of objectives, such as intraday and real-time pricing options, currency settlement options and a slew of other things that will be mind-boggling. The complexity will drive people to brokerage firms, not away from them. People need to speak to other people who can help them sort through the clutter to makeintelligent investment decisions. The number of do-it-yourselfers is going to drop off dramatically as regular people go online with their investing. They just won't be willing to risk their life's savings without consulting a professional.

If you had to select one specialty in financial services, I'd say become a total planning expert. That's where people will really need the help. If you keep building client wealth uppermost in your mind, you'll build wealth by annuitizing your business and gain new clientele in the process. Financial advice will always be lucrative. Just learn everything you can from the old guys, but watch the new guys coming in.

As for which firm to work at, take your pick. The firms that will be around when you grow up will only be vestiges of those I know today, both in name and business. Look for PaineWebber Microsoft, Smith Barney Schwab, AOL Edwards, CitiAlliance or ME*rrill Lynch, among a very short list of others. It's fast becoming a tough margin business that will cause a lot of consolidation. I will say this, however: Always keep your eye on technology upstarts, and don't be slow to embrace new ideas.

You'll do well, Cole, whatever you decide.

Love, Dad

Stephen Cummings is a writer and editor at Financial Research Corp. in Boston. He specializes in analysis of Internet trends. His son Cole is 4-1/2 years old.

Generation X includes people between ages 22 and 33 and accounts for 16 percent of the U.S. population. They describe themselves as techno-savvy, aggressive, cynical and realistic. According to a Scudder Kemper survey conducted in early 1999, here are some other insights about these young investors.

What they're concerned about:

* 62 percent have credit card debt and 46 percent are very concerned about it. Credit card debt is equally common among boomers, but they're substantially less concerned about it.

* Half say debt is their greatest obstacle to investing for the future.

* 67 percent are confused by the saving and investing options available to them.

* 53 percent say the United States is headed for a recession.

How they invest:

* 71 percent regularly save some portion of income.

* 54 percent have established a financial plan.

* 76 percent say they have made or are making plans for a financially secure retirement, the same percentage as boomers.

* 88 percent want investment advice, the highest percentage of any age group.

* 46 percent have mutual fund investments.

* 53 percent contribute to a 401(k) plan, the same level as boomers.

What they think about their future:

* 85 percent say they'd want to choose how to invest a portion of their Social Security contribution, if it were privatized.

* 15 percent believe Social Security will be changed to ensure all generations get their fair share.

* Three-quarters expect to fund retirement through a mix of personal savings and 401(k) funds.

* Half say they'll get no benefits from Social Security.

* 54 percent believe their work will be faster paced in the future.

* 25 percent believe they'll own their own businesses and 16 percent say they'll be consulting or freelancing.

* Half believe retirement will present an opportunity to engage in a new career.

* 43 percent of them say they feel older than they are.

* 68 percent plan to have paid employment after retirement.

"Respect them. Make services available for what they're looking for. They don't want you to tell them what to do. Your role is consultant/ educator. Allow them to be part of the process."--Sheryl Garrett, Garrett Financial Planning

"Keep them growing in their understanding of how financial needs change. At annual meetings, I ask if any lifestyle changes are coming. I tell them that as they move through life, there are different stages of investment life, too. They're in the accumulation phase. I tell them I'll provide information on issues that will come up as they go through other phases of their investment life."--Paul Hrisko, Independence Capital

"Overservice them.They want speed and one-stop shopping."--Dana Jackson, Salomon Smith Barney

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