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Meet Your Future Clients

Last November, Michael Domingo and his partner, John Hetzel, launched their own advisory firm in Dallas with their eyes on an unusual prize: 20-somethings without a lot of assets. Domingo, 36, and Hetzel, 30, had both spent about five years with Fidelity Investments and, much of that time, watched as family and friends in the 20-something group were rejected by financial advisors who served more affluent

Last November, Michael Domingo and his partner, John Hetzel, launched their own advisory firm in Dallas with their eyes on an unusual prize: 20-somethings without a lot of assets. Domingo, 36, and Hetzel, 30, had both spent about five years with Fidelity Investments and, much of that time, watched as family and friends in the 20-something group were rejected by financial advisors who served more affluent clients. So, they decided to take a leap of faith: Start a practice, Cadence Advisors, that would cater not only to the usual high-net-worth clients, but also to newbies looking for a jumpstart, charging them a flat fee or by the hour, instead of a percentage of assets under management. Says Domingo: “We're providing a platform for the younger generation.”

Domingo may be on to something. Studies show that today's crop of people in their 20's are unusually goal-oriented — and interested in financial planning. A recent study of about 5,000 MBA students, now in its 12th year, conducted by Universum USA, a consulting firm based in Philadelphia, for example, found that the majority of respondents were keen on “building a sound financial base” and on taking immediate steps to start the planning process. According to another recent study by Hewitt & Associates, a Chicago-based employee-benefits consulting firm, 63 percent of members of so-called Generation X, which includes people in this age group, are participating in their 401(k)s. They're doing almost as well as the baby boomers who are much closer to retirement: 72 percent of baby boomers contribute to their 401(k)s.


It all adds up to a ripe market for the smart advisor who knows how to cultivate the opportunity. That said, the 20-something population isn't an easy one to tackle. There's a good reason many practices turn away such clients. For one thing, the payoff isn't likely to be immediate — far from it. Indeed, it's tough to figure out how to make much money when you're serving clients who are far from their prime earning years, and it often requires untraditional methods. Then, you have to develop an understanding of the type of advice they need and the unique issues they face. And, because it's an Internet-savvy generation, you also must use technology in a way that appeals to their sensibilities and way of working. Still, “This group will, ultimately, make a lot of money,” says John Nersesian, managing director of Nuveen Investments in Chicago. “Working with them is an investment for the future.”

Why is this population particularly keen on financial advice? Quite simply, it's the economy, stupid. It's a generation that has come of age in an insecure economic climate in which the possibility of receiving much help from Social Security, or any retirement benefits at all, seems shaky, at best. “They've learned they have to take care of themselves,” says Ann Arnof Fishman, president of Generational-Targeted Marketing Corp., a New Orleans-based consulting company. One logical response to that lesson is to get started early on the process of planning their financial future.

The first order of business for the advisor trying to tap this group is deciding how to charge. Those who use a fee on assets under management, for example, may need to rethink that structure. The most likely solution is to follow Domingo's lead. He has what he calls a “modular planning service,” in which he addresses a specific financial issue for a flat fee or hourly rate, and then provides support for 30 days after he makes a recommendation. Similarly, Stacy Francis, who heads Francis Financial, a three-year-old firm in New York City also targeting 20-somethings, charges clients who fit a specific profile — young people with annual incomes and investable assets of under $100,000 — an hourly fee for three hours of planning work. She says she has a waiting list of potential clients interested in those services. In addition, she recently started charging a 1 percent fee on assets under management for more affluent accounts — for these, she produces longer, more comprehensive plans. “It's the difference between an a la carte menu and a six-course dinner,” she says.

Bobbie Munroe takes a slightly different tack. Munroe, a CPA who started her Atlanta-based financial advisory Fraser Financial in 1999, stumbled on the market for 25- to 30-year olds when she first opened her doors and ran across a series of young clients working for Internet companies who had recently made fortunes when they cashed in their stock options. Now, most of her clients are in that age group and she offers what she calls a “three-hour quick start.” Before their first meeting, she asks clients to fill out a lengthy financial questionnaire on her Web site and pick out three major issues to address. Then, she spends an hour evaluating the responses, and another two discussing them with the client.

What issues can you expect to encounter? In many cases, as you'd expect, you're helping to get them started: how to diversify their first 401(k) plan, for example, or determine the kind of insurance they need. “Many of them have their first jobs and they're completely overwhelmed,” says Domingo. Since close to 60 percent of college graduates use loans to foot their tuition bill, they're also likely to have a lot of debt and need help with cash-flow management. Some may also be interested in buying their first home. Munroe points to one couple, both around 30, making a total of about $200,000 a year, who first came to her a year ago when they were thinking of buying a house with an interest-only mortgage. She talked them out of it. Now, she works with them twice a year, to make sure they're on track. “They've said they need me to hold them accountable,” she says.

Munroe has only met those clients in person once — when the husband was flying through Atlanta, and she met him at six in the morning at the airport. Otherwise, all their interactions have been over the phone and via the Web. In fact, probably the biggest difference between working with this group and other clients is how technologically adept they are. Attracting and retaining 20-somethings requires a great deal of Internet facility on your part. Without it, you won't stand a chance. At a minimum, that means having a sophisticated, simple to use Web site. “If your site is not easy to navigate, they're going to say, ‘If they can't design something better than that, then they have no idea what I'm about',” says Fishman. “Your home page will be your new calling card with them.”

But, you should do more. Munroe, for example, uses a Web service that allows her clients and herself to view their accounts at the same time and do planning online. And make sure to find out just how they like to be contacted — via email or, say, text messages. In addition, be prepared for a steady stream of email contacts. So many individuals in this age group are accustomed to conversing online — constantly — with almost immediate response; they may expect the same from you.

Reaching Your Niche

Finding promising 20-somethings also requires some resourceful planning. If you're close in age to them, of course, you have a leg up. Domingo, for example, who plans to target older clients through seminars and referrals, thinks he can gather a critical mass of young accounts through personal contacts. “We're around this group all the time, both socially and professionally,” he says. Ginny Coyle, on the other hand, who is in her 60's and recently started her own commission-based practice, Ginny Coyle & Associates, in West Palm Beach, Fla., started teaching a marketing class at a nearby university, in part to generate future clients. You can also pinpoint successful or up-and-coming companies likely to produce promising prospects. Nersesian, for example, points to an advisor who researched businesses in his area, pinpointing one particular firm full of 20-somethings that he felt would probably be bought in the near future, and developing client relationships with people who worked for the company. It paid off when the firm was sold a few years later and one 28-year-old client became a millionaire almost overnight. Another possibility: If you handle company 401(k) plans, cultivate relationships with younger employees during your one-on-one sessions. And, of course, there's another approach: working with children of existing clients.

Still, you're not likely to get rich quick through these accounts. You might even need to be willing to swallow some costs you otherwise would pass on to clients. Take Doug Charney, senior vice president of investments for Wachovia Securities in Harrisburg, Pa., who handles the accounts of the young adult children of several clients. He doesn't even charge them the $50 account activity fee that he would normally have to demand of someone with an account value of under $250,000. As for Munroe, who only charges by the hour or a retainer, she says she's not making the kind of money she could with a different clientele.

At the same time, that's not the point. It's all about the future. “When these people turn 40, they're going to become my annuity,” says Munroe. Francis agrees, saying that one of her clients has already amassed $250,000 in assets over two years: “A lot of these kids are the will-be affluent.” In other cases, they may also bring in more immediate business. One 20-something client recently referred two partners from her law firm, each worth around $1 million in investable assets. The bottom line: If you don't attract these clients now, your competition soon will. So, isn't better to be the first to act?

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