BY MOREY STETTNER, FOR INVESTOR’S BUSINESS DAILY
Increasingly, investors in their 20s and 30s enlist an automated online service to help with financial planning. The robo-advisors give simple solutions to millennials’ needs.
Formerly the province of specialized investment platforms such as Betterment and Wealthfront, robo-advisors have gone mainstream. Firms such as Charles Schwab (NYSE:SCHW) and Vanguard have launched such services, and Fidelity plans to enter the fray in the coming months.
Where does that leave traditional financial advisors? Many of them seek to attract younger clients via a twofold strategy: distinguish themselves from automated investment platforms while offering a low-cost portfolio of online investment options to compete with robos.
Early-career professionals may not possess a sophisticated understanding of investment instruments, but they quickly grasp the role of fees in affecting their returns. That’s why advisors seek to show how their knowledge justifies their additional cost.
“(Millennials) know there’s a definite fee difference, so they ask us, ‘Is this worth paying for?'” said Brian Spinelli, a certified financial planner in Long Beach, Calif. “We tend to emphasize our wealth advisory expertise upfront rather than focus on fees on investments.”
When Spinelli meets young clients, he may address issues such as insurance, estate planning and whether they should buy property.
He wants to broaden their outlook so they assess their entire financial situation rather than dwell on picking investments at low cost.
“You don’t want to talk down to them,” Spinelli said. “So we say, ‘We will be your quarterback.'”
Tap Peer Networks
Whereas robo platforms often highlight low fees and automatic rebalancing of assets, Spinelli barely mentions investments in his first meeting with a millennial client. Instead, he starts by asking, “What are you trying to accomplish?”
Clients may want to save money or set a household budget with a new spouse. Based on the reply, Spinelli will draft a one-page road map for them. Assembling a diversified portfolio and setting the asset allocation comes later.
Spinelli’s firm, Halbert Hargrove, hires client service managers of the same age as the prospects they target. These managers tap their peer networks to woo clients.
Other firms follow a similar strategy of recruiting financial planners soon after they graduate from college or business school. These newcomers speak the same language as their peers, use the same technology and know how to connect with other millennials in an authentic manner. Young financial planners can thus win over their cohorts before they get wedded to robos.
At Mariner Wealth Advisors, new hires represent an “incredibly diverse” mix, says Brian Leitner, senior vice president of practice management at the Leawood, Kan.-based firm. For example, it recruited a former professional golf pro who knows other young athletes and even physicians who want to improve their swing.
Provide Extra Value
Some advisors find that attracting young clients can take patience.
That’s because millennials may give robos a test drive and enlist a full-service advisor only after concluding that they want more personal attention.
“I find that (millennials) usually are not as happy as you’d think with robos, especially after events like late August (when the market suddenly dropped),” said Brad Sherman, a financial advisor in Gaithersburg, Md. “They may not really understand the markets, so they may need someone like me to give them behavioral advice so that they don’t sell everything on their own” during a sudden downturn.
Sherman, 35, relates well to young professionals. He’s comfortable on Google Hangouts or Skype, and he freely shares his experience in getting married, having a child, buying a home and dealing with student loan debt.
“They want someone who’s been there and who can give them guidance,” he said. “They want a collaborative process.”
Millennials may seek him out when they face complex financial planning needs such as drafting a will or saving for a child’s college education. And they can tap his network of professional experts.
“At 30, they don’t have a relationship in the community with accountants, realtors, mortgage lenders, estate attorneys,” he said. “They need someone who can refer them to the right resources.”
As young people navigate their careers, enterprising advisory firms can further distinguish themselves from robos. At Mariner, advisors counsel young clients weighing their job options.
“Helping them evaluate whether to take a job is part of what we do,” Leitner said. “There might be tax, income, housing considerations. It’s all part of the softer side of what we provide.”
