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Ignore Generation Y clients at your peril

Young people need financial planning guidance; present opportunity for long-term relationships.

You might want to think twice about turning away those Gen Y financial planning prospects. It could be a bad business move.

Sure enough, it happened to me. My husband and I decided we would search for an adviser, ideally someone specializing in plain-vanilla financial planning and taxes. Last month, we thought we found “the one,” a fee-only adviser and certified public accountant in New York who was referred to us by a colleague.

Unfortunately, we ended up burned after we scheduled an introductory meeting and he stood us up. Two weeks and many apologies later, the adviser botched the rescheduled meet-up when he failed to tell us he couldn’t make the appointment because he was out sick. We received no warning from the office and found out only after I checked in with his receptionist that morning.

HIS LOSS

The whole episode was an exercise in frustration, but we came to realize that the real loss was on the part of our almost-adviser: The opportunity to establish a trusted financial planning relationship that could last for decades was there for him, including a shot at helping us build our asset base and prepare us for life insurance planning as we start a family.

And now that opportunity is gone.

Standing at nearly 80 million strong, the Millennials — those born between 1977 and 1995 — present the next potential area of growth for financial advisers. Many of us are burdened by student loan debt — the average student borrower in 2012 owed $23,829, up 30% since 2007, according to Trans-Union LLC.

Still, older members of the cohort are in their early 30s, have been in their careers for a few years and are reaching a point when financial planning becomes pivotal.

“There’s a lot of opportunity, and not just from the young-professional side where you’ll have assets to manage in five or 10 years,” said Sam N. Paglioni, a partner at Integer Wealth Advisors Group LLC.

Advisers have shied away from younger clients for a number of reasons. Sometimes it’s a matter of just struggling to tap that younger audience. But other times, it’s because your typical 30 year old hasn’t reached his or her peak earnings yet and hasn’t accumulated sufficient assets to be a profitable client.

“Advisers wax poetic about getting rid of the bottom 20% of their clients,” said Nicholas W. Stuller, chief executive of Meridian-IQ. “Long-term, it sends a bad signal. These younger investors will be caregivers and trustees one day.”

“If you don’t bring them into the conversation now, while they’re in their 20s and 30s, they will replace you with someone else when their parents die,” warned Stewart Koesten, an adviser at KHC Wealth Management.

Stephanie Bruno, an adviser at an eponymous firm, has some clients whose wealth is tied up in their retirement plan and are unable to pay an asset-based fee. She charges them a quarterly fee or an annual retainer. Young couples generally pay a retainer of no more than $2,000 a year for Ms. Bruno’s services, which include financial and college planning, and guidance on investing within the client’s 401(k).

REPLACING CLIENTS

“A lot of my clients are going to die or retire at some point, and I need to replace them,” Ms. Bruno said. “Younger people are the ones getting the jobs. People are hiring 35 year olds, not 50 year olds.”

Time and resource management also are important for advisers hoping to work with these young clients. Mr. Paglioni is preparing a 22-year-old junior associate to work with Millennials as soon as he wraps up his certified financial planner coursework.

“By the time he’s 25, he’ll be working with his generation,” Mr. Paglioni said. “And we’ll start him on the path to reaching out to our clients’ children and introducing himself.”

Mr. Koesten is adjusting his service model to handle younger clients, providing a combination of education and advice that can be provided remotely via WebEx or phone.

“We try to see those more well-heeled clients once or twice a year, which is impossible to do with a younger group that isn’t as wealthy,” he said.

A final word of caution: With younger prospects, you never know who will become the millionaire next door. In 2011, 8,100 filers under 35 made more than $1 million in adjusted gross income, according to the Internal Revenue Service.

Indeed, Mr. Paglioni’s firm received an Internet query from a couple in their early 30s — a teacher and a stay-at-home mom — who had a total inheritance of $10 million in assets.

“They have this wealth they inherited and needed help managing it,” he said. “If you didn’t know anything else about them, you’d think they were as middle class as toast.”