Wealth Management Firms Look to Millennials for Growth

As baby boomers age and start spending down their assets, U.S. wealth management firms are looking for ways to tap into the next generation of money.

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The so-called silver tsunami officially began in October 2007, when, to great media fanfare, the oldest baby boomer in the U.S. filed for Social Security from her home in New Jersey. According to 2013 statistics from the World Bank, 14 percent of the U.S. population is 65 or older — a proportion that stands to grow as more baby boomers age into senior citizenship. But, as evidenced by the last-minute push in late 2013 and early this year for younger, healthy adults to sign up for health insurance under Obamacare, Gen Xers and Millennials play a key role in feeding into and sustaining coffers for government programs.

Wealth management divisions inside banks and independent registered investment advisers (RIAs) are facing a similar demographic challenge. Just as the industry is top-heavy in 50-something advisers — who are at the younger end of the baby boom generation — the age of the client base is creeping ever higher, sparking concern about the decades to come as retirement savings are withdrawn without a sufficient number of new, younger clients to offset the outflows. Multifamily office practices focused on multigenerational wealth are structured to handle this demographic shift but are, by definition, a niche business within the wealth management sector.

The problem facing the industry is pronounced. According to the fourth annual State of Retail Wealth Management report from Toronto wealth management consulting firm PriceMetrix, released in March, the average age of wealth management clients in the U.S. and Canada in 2013 was about 61. For independent firms, the client base may skew even older. In a research study based on interviews with 720 independent wealth management firms released in June, Schwab Advisor Services found that 40 percent of clients at firms surveyed were retired and an additional 30 percent were within a decade of retirement.

At first blush, the solution appears obvious: Firms can focus a new generation of advisers on acquiring relationships with rising young entrepreneurs and executives to ensure a smooth pipeline for new assets under management in the coming decades. In a study from Boston asset management research firm Cerulli Associates, it was estimated that U.S. investors between the ages of 30 and 45 control $3.5 trillion in investable assets. Building relationships with this new generation of wealth may not be that simple, however. For starters, economic data suggest that the income gap between the affluent and nonaffluent in the U.S. is rising, as fewer workers make a larger share of the total. Separately, the data suggest that much of the wealth in the U.S. is heavily concentrated in a few key industry segments, including financial services and technology. Many advisers are thus finding marketing to the younger demographic to be a challenge. There are fewer individual families with wealth creators under the age of 50.

A second major stumbling block is the nature of industry compensation and a deeply ingrained management culture. Large wealth management firms typically operate on an eat-what-you-kill basis, whereas independents with a small team or a sole adviser need steady revenues to stay in business. “Hiring a young adviser is a very difficult thing to do in this environment,” says Mitchell Manoff, CEO of Corinthian Partners. “It’s hard to encourage them to build client relationships that won’t pay off for years to come.” New York–based Corinthian is a hybrid broker-dealer, asset management firm and RIA founded 18 years ago by Manoff and company president Richard Calabrese after the pair departed from the wealth management division of Lehman Brothers Holdings. The firm specializes in advising clients on alternative investments and providing direct access to investment-banking deal flow for ultra-high-net-worth families.

Although the majority of wealth management firms are maintaining the traditional approach, forcing advisers in asset-gathering mode to focus on clients who are edging toward retirement, some firms are facing up to the challenge by switching young advisers to base salary and bonus compensation models. Even then, however, passing up on lower-hanging fruit to build for the future can be difficult.

Paul Sydlansky, 37, is one such adviser who is wrestling with this quandary. After a 13-year career with Morgan Stanley — the majority spent working in the firm’s institutional equity prime brokerage department — Sydlansky transitioned into the wealth management industry two years ago. By joining an existing independent advisory practice in upstate New York that offered a base salary, he has been able to focus part of his marketing energy on building relationships with younger families by networking among start-up entrepreneurs through regional events. Still, it would be impossible for Sydlansky to operate without spending a large portion of his time pursuing older clients in order to generate sufficient revenues today. “You have to be able to earn a living, and that makes it difficult to build a client base that will be stable in 20 years,” he says.

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