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 "My personality doesn't lend itself to being the sort of person who
would research good wealth managers and then trust them with making
decisions. I don't want to spend any time thinking or caring about
that," said Gungor, who grew up in Turkey and Finland before moving
to the U.S.
He and others of his generation are posing a challenge for wealth
advisers who are streaming into Silicon Valley and San Francisco
after the public stock offerings of companies such as Facebook,
LinkedIn and Twitter helped California create more millionaires than
any other U.S. state since 2009.
But even as traditional financial firms battle for office space and
seek out new customers, they're finding that the pickings aren't
easy. The youngest winners of the thriving tech economy, many of
whom came of age during the last financial crisis, aren't often
interested in the ideas that attracted clients in the past. Nor are
they fans of the old-school model of letting a financial planner
make decisions with minimal client input.
In response, traditional advisers are changing the way they
practice. They're finding that young clients need help with
lifestyle issues ranging from how to give money away to how to deal
with old friends who are jealous of a sudden tech windfall. And they
are giving clients more of the hard data behind their decisions than
they might with clients who inherited their fortunes or built them
up over time.
Debra Wetherby, an independent adviser whose Wetherby Asset
Management manages about $3.6 billion in assets, has fielded
questions from young, single workers about when and how to tell
potential spouses about their fortunes. Christine Leong Connors, who
heads JPMorgan's Palo Alto office, has talked with tech clients
about how to donate money effectively when their own net worth is
larger than the charity they are giving to. And Michael Williams, a
UBS Wealth Management Americas branch manager in San Francisco, has
found himself courting potential clients whose paydays are so far
away that they're still pulling all-nighters and sometimes sleeping
in their startup offices.
It's all part of an attempt to appeal to a new demographic of money.
The youngest members of Generation X and millennials are the most
likely to say that they are dissatisfied with their wealth adviser,
according to a report by the Spectrem Group, a market research
company in Lake Forest, Illinois.
"The industry is not in alignment with folks who are very tech
savvy, and it's an industry that is trying to catch up," said George
Walper Jr., the president of Spectrem.
CALIFORNIA MONEY
Nowhere is the collision between new money and the old-line business
of wealth management more on display than in California. Firms like
Barclays, Goldman Sachs Group Inc, Bank of America Corp's Merrill
Lynch and JPMorgan Chase & Co have all expanded their Bay Area
operations as firms like Facebook have gone public and the shares of
more mature firms like Google have hit all-time highs.
In the three years since JPMorgan opened an office in Palo Alto, the
heart of Silicon Valley, its headcount has swelled to 30 advisers
from six. When combined with its sister office in San Francisco, its
number of advisers in Northern California has grown by 50 percent,
to 110 people, since 2012.
The firm created separate teams based on how clients have built
their wealth, said Jeremy Geller, the head of JPMorgan's Private
Bank business in Northern California. Unlike other teams which may
be more focused on investment ideas, the tech-centered team works on
anticipating the personal financial consequences of one-time events
such as a startup getting another round of funding, going public or
selling the business altogether. Advisers discuss with young clients
such issues as when to start selling a personal stake in a business,
Geller said.
ADVISERS TRY TO ADAPT
Advisers say they are working to adapt to the needs of tech workers
who are skeptical that the wealth management industry offers much
value.
Wetherby, 56, the independent adviser, finds herself having more
conversations with clients who are unsure of how to handle their
newfound fortunes at a time when income inequality is a larger part
of the national conversation.
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"For many of them, this is something that's private and new and
separates them from their existing social group," said Wetherby.
"It's a big adjustment and so a lot of them are trying to be quieter
about it."
She also appeals to new clients by promoting so-called social impact
investing, which tries to make money while also doing some social
good such as buying shares in a company in the clean water business.
Darell Krasnoff, a partner at Los Angeles-based Bel Air Investment
Advisors who plans to open a San Francisco office for the firm by
the end of the year, said that the approach he takes with wealthy
tech clients is similar regardless of their ages. He has won new
clients like Kamran Pourzanjani, he said, by creating data-heavy
custom reports that appeal to tech workers more comfortable with the
language of numbers.
After the firm he co-founded, PriceGrabber.com, was acquired for
about $500 million in 2005, Pourzanjani, 54, spent 8 years bouncing
between financial advisers who did not present enough data to
convince him. He eventually signed on with Bel Air, in part because
Krasnoff was able to provide custom spreadsheets that allowed him to
have faith that Krasnoff's plans were solid.
The idea of trusting a financial adviser with his wealth after
spending years as an entrepreneur making all of his own decisions
was a "giant leap," Pourzanjani said. "That's definitely a struggle
for a lot of people" in the tech industry, he said.
NEW COMPETITORS
Wealthfront, a private company that has received funding from DAG
Ventures and other venture capital firms, represents the other end
of the spectrum of personalized advice. The company counts Burton
Malkiel, a Princeton professor whose book "A Random Walk Down Wall
Street" helped popularize passive investing, as its chief investment
officer, a role that chiefly focuses on evaluating asset classes and
allocation strategies that underpin the firm's automated process.
About 60 percent of its clients are under the age of 35, and it
charges a fee of 25 cents per $100 invested for its services, and
levies no fees at all for accounts under $10,000.
Both Wealthfront, and its competitor Betterment, are heavily
courting young workers whose memories of the financial crisis make
them skeptical that anyone can have insights into where the stock
market is headed. So far, that message has been resonating with its
clients.
"Unless you're at the stage and scope that you need to be playing
crazy tax games, it doesn't make sense to talk to a wealth manager,"
said a young Stanford business school graduate whose company was
acquired by a large technology company last year. He didn't want to
use his last name because he didn't want to draw attention to
himself.
Adam Nash, Wealthfront's chief executive, used to work at both
LinkedIn and eBay and said that his clients are mostly found in San
Francisco, New York, and other places where "young people are able
to make money."
They tend to put more trust in technology than in people, Nash said.
"They don't really believe that a person is going to be watching
their money 24/7, but they believe that a computer is," he said.
(Reporting by David Randall. Editing by Linda Stern and John
Pickering)
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