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Advice for Younger Investors

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Orange County’s financial advisers are seeing an emerging opportunity to serve young investors.

It’s a niche filled with individuals worried about how to balance today’s debt load with future-focused investing.

“Young investors need financial guidance more than ever,” said Sandy Gage, senior vice president and senior financial adviser at the Brea office of Merrill Lynch Wealth Management, part of Bank of America Corp.

Gage works with high-net-worth individuals and in 2010 was among the top 100 women advisers as ranked by Barron’s magazine.

“Many young investors are trying to afford large purchases such as first-home purchases … along with balancing student-loan debt and other incurred life debts,” she said. “Our society got caught up the past several years, overextending, overleveraging. There’s a lot of fear out there among young people.”

Challenges

It can be tricky helping individuals in their 20s and 30s—broadly categorized as Generation Y and the tail end of Generation X—as they may not have enough assets to fit the typical client profile for wealth managers.

Jason Romano, a partner at the Irvine office of Seattle-based Moss Adams Wealth Advisers LLC, calls the group of young investors “underserved” at a time when “traditional Wall Street firms may not be in a place to help them, and they’re almost being forced in the direction of doing it themselves.”

One way Moss Adams has engaged younger investors is through a flat-fee program.

“That can allow a young person to start a relationship with a financial planner,” Romano said. “We work with young families, people in their 20s and 30s, starting out and realizing that they don’t have the knowledge necessary to lay the foundation for a good solid financial plan. We’re telling the client, ‘You have access to us for a year for this flat fee.’ ”

The wealth-management arm of San Francisco-based Wells Fargo & Co. provides a set of tools that are designed to help users set and prioritize financial goals.

“Our clients, whether in their 20s, 30s or even older, they’re working on some of the same problems,” said Michael Villanueva, senior regional brokerage manager and senior vice president for Wells Fargo Investments, based in Newport Beach. “The first thing we want to do with [them] is goal-setting.”

A program branded as Envision had been on Wachovia Corp.’s advisory platform, Villanueva said, and Wells Fargo absorbed it when it acquired the Charlotte, N.C.-based bank in 2008.

“The program is nothing we just made up—it’s been tested, it works and it’s had nice success,” he said. “You’re never too young to start that process. It is simple in concept, but a lot of people don’t walk through it. And once you set those goals, it’s like a permanent rough draft. It’s important to revisit them and track them.”

Current market dynamics have played a part in putting investors in defensive mode, as the economy is still recovering from the setback in 2008. Young investors have seen how the market punishes savers, unlike in decades past, said Surya Metzler, cofounder of Newport Wealth Advisors.

“Before, if you were risk-averse, you could still be rewarded,” Metzler said. “You could go to the bank and a [certificate of deposit] paid you 12%. Now, you take money to the bank, you get 1%. With inflation, Gen X and Y aren’t going to have much left from that.”

Most Newport Wealth clients are retired or are about to retire, he noted.

SOFA

“At the end of the day, Gen Y and Gen X aren’t ideal clients for us,” Metzler said. “But we definitely see the need to help them, and that’s why we donate our time to [the Society for Financial Awareness].”

Metzler is a member of the San Diego-based nonprofit organization, which has an OC chapter in Mission Viejo.

“We do a lot of these SOFA presentations,” Metzler said. “We do complimentary consultations, where we sit down with them and have 45-minute discussions. This private appointment allows for individual needs to be met.”

Generations X and Y face issues that older generations haven’t had to deal with, including a relatively larger burden of responsibility and higher debt ratio, he added.

“Generations before—their parents and grandparents—they knew they could count on social security and pension,” Metzler said. “Those have disappeared. Social security is financially not stable based on current funding and expenses. So Gen Y and Gen X are counting less on that and less on inheritance. They understand that they might solely be responsible for their future.”

A recent study by Scottrade Inc. showed half its clients aged 18 to 44 maintaining the same risk profile this year as last. About 30% of the age group is taking less risk.

“They are a cautious group,” Scottrade spokesperson Whitney Ellis said.

The Irvine location of the St. Louis, Mo.-based retail brokerage firm is among the handful of self-directed investing platforms on this week’s Business Journal list.

Those also include the Costa Mesa office of New York-based E*Trade Financial Corp. and the Irvine office of Omaha, Neb.-based TD Ameritrade Holding Corp.

“The do-it-yourself firms provide a reasonable service to small investors, who over time will grow,” said Rod Hagenbuch, retired executive of Merrill Lynch who counts more than 40 years in the securities industry.

Hagenbuch is cofounder of Los Angeles-based consulting firm Quantum Leap Institute. Financial advisers should pay close attention to clients’ children, he said.

“Good advisers will spend time paying attention to kids,” Hagenbuch said. “Advisers are expensive. There are going to be hurdles for young people to get one-on-one service with an adviser. But good advisers will say to existing clients who have significant assets, ‘I’m going to take care of your money, take care of your kids and grandkids.’

“Even if there’s not a whole lot of money, kids are going to be involved eventually,” he added. “You’re solidifying the relationship with the whole family.”

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