Rich Millennials Don’t See Value In Wealth Management Firms
Wealthy young investors would rather pick their own stocks or plough their money into crypto.
Wealthy young investors would rather pick their own stocks or plough their money into crypto.
Michael Martocci, a 26-year-old startup founder, ignores the golf invitations and other solicitations from the Goldman Sachs Group Inc. financial adviser trying to land him as a client.
Eighteen holes isn’t particularly appealing to the Miami-based Mr. Martocci, and neither is paying for financial advice. Instead, he oversees his hundreds of thousands of dollars in investments himself. He funnels 90% of his money into cryptocurrency. To check his stocks, he pulls up Robinhood Markets Inc. on his phone.
“It’s easy to manage US$500,000, $1 million yourself,” said Mr. Martocci, who says he spends less than an hour a week monitoring his investments.
More rich young investors are opting to go without a traditional financial adviser. Instead, they are betting they can get good-enough investment options from do-it-yourself digital platforms that are cheap and easy to use. Many also want to invest in riskier assets, like cryptocurrencies and tech startups, that mainstream advisers often don’t offer.
About 70% of households with a net worth of US$500,000 or more headed by a person under 45 had an investing style that was either strongly or mostly self-directed in 2019, up from 57% in 2010, according to an analysis of Federal Reserve data by research firm Aite-Novarica Group. Nearly half of those households aimed to take an above-average level of risk in exchange for an above-average rate of return, up from 35% in 2010, the analysis found.
The wealth-management businesses at top firms like Morgan Stanley and Bank of America Corp.’s Merrill Lynch continue to mint profits with moneyed older clients. But competition from digital upstarts is growing, and traditional firms know they need to attract the next generation of lucrative customers.
Advisers say they do far more than just put a client’s money into stocks and bonds. They can help clients map out financial goals and prevent them from making rash decisions. They can also handle complex portfolio rebalancing and tax planning for busy professionals.
Merrill said it has diversified its adviser force and improved its technology. People under 45 made up 20% of new clients this year, up from 10% five years earlier, the firm said. Morgan Stanley has spent billions in recent years buying firms that it hopes will help it attract younger clients, like online broker E*Trade and employee-stock-plan administrator Solium.
Wealth-management firms also offer clients special access to some alternative investments, such as funds tied to private equity. But many either restrict or ban crypto investments and provide limited access to shares in pre-IPO companies.
Big firms are wagering that reluctant young people may hire an adviser when they are older. “When you start to go from the wealth accumulation phase to the retirement phase, the world gets much more complicated,” said Jed Finn, chief operating officer of Morgan Stanley Wealth Management and head of corporate and institutional solutions. ”People don’t think they need advice until they need advice.”
Studies suggest that advisers can get caught up in chasing hot stocks, much like individual traders. During the 2008-09 financial crisis, financial planners often sold their clients’ stocks as the market fell. Still, when markets are rising as they are now—U.S. stock indexes have hit records this year—it is easy for professional and amateur investors alike to look smart.
When Travis Chambers, 33, landed a $9 million windfall from selling part of his advertising agency this year, he interviewed four financial advisers over video. He thought they put too little effort into explaining how their investments were unique and worth the fees. And none of them brought up crypto or real estate, the investments that most interested him.
Mr. Chambers, who lives in Boise, Idaho, decided to strike out on his own. He put $1 million into a hedge fund run by his business partner’s neighbour. He earmarked another $1.5 million to build offbeat Airbnb rentals in low-income areas. One project involves building futuristic huts in a dry lake bed in Utah.
U.S. Bancorp recently offered to give Mr. Chambers a personal line of credit at a 2.75% interest rate if he puts US$1 million into a brokerage account.
Mr. Chambers is considering the offer, but would keep managing most of his money on his own. He expects he would use the credit line to buy cars and a plane, which he thinks will increase in value.
When Cabell Hickman turned 18, her stepfather gave her money to buy stocks. He later invited her to invest alongside him in private companies. A few years ago, she put $100,000 into a blockchain fund run by a friend she met in college. Now 26, she is managing her own US$6 million portfolio.
Her stepfather died last year, leaving Ms. Hickman a complex estate, and for the first time she is considering hiring a professional financial adviser.
Ms. Hickman, a higher-education consultant, said she has found some good if homogeneous options: “I’m talking to, frankly, a bunch of old men.”
Mr. Martocci, who has been dodging the Goldman adviser, has most of his wealth tied up in his company, SwagUp. It creates and distributes branded items like tote bags and coffee mugs.
He said that at this point in life, he prefers risky investments that could potentially double or triple his money over those promising “market type returns.”
“Most young people don’t really care about the downside,” Mr. Martocci said. “They care about the upside and it being this fun thing.”
He plans to use a financial adviser, he said, if he gets a windfall from selling the company.
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: November 8, 2021.
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For self-employed Australians, navigating the mortgage market can be complex—especially when income documentation doesn’t fit the standard mould. In this guide, Stephen Andrianakos, Director of Red Door Financial Group, outlines eight flexible loan structures designed to support business owners, freelancers, and entrepreneurs.
1. Full-Doc Loan
A full-doc loan is the most straightforward and competitive option for self-employed borrowers with up-to-date tax returns and financials. Lenders assess two years of tax returns, assessment notices, and business financials. This type of loan offers high borrowing capacity, access to features like offset accounts and redraw facilities, and fixed and variable rate choices.
2. Low-Doc Loan
Low-doc loans are designed for borrowers who can’t provide the usual financial documentation, such as those in start-up mode or recently expanded businesses. Instead of full tax returns, lenders accept alternatives like profit and loss statements or accountant’s declarations. While rates may be slightly higher, these loans make finance accessible where banks might otherwise decline.
3. Standard Variable Rate Loan
A standard variable loan moves with the market and offers flexibility in repayments, extra contributions, and redraw options. It’s ideal for borrowers who want to manage repayments actively or pay off their loans faster when income permits. With access to over 40 lenders, brokers can help match borrowers with a variable product suited to their financial strategy.
4. Fixed Rate Loan
A fixed-rate loan offers repayment certainty over a set term—typically one to five years. It’s popular with borrowers seeking predictability, especially in volatile rate environments. While fixed loans offer fewer flexible features, their stability can be valuable for budgeting and cash flow planning.
5. Split Loan
A split loan combines fixed and variable portions, giving borrowers the security of a fixed rate on part of the loan and the flexibility of a variable rate on the other. This structure benefits self-employed clients with irregular income, allowing them to lock in part of their repayment while keeping some funds accessible.
6. Construction Loan
Construction loans release funds in stages aligned with the building process, from the initial slab to completion. These loans suit clients building a new home or undertaking major renovations. Most lenders offer interest-only repayments during construction, switching to principal-and-interest after the build. Managing timelines and approvals is key to a smooth experience.
7. Interest-Only Loan
Interest-only loans allow borrowers to pay just the interest portion of the loan for a set period, preserving cash flow. This structure is often used during growth phases in business or for investment purposes. After the interest-only period, the loan typically converts to principal-and-interest repayments.
8. Offset Home Loan
An offset home loan links your savings account to your mortgage, reducing the interest charged on the loan. For self-employed borrowers with fluctuating income, it’s a valuable tool for managing cash flow while still reducing interest and accelerating loan repayment. The funds remain accessible, offering both flexibility and efficiency.
Red Door Financial Group is a Melbourne-based brokerage firm that offers personalised financial solutions for residential, commercial, and business lending.
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