Rich Millennials Don't See Value In Wealth Management Firms

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.

Wedding planner Sterling Boulet has some advice for brides-to-be regarding lab-grown diamonds, which cost a fraction of the natural ones.

“If you’re trying to get your man to propose, they’ll propose faster if you offer this as an option,” says Boulet, of Raleigh, N.C. Recently, she adds, a friend’s fiancé “thanked me the next three times I saw him” for telling him about the cheaper lab-made option.

Man-made diamonds are catching on, despite some lingering stigma. This year was the first time that sales of lab-made and natural mined loose diamonds, primarily used as center stones in engagement rings, were split evenly, according to data from Tenoris, a jewellery and diamond trend-analytics company.

The rise of lab-made stones, however, is bringing up quirks alongside the perks. Now that blingier engagement rings—above two or three carats—are more affordable, more people are dealing with the peculiarities of wearing rather large rocks.

An engagement ring made with a lab-grown diamond at Ada Diamonds in New York City. PHOTO: CAM POLLACK/THE WALL STREET JOURNAL

Esther Hare, a 5-foot-11-inch former triathlete, sought out a 4.5-carat lab-made oval-shaped diamond to fit her larger hands as a part of her vow renewal in Hawaii last year. It was a far cry from the half-carat ring her husband proposed with more than 25 years ago and the 1.5-carat upgrade they purchased 10 years ago. Hare, 50, who lives in San Jose, Calif., and works in high tech, chose a $40,000 lab-made diamond because “it’s nuts” to have to spend $100,000 on a natural stone. “It had to be big—that was my vision,” she says.

But the size of the ring has made it less practical at times. She doesn’t wear it for athletic training and swaps in her wedding band instead. And she is careful to leave it at home when traveling. “A lot of times I won’t take it on vacation because it’s just a monster,” she says.

The average retail price for a one-carat lab-made loose diamond decreased to $1,426 this year from $3,039 in 2020, according to the Tenoris data. Similar-sized loose natural diamonds cost $5,426 this year, compared with $4,943 in 2020.

Lab-made diamonds have essentially the same chemical makeup as natural ones, and look the same, unless viewed through sophisticated equipment that gauges the characteristics of emitted light.

At Ritani, an online jewellery retailer, lab-made diamond sales make up about 70% of the diamonds sold, up from roughly 30% two years ago, says Juliet Gomes, head of customer service at the company, based in White Plains, N.Y.

Ritani sometimes records videos of the lab-diamonds pinging when exposed to a “diamond tester,” a tool that judges authenticity, to show customers that the man-made rocks behave the same as natural ones. “We definitely have some deep conversations with them,” Gomes says.

Not all gem dealers are rolling with these stones.

Philadelphia jeweller Steven Singer only stocks the natural stuff in his store and is planning a February campaign to give about 1,000 one-carat lab-made diamonds away free to prove they are “worthless.” Anyone can sign up online and get one in the mail; even shipping is free. “I’m not selling Frankensteins that were built in a lab,” Singer says.

Some brides are turned off by the larger bling now allowed by the lower prices.When her now-husband proposed with a two-carat lab-grown engagement ring, Tiffany Buchert, 40, was excited about the prospect of marriage—but not about the size of the diamond, which she says struck her as “costume jewellery-ish.”

“I said yes in the moment, of course, I didn’t want it to be weird,” says the physician assistant from West Chester, Pa.

But within weeks, she says, she fessed up, telling her fiancé: “I think I hate this ring.”

The couple returned it and then bought a one-carat natural diamond for more than double the price.

Couples find that lab-grown diamonds have made it more affordable to get engaged. PHOTO: CAM POLLACK/THE WALL STREET JOURNAL

When Boulet, the wedding planner in Raleigh, got engaged herself, she was over the moon when her fiancé proposed with a 2.3 carat lab-made diamond ring. “It’s very shiny, we were almost worried it was too shiny and was going to look fake,” she says.

It doesn’t, which presents another issue—looking like someone who really shelled out for jewellery. Boulet will occasionally volunteer that her diamond ring came from a lab.

“I don’t want people to think I’m putting on airs, or trying to be flashier than I am,” she says.

For Daniel Teoh, a 36-year-old software engineer outside of Detroit, buying a cheaper lab-made diamond for his fiancée meant extra room in his $30,000 ring budget.

Instead of a bigger ring, he got her something they could both enjoy. During a walk while on an annual ski trip to South Lake Tahoe, Calif., Teoh popped the question and handed his now-wife a handmade wooden box that included a 2.5-carat lab-made diamond ring—and a car key.

She put on the ring, celebrated with both of their sisters and a friend, who was the unofficial photographer of the happy event, and then they drove back to the house. There, she saw a 1965 Mustang GT coupe in Wimbledon white with red stripes and a bow on top.

Looking back, Teoh says, it was still the diamond that made the big first impression.

“It wasn’t until like 15 minutes later she was like ‘so, what’s with this key?’” he adds.

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.

Couples find that lab-grown diamonds make it cheaper to get engaged or upgrade to a bigger ring. But there are rocky moments.