When the nine-person start-up he co-founded was bought by Facebook for a reported $15 million in January, Cemre Gungor, 27, was inundated with phone calls and emails from wealth advisers. Yet he spurned them all, opting instead to open an account with Betterment, an online financial adviser launched in 2010 that automatically invests in a portfolio of exchange traded funds based mainly on a client’s age.
“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.
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.
“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.
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)