Rich Millennials to Financial Advisors: Thanks for the Golf Invitation, But You Can’t Invest My Money

Michael Martocci, a 26-year-old startup founder, ignores golf invitations and other solicitations from Goldman Sachs Group Inc.’s financial advisor trying to get him to become a client.

Eighteen holes aren’t particularly appealing to Miami-based Mr Martocci, and neither pays for financial advice. Instead, he oversees his hundreds of thousands of dollars in investments himself. He channels 90% of his money into cryptocurrency. To check his stocks, he displays Robinhood Markets Inc. on his phone.

“It’s easy to manage $ 500,000, $ 1 million on your own,” said Martocci, who says he spends less than an hour a week monitoring his investments.

Younger, wealthier investors choose to go without a traditional financial advisor. Instead, they’re betting they can get good enough investment options from cheap, easy-to-use do-it-yourself digital platforms. Many also want to invest in riskier assets, like cryptocurrencies and tech startups, which traditional advisers often don’t offer.

About 70% of households with a net worth of $ 500,000 or more headed by someone under 45 had an investing style that was either heavily or mostly self-directed in 2019, up from 57% in 2010, according to an analysis data from the Federal Reserve. by the research firm Aite-Novarica Group. Nearly half of those households aimed to take on an above-average level of risk in exchange for an above-average rate of return, up from 35% in 2010, according to the analysis.

The wealth management activities of large companies like Morgan Stanley and Merrill Lynch of Bank of America Corp. continue to generate profits with wealthy older clients. But competition from digital newbies is increasing, and traditional businesses know they need to attract the next generation of lucrative customers.

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Advisors say they do more than just invest a client’s money in stocks and bonds. They can help clients set their financial goals and prevent them from making rash decisions. They can also handle complex portfolio rebalancing and tax planning for busy professionals.

Merrill said he has diversified his strength of advisors and improved his technology. Those under 45 represent 20% of new clients this year, up from 10% five years earlier, the firm said. Morgan Stanley has spent billions in recent years buying companies that he hopes will help him attract younger clients, like online broker E * Trade and employee share plan administrator Solium .

Asset management companies also offer their clients privileged access to certain alternative investments, such as funds linked to private equity. But many restrict or ban crypto investments and offer limited access to shares of pre-IPO companies.

Big companies are betting that reluctant young people can hire an advisor when they are older. “When you start to move from the wealth accumulation phase to the retirement phase, the world gets a lot more complicated,” said Jed Finn, COO of Morgan Stanley Wealth Management and head of enterprise solutions. and institutional. “People don’t think they need advice until they need it.”

Studies suggest that advisers can get sucked into chasing hot stocks, much like individual traders. During the 2008-2009 financial crisis, financial planners often sold their clients’ stocks when the market declined. Yet when markets are up the way they are now – US stock indexes have hit record highs this year – it’s easy for professional and amateur investors to appear smart.

When Travis Chambers, 33, landed a $ 9 million windfall by selling part of his advertising agency this year, he interviewed four financial advisers via video. He thought they put too little effort into explaining why their investments were unique and worth the expense. And none of them mentioned crypto or real estate, the investments they were most interested in.

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Mr. Chambers, who lives in Boise, Idaho, decided to stand on its own two feet. He put $ 1 million in a hedge fund managed by his business partner’s neighbor. It earmarked an additional $ 1.5 million to build staggered Airbnb rentals in low-income areas. One project involves building futuristic huts in the bed of a dry lake in Utah.

US Bancorp recently offered Mr. Chambers a personal line of credit at an interest rate of 2.75% if he puts $ 1 million in a brokerage account.

Mr Chambers is considering the offer, but would continue to manage most of his money himself. He expects to use the line of credit to buy cars and a plane, which he believes will rise in value.

When Cabell Hickman turned 18, his stepfather gave him money to buy stocks. He then invited her to invest alongside him in private companies. A few years ago, she put $ 100,000 in a blockchain fund managed by a friend she met in college. Now 26, she manages her own $ 6 million portfolio.

Her stepfather passed away last year, leaving Ms Hickman with a complex estate, and for the first time, she is considering hiring a professional financial advisor.

Ms Hickman, a higher education consultant, said she found some interesting, albeit consistent, options: “I’m talking, frankly, to a bunch of old men.”

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Mr Martocci, who dodged Goldman’s advisor, has most of his fortune tied to his company, SwagUp. She creates and distributes branded items like tote bags and coffee mugs.

He said that at this point in his life he preferred 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 inconvenience,” Martocci said. “They care about the hike and that’s a funny thing.”

He plans to hire a financial advisor, he said, if he gets a bargain by selling the business.