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By David Randall
NEW YORK, May 22 (Reuters) - When the nine-person startup heco-founded was bought by Facebook for a reported $15 million inJanuary, Cemre Gungor, 27, was inundated with phone calls andemails from wealth advisers. Yet he spurned them all, optinginstead to open an account with Betterment, an online financialadviser launched in 2010 that automatically invests in aportfolio of exchange traded funds based mainly on a client'sage.
"My personality doesn't lend itself to being the sort ofperson who would research good wealth managers and then trustthem with making decisions. I don't want to spend any timethinking or caring about that," said Gungor, who grew up inTurkey and Finland before moving to the U.S.
He and others of his generation are posing a challenge forwealth advisers who are streaming into Silicon Valley and SanFrancisco after the public stock offerings of companies such asFacebook, LinkedIn and Twitter helpedCalifornia create more millionaires than any other U.S. statesince 2009.
But even as traditional financial firms battle for officespace and seek out new customers, they're finding that thepickings aren't easy. The youngest winners of the thriving techeconomy, many of whom came of age during the last financialcrisis, aren't often interested in the ideas that attractedclients in the past. Nor are they fans of the old-school modelof letting a financial planner make decisions with minimalclient input.
In response, traditional advisers are changing the way theypractice. They're finding that young clients need help withlifestyle issues ranging from how to give money away to how todeal with old friends who are jealous of a sudden tech windfall.And they are giving clients more of the hard data behind theirdecisions than they might with clients who inherited theirfortunes or built them up over time.
Debra Wetherby, an independent adviser whose Wetherby AssetManagement manages about $3.6 billion in assets, has fieldedquestions from young, single workers about when and how to tellpotential spouses about their fortunes. Christine Leong Connors,who heads JPMorgan's Palo Alto office, has talked with techclients about how to donate money effectively when their own networth is larger than the charity they are giving to. And MichaelWilliams, a UBS Wealth Management Americas branch manager in SanFrancisco, has found himself courting potential clients whosepaydays are so far away that they're still pulling all-nightersand sometimes sleeping in their startup offices.
It's all part of an attempt to appeal to a new demographicof money. The youngest members of Generation X and millennialsare the most likely to say that they are dissatisfied with theirwealth adviser, according to a report by the Spectrem Group, amarket research company in Lake Forest, Illinois.
"The industry is not in alignment with folks who are verytech savvy, and it's an industry that is trying to catch up,"said George Walper Jr., the president of Spectrem.
CALIFORNIA MONEY
Nowhere is the collision between new money and the old-linebusiness of wealth management more on display than inCalifornia. Firms like Barclays, Goldman Sachs GroupInc, Bank of America Corp's Merrill Lynch andJPMorgan Chase & Co have all expanded their Bay Areaoperations as firms like Facebook have gone public and theshares of more mature firms like Google have hit all-time highs.
In the three years since JPMorgan opened an office in PaloAlto, the heart of Silicon Valley, its headcount has swelled to30 advisers from six. When combined with its sister office inSan Francisco, its number of advisers in Northern California hasgrown by 50 percent, to 110 people, since 2012.
The firm created separate teams based on how clients havebuilt their wealth, said Jeremy Geller, the head of JPMorgan'sPrivate Bank business in Northern California. Unlike other teamswhich may be more focused on investment ideas, the tech-centeredteam works on anticipating the personal financial consequencesof one-time events such as a startup getting another round offunding, going public or selling the business altogether.Advisers discuss with young clients such issues as when to startselling a personal stake in a business, Geller said.
ADVISERS TRY TO ADAPT
Advisers say they are working to adapt to the needs of techworkers who are skeptical that the wealth management industryoffers much value.
Wetherby, 56, the independent adviser, finds herself havingmore conversations with clients who are unsure of how to handletheir newfound fortunes at a time when income inequality is alarger part of the national conversation.
"For many of them, this is something that's private and newand separates them from their existing social group," saidWetherby. "It's a big adjustment and so a lot of them are tryingto be quieter about it."
She also appeals to new clients by promoting so-calledsocial impact investing, which tries to make money while alsodoing some social good such as buying shares in a company in theclean water business.
Darell Krasnoff, a partner at Los Angeles-based Bel AirInvestment Advisors who plans to open a San Francisco office forthe firm by the end of the year, said that the approach he takeswith wealthy tech clients is similar regardless of their ages.He has won new clients like Kamran Pourzanjani, he said, bycreating data-heavy custom reports that appeal to tech workersmore comfortable with the language of numbers.
After the firm he co-founded, PriceGrabber.com, was acquiredfor about $500 million in 2005, Pourzanjani, 54, spent 8 yearsbouncing between financial advisers who did not present enoughdata to convince him. He eventually signed on with Bel Air, inpart because Krasnoff was able to provide custom spreadsheetsthat allowed him to have faith that Krasnoff's plans were solid.
The idea of trusting a financial adviser with his wealthafter spending years as an entrepreneur making all of his owndecisions was a "giant leap," Pourzanjani said. "That'sdefinitely a struggle for a lot of people" in the tech industry,he said.
NEW COMPETITORS
Wealthfront, a private company that has received fundingfrom DAG Ventures and other venture capital firms, representsthe other end of the spectrum of personalized advice. Thecompany counts Burton Malkiel, a Princeton professor whose book"A Random Walk Down Wall Street" helped popularize passiveinvesting, as its chief investment officer, a role that chieflyfocuses on evaluating asset classes and allocation strategiesthat underpin the firm's automated process.
About 60 percent of its clients are under the age of 35, andit 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 heavilycourting young workers whose memories of the financial crisismake them skeptical that anyone can have insights into where thestock market is headed. So far, that message has been resonatingwith its clients.
"Unless you're at the stage and scope that you need to beplaying crazy tax games, it doesn't make sense to talk to awealth manager," said a young Stanford business school graduatewhose company was acquired by a large technology company lastyear. He didn't want to use his last name because he didn't wantto draw attention to himself.
Adam Nash, Wealthfront's chief executive, used to work atboth LinkedIn and eBay and said that his clients are mostlyfound in San Francisco, New York, and other places where "youngpeople 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 tobe watching their money 24/7, but they believe that a computeris," he said. (Reporting by David Randall. Editing by Linda Stern and JohnPickering)
