After hearing, over a few years, several young friends and acquaintances - including several doctors and lawyers - complaining that they didn't meet the minimum level of assets to hire her, it dawned on the 30-year-old planner that the market for young professionals might be underserved when it comes to financial advice.
"Wow, maybe this is something I should look into," she remembers thinking. "Maybe there's another model besides charging based on AUM," she thought, given that minimum levels for assets under management typically range anywhere from $100,000 to $1 million.
So Hodgson changed her strategy and her practice at Ferro Financial to seek out younger professionals. She turned her attention to doctors, lawyers and entrepreneurs younger than 40, charging hourly for those who didn't meet her firm's $100,000 in minimum assets.
"I realized that there are so many other advisors, wirehouses or banks that are going after the same [older] market, and meanwhile there is an underserved market that is really better for me and more likely to work with someone in their age range," Hodgson recalls. "They have needs that are not being met."
As more of the baby boomer generation heads toward retirement, their Generation Y kids are emerging as a client base to take seriously. This group - roughly those 18 to 35 years old, and including many young tech entrepreneurs, doctors, lawyers and other high-income professionals - now constitutes an important, potentially lucrative and largely untapped market for planners who know how to serve them.
Getting in on the ground floor with many of these young high-earning clients can be a fruitful long-term investment with a big payoff, Hodgson says, adding that the financial industry hasn't adequately approached "young people who are making critical decisions at this point in their lives. They're paying off debt, deciding what homes to buy, and they don't know there's an option for them for financial advice," she says. "So it's about getting the word out that there are advisors like me who are able to work with them in a different way, and then they become the market."
PICKING THE WINNERS
Finding and recruiting the right clients is, of course, key to success with this market, and it's not a simple task. Just getting the word out to these young clients can be a challenge, planners say. Many wealthy Generation Y clients are new to money, even those who may be second or third generation heirs in a wealthy family.
Firms such as Federal Street Advisors actively reach out to second-generation clients early on to introduce them to the family's wealth strategy. Many times, the key to drawing in this client base is bringing them to the table with the parents or grandparents in order to build them into the planning process, according to John LaPann, president and chief investment officer at Boston-based Federal Street.
"We have to be diligent about establishing a separate relationship with members of the younger generation," LaPann says. "If we don't, we're really not meeting their needs as clients, separate from their parents or grandparents, and we run the risk of being viewed as their parents' advisor, rather than a full family advisor."
Similarly, drawing in outside clients requires a less traditional approach and a new way to deliver information. David Grant, a financial planning analyst with Vantage Financial Partners in Arlington Heights, Ill., is helping his firm transform in a variety of ways to appeal to a younger audience.
The firm's new website, for example, integrates multimedia and social media in an educational, interactive format. "We are looking to change our strategy on the coaching side to make it appealing to younger markets because that's how we'll continue to grow our practice," Grant explains.
Even though there may not be as much money at stake with young clients as there is with older, more established ones, many firms still have a selective process for deciding who to advise. It's important to keep that selectivity, since taking on a client so early in the game can bring some different risks, planners say.
"We actually have a pretty narrow [view] of who we want to take on as a client and that person has to be conscientious about money," Grant says. "If they're going out and blowing their paycheck, then we don't want to work with them."
