How to Attract Affluent Next-Gen Clients

This podcast is brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.

Conventional wisdom maintains that young affluent investors have little to no interest in hiring an advisor. Harness Wealth founder and CEO David Snyder might beg to disagree. His New York City-based firm caters to wealth tech clients, helping connect founders, early employees, and investors with equity-focused tax and financial advisors. David, who was previously the COO and CFO of real estate tech firm Compass, will tell us what next-gen clients are looking for from advisors today, and he'll also describe how to quickly demonstrate value to win over those leery of working with an advisor, and he'll explain why the digital experience is so incredibly important for next-gen investors. David, welcome.

Thank you for having me. Excited to be here.

The topic at hand is pretty much what affluent next-gen investors want from advisors. Now, Before we jump into that, it would be wonderful if you could tell us a bit about your background and how you went from Harvard Business School to Bain Ventures to Compass to starting, uh, Harness Wealth.

Would love to. So I had been an investor on the private equity team at Bain Capital going into business school and was really interested in applying the experience that I had in financial services more on the investment side at the intersection of technology in those subsectors. And as I was looking at potentially starting something, a guy that I knew well through nonprofit reached out and asked me to join the team that was starting Compass. And so, you know, early on we thought that the way to transform residential real estate was getting rid of the traditional agent. And about 6 months in, we realized that there was actually a much more valuable opportunity in creating technology that actually would enable the advisor to better serve their clients and would empower them with the same DIY technology that had evolved, but with that advisor workflow built in. Um, and when 5 years later had helped scale the company through the Series E and a couple billion valuation, Um, the team at, at Bain Ventures offered me a spot to come join them as an executive in residence. I was really interested in exploring that same theme with, I thought, which was in a nascent stage around helping advisors in areas where clients still put a big premium on the quality of advice, but arming them with a better platform to run their business and ultimately serve clients. And That was the genesis of Harness Wealth, where I saw that opportunity in spades at the intersection of financial planning, tax, and investment management.

Okay. And when— and how was that, 3, 4 years ago about?

How—

when did you begin it?

Uh, 2018.

And, and when you started Harness, what was the vision more specifically? And, and to what extent is that the same today? Um, I mean, did COVID fundamentally rejigger things, or are you still sticking to what your— the original plan was?

The vision has been the same of, in many respects, taking elements of what has worked really well in the ultra-high-net-worth family office model and trying to use technology to enable advisors and their clients to have a more interconnected, comprehensive view and being a step ahead in terms of getting people the insight to take the steps that they can and should to unlock value. I think what's evolved is we started the firm broadly focused just on next generation wealth and trying to be a solution to help people that were more inclined to have a digital component as well as the advisory side. What we found as we were building was the most interesting segment for us was a group that we referred to as builders, meaning people that are generating wealth typically through equity-based compensation. Whether that's the tech biotech employee founders that you mentioned in the intro, or it's a business owner, or it's a partner in a professional service firm, because they tend to be the group that often, A, doesn't have a solution from generational wealth or other areas, and B, encounters a level of complexity early on in their career that our solution, I think, is well-equipped to help serve them around.

And are they, to generalize, how willing are they to work with advisors compared to your, you know, people who don't fit that profile, just your average person? Are these people more because they're more comfortable navigating business or what can you say about that?

I think there's sort of two sides to the coin. I think there is definitely within the technology community especially, an initial aversion to services and advice for the sake of advice. I think on the positive side, though, there are people that are encountering a level of complexity, whether it's being driven by equity compensation structures, ISO, nonquals, RSUs, and liquidity events, or K-1s and complexity coming from their own investments that lead them to say, gosh, I'm a little bit out of my depth. I need some advice. Um, and helping them to navigate what that is is really valuable, which I think we'll probably touch on later in terms of some of the ways to reach them and build a relationship of trust that dissolves the apprehension many have that, oh, financial advisors are expensive and what they do really can be replaced by a robo-advisor or a Vanguard. Um, when you have that conversation with them, you can pretty easily show the value in the right types of advice and relationships. But there definitely often is an apprehension based on, I think, stereotypes and large segments of the financial advisor population that is not as skilled or enabled to help them in ways that will really add super high ROI value.

Right. And I think it's an interesting point I'd like to pursue a little more. I mean, a lot of these people who are very averse to advisors, many of them have never even met one. So they have a conception of what they might be like and it's often negative. It's like, oh, it costs a lot of money. You're not going to get a good deal. Just buy index funds, you're set. So I don't know, but I suspect many firms will just write off these people and say, oh, you know, it's impossible to deal with them. But you're kind of, you're not doing that. You're trying to find that middle ground or a bridge from their apprehension into coming into the fold. And you've talked about the importance of planning first and demonstrating tangible value kind of upfront. So to demystify and give almost proof of concept, can you speak a little to that?

Yeah, I mean, I think even starting at a higher level, there was an article a couple of months ago in The Wall Street Journal with the headline, Rich Millennials to Financial Advisors, you know, thanks for the golf invite, but you can't invest my money. What was interesting was you actually look at the data that they were sort of writing about. It showed that, you know, there had been an expansion in the mostly self-directed category, but the percent of people that are strongly self-directed really hasn't changed. You know, there has always been a big Interactive Brokers cohort that weren't, uh, you know, a great segment for the market. That's still the case now, but for most it's in the, well, I'm mostly advice-centric or I'm mostly self-directed. And so what we found, even for people that are very high net worth that go through our platform and create a profile, you know, $10, $20 million plus, they disproportionately gravitate towards a financial planning solution versus holistic wealth management. And I think that speaks a little bit to the apprehension point because often when they meet with firms that do both, that's a way, A, for them to evaluate the quality of the insight that they're going to get. But there's also an education piece, which is, you know, for that standalone financial planning, you might spend $5,000 or $10,000 annually or one time. You're going to get that same financial planning in a holistic wealth relationship, but you're also going to get other services, and the fee may not for at least the really good advisors we find, isn't over 100% of your AUM. It's just going to be the portion of assets that they manage. And so sort of the education and the context setting is really important, but there is definitely an interest upfront from this demographic, even very high net worth, uh, younger folks to start with a planning relationship and make sure there's value beyond just asset allocation.

How does trust factor into the equation? Because there's the transaction, right? There's the service rendered, and then there's the interpersonal dimension of, oh, exchanging emails and a phone call, and it's like, oh, okay, you seem okay, you're responsive, etc. Can you just discuss the interplay of how this might unfold with a client?

Yeah, I mean, some of the best advisors that we see, and this is the case both on the tax side as well as the financial side, are really good at telling potential clients what's going to happen. So you're meeting someone who's maybe 2 years before the liquidity event. Let me walk you through what we tend to see with clients that are approaching this. You know, the really sophisticated ones start moving some of their stock into trust. They make sure that, you know, all options are exercised. They, you know, are cognizant that in that 6-month window after IPO, nothing can be sold, but then have a plan regardless of where the stock's trading in terms of how they're going to sell down and, you know, what amount of stock might go into a donor-advised fund or a charitable remainder trust or something. And so that's what gets people really excited and not just confident is, hey, this is an advisor who's worked with people like me and has done things for them that I've never even heard of and I believe are going to unlock value. So that's one of the ways that we've seen sort of across areas of demonstrating value and being able to speak to how for personas like that prospective client, the advisor has unlocked value is the most compelling.

Right, because I can imagine, let's say it is a windfall, they— it's almost like a flashpoint that there's this wonderful thing, but it's in and of itself, it's devoid of context. So they need kind of that roadmap of, Okay, now what does this mean? What's the sequence of events? What's the timeline? What's the probability of X, Y, and Z happening, etc.? I suppose just doing that will show that the advisor, yeah, to your point, knows what they're talking about. When there is a windfall, are most of these people, given their status, do they tend to handle things responsibly in the absence of an advisor or is it a little both or it all depends? I mean, I don't know. If you could add anything to that.

You know, I don't know whether the individuals that find Harness Wealth are disproportionately the more planner-oriented ones of that broader cohort. I would say that in, in general, of those that we see, yes, they want to be thoughtful. You know, very often they're in early stages of a growing family, something else. A very large portion are thinking about buying their first or second home that weighs in. So you've got the confluence of family events with professional milestones, which in part is why people are sort of saying, well, I can like kind of make do with existing solutions from an asset allocation perspective. Eventually I've got to get more sophisticated, but I really want to make sure that I'm doing things the right way when it relates to, um, planning, tax, not missing opportunities. Uh, which is why sort of that, you know, the access component in terms of helping someone navigate, you know, mortgage lending for that first home or, um, more nuanced trust or estate planning type maneuvers that people get, I think, often very excited about because they weren't even aware of what they didn't know.

Right, exactly, exactly. So that was a real kind of a win-win, I suppose, for the advisor opens the door to, as you mentioned, a gateway to new assets and services that the advisor can often offer and the client's not even aware that he or she may need X, Y, and Z. Tell me about the digital component because presumably quite important. Can you expand on that?

Yeah, I mean, I think going back to that chart that I was referencing in the Wall Street Journal article, like the vast majority of this demographic wants to feel more in control, whether they're, you know, they lean advice but still want a little bit of DIY, or they lean DIY but still want advice. Ensuring that there is visibility in assets and what's happening is pretty important. Most of this cohort do not just want to get, you know, a quarterly PDF sent to them. They want to have more insight, more, more action, etc. And so ensuring that the tech stack that advisors are using and the ways that they're able to highlight opportunity for their clients feel close to on par with some of the DIY solutions that people are likely graduating from is, is quite important.

I can— I mean, behaviorally, that makes sense given that we can look at our portfolios in real time. You could look at the status of a package being delivered. We know what post office it's in, et cetera. So yeah, I could imagine the quarterly statements just simply won't fly today. Tell us a little bit about the tax planning component and what advisors, not just for your firm, but those listening can learn or should keep in mind when dealing with affluent next-gen.

Yeah, so I think for a lot of this market, whether it's a principal soon to become partner in a growth equity, private equity, venture capital firm, or it's someone with a significant amount of private company stock, the advisors that are willing to selectively invest their time in helping people with that planning— and a lot of that planning relates to tax insights are going to lock in very valuable clients because before they convert, you know, the many of the advisors at the largest banks and firms that have perhaps an advantage based on brand often are conditioned to be hesitant, you know, to do that. And so particularly for RIAs and others, that early investment in the planning insight, you know, if it's paid, saying like, hey, you know, we offer this planning for $5,000. We're not making any serious money on it, but we want to show you the value. And when there are more assets, that, you know, you'll turn to us to help with that is really important in building that insight. But across the board, we find that next generation individuals in the professions that we've talked about, they're hitting tax questions and complexity typically before they hit that major liquidity inflection point. And so being able to intelligently talk about whatever the issues are that impact, uh, that group, whether it's, you know, carried interest and thinking about financing carry and diversifying away from private investments, or whether it's, uh, an individual at a tech company that's going to have a liquidity event and, and how to think about optimizing things there. That's where advisors can unlock tremendous goodwill and real value from the clients in this area and build 50-year relationships for people, from people, rather than just trying to win clients that are, you know, hitting inflection points as they near retirement.

And to what extent does, uh, crypto come up in terms of clients and taxes?

Yeah, it's a great question. It is really prevalent. I mean, when you look at the data on it, it's like 43% of 18 to 29-year-old males have invested in or traded crypto of some kind. And so it's something that as an advisor you should be cognizant of. It does not serve you well to try to be an expert if that's not what you are. I don't think that individuals are looking for expertise specific to that because that's an area where they are learning and dabbling, but at least being cognizant of like, hey, if you've got a material concentration in crypto or digital assets, here's how we think about diversifying around that, or here are some of the tax implications and things that you should think about. Or even better yet, like, here are some of the planning strategies that you can deploy there that we deploy in other asset classes. Whether that's, you know, certain trust structures or charitable giving structures, etc. That's all people are looking for. You know, this, this base, this group typically is not turning to an advisor for them to create a really elaborate crypto strategy or advise them on which NFT to buy, but being familiar enough with these concepts to help them think about their broader picture and to really focus on the value unlocks that exist are where the best advisors, I think, are really shining.

For the clients who have crypto tax considerations, is record keeping an issue? I mean, given that it's a little more incumbent on the individual to stay on top of things, or how does that manifest itself?

It's definitely becoming an issue and its own cottage industry around it. It's not the same bookkeepers that can help a small business do this. Can tackle crypto. It's a sort of a nuanced area. I think financial advisors are getting a bit of a pass, you know, for the next year or two. And it's really the, the tax advisors that are getting hit with it where hopefully, you know, your goal as an FAA is at least to have a few tax professionals you like working with who have done the diligence to find solutions and can support those clients that may come your way, given the quarterback role is really important for financial advisors to help their clients with in terms of other service providers. But we haven't come across many firms that actually have their own digital asset bookkeeping resources. I'm sure there's some, but I think it's more around helping clients with the broader strategy and then having the right stable of tax advisor or trust and estate advisor resources for those select clients that have really outsized positions to effectively avoid tax issues or other problems from them.

In terms of advisors who are currently working effectively with these next-gen clients, what do you think in the future will change? Like, what do you think that— what new skills, uh, or what will be more in demand in the future from, from these clients?

Yeah, I think there's definitely been obviously a secular shift away from pure-play investment management solutions towards a broader financial planning one. I think there is an expectation at lower and lower asset classes for a good financial advisor to provide opportunities in alternative asset classes that historically would not have been something that you would have introduced clients to sub 5 or 10 million. So whether that's the ability to support them in buying rental income real estate properties, or it's fractionalized ownership through platforms like Yieldstreet that does it on the fixed income side, or crowdfunding or early tech investing, et cetera. I think that broader concept of access and I've seen firms that say, hey, we're just going to figure out how to get access to some good venture opportunities and provide that to clients. Or others that look for a few different things. But I think the ability for firms to be top of the funnel in spotting interesting opportunities to their clients, whether it's in the evolution of trusts and giving and other stuff where fintechs are popping up to solve those things, or it's alternatives that introducing and providing that access to clients in areas they might not otherwise have thought about or felt confident in investing in is going to make them more attractive to a broader base of this next-generation clientele.

Yeah, I mean, I can imagine that the democratization, if you will, of these things is going to be— continue. So I guess it's going to be firms will have to make it more of an emphasis or get perhaps even more niche, right, to stand out in the marketplace because it's going to be trickier to define, distinguish yourself?

Yeah, I think there are two pieces. I mean, one, you referenced the digital enablement. I think the ability for firms at asset levels that historically this would not have been the case for, but where there is the need to track, ensure a comprehensive view for clients that might only have $1 million, $5 million, or $2 million, but have, you know, 16 different holdings across a bunch of different financial institutions. Is really valuable, um, and the ability to actually provide some curated access and insight in some of those— it's actually all of them— I think is, is increasingly valuable.

And unfortunately, the clock is telling me loudly, clearly that we're almost out of time, but I want to ask you if you could share an actionable idea to, uh, help advisors get a little bit closer, you know, perhaps to landing a next-gen affluent client, or at least better understanding them to generalize? Um, anything you can share?

Yeah, again, I think going back to that theme of telling folks what they're going to run into, spending a little bit of time reading the same blogs or in the space of individuals is valuable. I still think of all the books I've read about the tech ecosystem. Ben Horowitz from Andreessen Horowitz's book, The Hard Thing About Hard Things, does a really good job of painting a picture of sort of the slog of the startup to tech success journey and ecosystem. You know, publications like The Information or the TechCrunch newsletters, etc. Strictly VC, which is sort of a really active blog and post from a TechCrunch editor, is really helpful. So those are a few examples. But I think if you're someone who's going after new clients in digital assets, there are diff— you know, there's The Block and other publications. If it's tech, it's one set. If it's, um, you know, small business owners or something else, but really investing the time in learning about what they're going through will make you far more compelling when you're talking to prospective clients.

Great. Well, thank you. That was an incredibly, um, informative answer. I appreciate it. So thank you so much, uh, for joining us, David. It was, it was Real pleasure to have you here.

My pleasure. Thanks for having me, Greg.

My guest was David Snyder. For more advisor-specific podcasts, please check out barons.com/podcasts. For The Way Forward, I'm Greg Bartolis.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.