A Millennial Advisor Weighs In

Thomas Kopelman suggests what RIAs could do to appeal to younger customers.

The internet has opened up several avenues of disruption to the advisor industry, from robo advisors to the more recent rise of commission-free trading to a wide range of financial instruments. So how can advisors stay relevant among generations of people who have an innate understanding of using the internet to research just about anything?

ETF.com staff writer and resident millennial Dan Mika spoke with Thomas Kopelman, co-founder of AllStreet Wealth in Indianapolis. The following interview has been edited for clarity and brevity.

ETF.com: I caught your Twitter thread recapping some of your discussions and some of the trends you’ve been seeing when talking with other advisors your age. What are you seeing and hearing from these people regarding the longer-term sustainability of the industry?

Kopelman: I think we’re just at a hard part of the industry right now. The average age of an advisor is about 60, and they're set to retire in five years. But it doesn’t feel like there's a huge shift in helping young planners get in.

I know that [Gen X & Y] planning is kind of a start, but that means you have to start your own RIA, which isn’t the right route for most people in the beginning. They don’t know how to do the planning or how to grow and work with clients, and you also have to be a business owner.

A lot of these young people are stuck. They're saying, “I want to be a financial planner. What do I do?” For most people, the route is to go work at a broker-dealer. That’s the route I took.

However, you have to hit these minimums before you can even really do financial planning, or any investment management. On top of that, we don’t really have anybody teaching us the financial planning side. Our leaders, who are great insurance salesmen, know you’ve got to call everybody you know. They know how to go to events and get leads. But they don’t really know how to market and attract people to your business.

Some RIAs are hiring, but not that many, because it’s almost like a residency. You're going to hire somebody. You're going to pay them $50,000, $60,000. They don’t know the background work, they don’t know how to do the planning and they're probably not really going to bring clients in. A lot of RIAs are [not fans of that model].

A lot of times, when young advisors come in, they start doing well, and then they leave. I can't really hate that, because that’s kind of what I did. I think a lot of people in the RIA world are scared of that happening. They lose the advisor, they lose clients.

Then there's the other side of it, where people come in and say, “We’re going to hire you. We’re going to give you some of our lower-level clients, give you a little boost as you try to get your own clients.” The new advisors start there, and the clients are never handed off. They advisors think, “I'm making zero dollars. I don’t know what to do. I don’t know how long I can survive in this model.”

There are a lot of places trying to change this, but true financial planning is so rare in the industry. To me and the people who are in the industry doing that type of work, it seems like it’s everywhere, because that’s all the people we follow on social media.

But then there's another side of the world. I talk to young advisors who say, “I've never even heard of a subscription model of charging clients for financial planning. My place doesn’t let me do that. My place doesn’t let me market.”

ETF.com: How does advice clients in their twenties and thirties ask you for differ from that of older clients?

Kopelman: I specialize in working with people who are about 26 to 40. The older demographic is more about, “Manage my investments, and make sure I have enough money to live off of in retirement.”

With young clients, what I'm helping them do is create automation in their finances, but also how to save in the right places, how to invest, what you should be doing with your company benefits, Roth 401(k) versus traditional, how to save for a house, how to save for a car, how to prepare for kids, how to start a business.

Then it’s really about, how do we continue to pivot as life changes? One year we’re making $60,000, the next we make $80,000. What do we do with this extra money? Where do we put the bonus? And now that I’m married, how do we merge finances? Now we have our first kid. How do we start planning for college? How do we do tax planning around all of this stuff?

Some older planners say it’s not as complex to work with younger people, but the amount of touch points and amount of times I have to meet with those clients a year is two to three times as much as a retiree works with their planner. And what I'm trying to help them understand is, “Talk to me about everything, because my job is to help you make all of these little decisions correctly.”

You make such a big difference in your financial position when you make all the small decisions correct [rather than doing it yourself and making a bunch of mistakes]. You do learn from it over five or 10 years, but now you’re much farther behind than somebody who made those decisions correctly.

ETF.com: ETFs have been around for a while, but their extreme popularity is somewhat new. We also have cryptocurrencies, which are emerging as a full-on asset class. Are you having a lot of conversations about those things?

Kopelman:  There's a wide spectrum. I have a lot of clients who are really good at their jobs, make a lot of money. But they know nothing about finances. There are people who say, “I invested in a Roth IRA.” Well, no, you didn’t. That’s just an investment vehicle. You don’t even have investments, because you didn’t invest your Roth IRA into anything. Many people’s learning curve is far behind that.

Low-cost diversified ETFs are the investment structure I use for my clients. But cryptocurrency is another level. I don’t start the conversation saying, “Do you know about Bitcoin? I think we should invest in it.”

If their knowledge base isn't there, and they're not even curious about it, it’s a really far spot to get them to get to a point where they can actually invest in it, believe in it, stick with it through downturns.

With clients that have the curiosity, and believe in it, we talk about it. But clients who know nothing about it have to get to a certain point that’s years away before we can actually invest–unless it’s part of model portfolios in the future, which I really could see it being through aggressive allocation indexes.

ETF.com: You’ve been distinguishing between planning versus selling products and selling financial advice. What do you think has to happen in the next few years to make a change to that model, and keep advisors relevant into the coming generations?

Kopelman: Honestly, I'm not worried at all about the advisor profession being relevant. Software only can do so much, and people crave working with individuals. But it has to be planning-centric.

Investment management is becoming commoditized. You could go pay somebody more than 1% and hope they're going to beat the market, but they probably won’t. So why would I try to do that?

The planning side is the hardest to learn. It’s ever-changing. Laws are going to change. You go to different tax brackets, you start a business. There are a million things for you to learn.

A lot of these big firms have been insurance carriers for 100-plus years. They’ve built on that, but that doesn’t mean that’s how you stay relevant. I think we need to teach those people how to do planning from the beginning, and then insurance will be part of it.

Term life insurance and disability insurance are part of it for my young clients. We’re not going to be slinging annuities or whole life insurance for pretty much any of my clients, and that might make the insurance carriers a little mad.

But to stay relevant, you're either going to have to own insurance and be insurance salesmen, or you're become planners who can implement insurance. That’s really the way the industry has to go. People say that it’s changing that way, but they're still not there.