Not Your Father's Financial Advisor

Gen Y Planning employs robo-advisor Betterment to serve its millennial clients.

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Reviewed by: Lara Crigger
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Edited by: Lara Crigger

[This article originally appeared in our August issue of ETF Report.]


Gen Y Planning isn't your typical registered investment advisor. For starters, as the name suggests, the firm focuses on investors between the ages of 25-35, with only a handful of clients over the age of 40. There's also no minimum asset level required. "I can help clients at any asset level," said Sophia Bera, founder.

How does she make it work? By charging a monthly subscription fee for her services, then by partnering with a robo advisor for portfolio construction. "Robo advisors are a really great way to serve younger clients and the middle market profitably," she noted. Her setup also allows her to take on clients from around the country; although Gen Y is based in Minneapolis, Minnesota, most of the work happens online.

It's a next-generation business model for the next-gen investor, says Bera, who worked at several traditional financial advisories before starting her own registered investment advisory service in 2013. And the industry is taking notice: Recently, InvestmentNews named Bera as one of its Top 40 Under 40, while Financial Advisor Magazine named her one of their 10 Young Advisors to Watch.

ETF Report recently caught up with Bera to talk shop about all-ETF portfolios, robo advisors and how best to serve the next generation of wealth-makers.

Why focus specifically on younger investors?
Ever since I became interested in this profession, I'd always wanted to help people like me. But I soon realized that often you had to have $500,000 in your account to get any attention paid to you, or that there was a $1 million minimum for clients, or so on. I really didn't like that. So I wanted to figure out how to work with younger clients in a profitable way.

I launched Gen Y Planning in May 2013 specifically to work with the younger demographic. A lot of my clients are making six figures, but they just don't have those assets built up yet. Instead, they have, say, $10,000 in a rollover IRA.

How does your business model work?
I charge a fee to create an initial financial plan, followed by a monthly subscription fee. The initial plan fee is between $999-1,999 upfront, then the monthly subscription is $99-199 per month to work with clients on an ongoing basis. The subscription fee allows me to be able to help clients at any asset level.

I think I pay more on coffee a month.
Right? I pay $135 a month for my yoga membership. And what I was seeing was that there were a lot of young professionals investing in their health that way—why not invest in their financial health the same way?

I really love working with younger clients. People go through so many major life changes in their mid-20s through mid-40s: graduating from an MBA program or law school; transitioning to a different career; getting a promotion; getting married; having kids; buying or selling a house; getting divorced. I wanted to be able to help people through those transitions.

For many financial planners, the majority of their business is focused on investments and retirement planning. But 80 percent of what I do has nothing to do with investing. Instead, we want to build that financial plan—answer all those important financial questions first—then, with the remaining 20%, we'll make sure we're investing right, building an asset allocation with ETFs and so on.


But you still do some retirement planning, right?
Sure. But we talk much more about creating financial independence than just retirement. I have some clients who are on track to achieve financial independence in their 40s, where they might not need to work after that point, but they can choose to. I also have clients who need to know the ins and outs of student loans, or travel or credit card rewards programs. It's more about aiming for the future, instead of focusing on, "At 66, you're done."

So I focus on my clients' careers, growing their wealth and growing their income, because their income streams are their biggest asset.

You use only ETF portfolios. Why?
Honestly, I haven't really been swayed by the research in terms of the benefit of mutual fund managers. I haven't seen long-term statistics saying there's a huge benefit to paying a mutual fund manager that 1% percent or 1.5% in terms of getting better returns. I'd rather use ETFs so I can just eliminate that from the equation.

I take a passive investment approach. What I can control are costs; what I can't control is the stock market. So if I can keep the costs of owning different asset classes low, then hopefully my clients' long-term returns end up higher, because they're not giving up 1% for the mutual fund manager.

Do you think cost looms much larger for clients without a large starting asset base, in that they feel every percent or half a percent that much more?
Yes and no, but they are concerned with cost. A lot of them don't like hidden costs. They like transparency. So they don't mind paying for a financial planner on a monthly basis. But it's weird if, say, there's a commission, because they don't understand how that works. So they don't see what they're paying for with a mutual fund manager versus just being in an ETF.

The other thing I tell clients is that, in your early years, asset accumulation is more important than asset allocation. We just want to start saving consistently and in the right ways, and investing that money in an asset allocation that makes sense for your age, time horizon and risk tolerance. If you only have $10,000 in an investment account, and you make 10% on your money, you've made $1,000. But if you maxed out your Roth IRA that year, you would have $15,500 instead. Your portfolio would have increased more than 50% versus 10% for the investment returns.

Tell me a little about the ETF portfolios you use.
I use ETF portfolios from Betterment Institutional. Yes, I decided to work with a robo advisor, instead of fearing them, like many people in this industry. I used to be at Scottrade, but by teaming up with Betterment, I'm able to offer a better service model for my clients. I can manage my clients' portfolios in an affordable way, while saving me time as well. Changing an asset allocation on 10 different client accounts now takes 10 minutes total, a minute per account, instead of having to go into the spreadsheets manually, or buy special software.

Why Betterment, versus other robo advisors?
I think it's proved it has some staying power here in the space. Plus, I was already using a lot of the underlying Vanguard and iShares ETFs that it uses when I was at Scottrade. But there, my clients had to pay $7 for every trade. Now those costs are being wrapped in: I pay Betterment 25 basis points to do daily rebalancing.

Also, I liked how easy the Betterment platform was to use, how easy it is for my clients to increase a Roth IRA contribution with just a few clicks, or link a bank account or prepare their rollover paperwork.

As an all-ETF shop, have you run into any problems trying to use only ETFs for your clients?
At Scottrade, I couldn't use only ETFs there, because if a client contributed a couple hundred dollars per month to a Roth IRA, I would have had to go buy that ETF every month. Mutual funds with an auto-contribution set up just worked better. Technology, I'd say, is still one of the biggest challenges with ETFs for the smaller investor.

You run into the fractional share issue too.
Yes, and trade commissions, among other things. That's one of the reasons I really liked Betterment, because it doesn't hold any cash. They were actually able to invest all the money in my client accounts, so I wouldn't have to tell them, "I need you to keep a couple hundred dollars on the side for fees."

Do you have any advice for advisors who are perhaps a little freaked out by the robo-advisor boom?
Robo advisors are here to stay. But I also think the future of this space will be comprehensive financial planners working collaboratively with robo advisors to serve a variety of different clients.

Robo advisors are a really great way to serve younger clients and the middle market. So many people want to know how to serve the middle market profitably, and you do that by doing what I've done: charging a monthly financial planning fee, then partnering with a robo advisor for assets. I think that's a solution that we're going to see more and more financial planners adopt.


Contact Lara Crigger at [email protected].

Lara Crigger is a former staff writer for etf.com and ETF Report.