Family Wealth Report speaks to the founder of NextGen Wealth, a new firm which is looking to tap the US's growing cohort of young, successful business owners and entrepreneurs.

NextGen Wealth just opened its doors in Kansas City to tap the US's growing cohort of young, successful business owners and entrepreneurs.

Having worked in the wealth management sector for around 13 years, Clint Haynes said many big industry players were disregarding “smaller” clients with $1 million or less because they weren't deemed lucrative enough.

Haynes’ background includes roles at Axius Financial, The Mutual Fund Store, ICMA Retirement Corporation and Morgan Stanley, where he started his career.

“I was in my mid-twenties and knew a lot of people who didn't have that type of money right now but who were well on their way to getting there,” Haynes, founder of NextGen Wealth, told Family Wealth Report.

NextGen Wealth is aimed at individuals in their twenties, thirties and forties who need help “getting to where they want to be” but who haven't accumulated enough wealth to work with the “high end” wealth management firms. Haynes’ approach is to attract clients who he believes in five or ten years time will be the “ideal” high net worth client that so many of the big banks are chasing.

“If they don't currently have much in assets at this point, then I have to be very confident that they will at some point down the road, otherwise I'm looking at a negative margin,” he said. “I’m very selective about whom I work with so the opportunity has to be there if it's not already.”

NextGen Wealth currently has around 70 clients across several US states, most of which are based in the Kansas City area. Haynes is however looking to expand coast to coast, which he noted will be made easier given that the firm’s client base of young business owners and entrepreneurs are increasingly keen on interacting virtually through video calls, for instance (that said, many studies show that personal meetings are still essential).

Haynes explained that there is a very big start-up sector in Kansas City and so he spends a lot of time networking as part of his client acquisition strategy. Besides referrals from existing clients, another big prospecting tool he speaks highly of is LinkedIn. He spends a significant amount of time each week on the professional networking website and has created a “snowball” effect from connecting with his target audience.

Comfort

Haynes believes that the fact he is 35 years old is a selling point because the US’s cohort of financial advisors is, on average, getting older and edging closer to retirement.

Not only do most clients (particularly those entering the realms of wealth management for the first time) anticipate a long-term advisor relationship, but working with someone who is 35 compared to someone who is 65 is different because “they have different mind sets and have experienced different life challenges,” Haynes said. “For me it's a strong point to make because I am young.”

Additionally, what's interesting about working with “new new” clients is that they are still “very green” and thus open to learning and understanding the wealth accumulation process.

For example, many of the challenges experienced by these younger individuals is that, quite simply, they often don't know where to start when it comes to financial planning. Equally, “life just gets in the way sometimes,” Haynes said. In some cases education plays an even greater role because they, being first-generation entrepreneurs, will likely be less familiar with wealth than someone who has grown up in a wealthy family.

“For a lot of people, they know they should do something but it's a matter of actually doing it. Then the center of focus shifts to 'what do I need to do first'?,” Haynes said.

Of course, each client situation is unique, but the typical “starting point” tends to involve looking at student loan debt, or creating a retirement plan in their own firm or business.

“Importantly it's about having some form of plan and creating a cash flow plan or budget,” Haynes said. “It's about knowing what's coming in, where it’s going and where should it be going. They're the priorities for most people in their twenties and forties.”

Behavioral theme

With all the above in mind, NextGen Wealth has adopted a goals-based planning approach and in particular a strong focus on behavioral investment management.

“I don't want the stock market to determine my clients' investments,” Haynes said. “I let their goals determine their investments.”

Goals-based investing is supposed to enable individuals to address their financial needs and desires in a way that encourages them to look beyond intermittent market volatility. Backers of this approach to investing believe it also promotes positive investor behavior and can therefore increase the likelihood that investors will achieve their goals. Many uphold, for example, that overconfidence can be detrimental to one’s long-term stock-picking ability.

Equally, Haynes highlighted how emotional it is to “see your money going up and down every day.”

“If I can take that out, and focus on the bigger picture of what their goals are, I've gotten them almost half way there because we are focusing on the long-term,” he said.

And this ties back in with the firm’s long-term growth philosophy: to generate a roster of individuals that may not be strictly "high net worth" initially, but who demonstrate potential to grow wealth and become very profitable clients. Indeed, wealth creation comes in many shapes and sizes, from inheritance - or similarly sudden wealth - to building a business, for example.

For NextGen Wealth, the opportunities lie in identifying potential and helping clients along the way. Given recent noise about how lucrative the next generation of clients has the potential to be, and how some traditional players may need to re-think their overall offering and client acquisition strategy, creating a firm targeting this niche population of individuals doesn't sound like bad idea at all.

NextGen Wealth uses Loring Ward as its turnkey asset manager (the firm plans to add others in the next few months) and Charles Schwab as its custodian.