Quick question: The kid over there in the scruffy jeans, pecking away at his laptop in Starbucks. Is he updating his MySpace profile, or emailing his employees some final thoughts about an upcoming product launch? The young woman headed into the gym in sweats and a T-shirt at 10:30 in the morning-is she an underemployed twenty-something with nothing better to do or a highly compensated programmer whose flex-time schedule lets her hit the gym when she pleases?

Today's crop of upcoming high-net-worth investors don't look or act like the suspender-clad "masters of the universe" who personified youthful wealth in the 1980s-a fact that investment advisors need to take to heart as they consider books of business crammed with aging baby boomers.

Contemplating the looming impact of generational change, Markus Schunk, head of asset management at KPMG Switzerland puts in stark terms the facts facing everyone who makes a living advising people about their investments. "The funds management industry has been catapulted forward on a rising demographic tide," he says. "That tide is now receding. Over the next five years the number of people pushing into wealth accumulation will turn negative. The industry must take stock, examine its position, and recalibrate its trajectory to align with the rise of Generation Y as wealth creators and wealth inheritors if it wants to continue to grow and prosper."

For investments advisors, tapping into the Generation Y market doesn't necessarily mean setting up hundreds of small IRAs and 529 accounts and hoping to hang on to those clients as their income increases. Plenty of Gen Yers are making big money already. A study conducted earlier this year by the Center for Media Research found that among Americans earning six-figure incomes, there are more people under 35 than there are people over 54. Across 87 major markets represented in the survey, there are 23.2 million adults living in households with an annual income of more than $100,000. Of those, the survey found, 6.2 million, or 26.6%, are under 35, and of those, 36.9% are under 25.

Among these high-earning members of Generation Y, investment advisors will find a large crop of independent-minded investors, some of whom will be hard to sell on the idea of opening an account through their bank. Evangeline Monroe, 29, who began her real estate investing career at age 19 and became president of Skyline Equities Realty of Miami in her mid-twenties, is one example. Monroe left Skyline earlier this year to concentrate on her second career as a recording artist, although she remains on Skyline's board and consults for the company. She also runs her own real estate investment company, Future Homes Inc.

The only investment she makes through her bank is in CDs, where she places funds between real estate investments. She has a nodding acquaintance with the bank's investment advisors, but doesn't invest with them. "I know them and they know me, but they also know the returns I've been getting on my real estate investments, and we decided that the CDs are really the only thing that makes sense for me," she says.

However, Monroe is all too aware of her need for some kind of investment advice when it comes to planning her retirement. She maxes out a traditional IRA every year, she says, but has those funds sitting in a Fidelity money market account. "I know I need to change that, that it isn't a good idea to have that money just sitting there," she says.

When the time comes to allocate those assets for the long term, she plans to consult an advisor. Whether that advisor will be based in a bank, though, remains in question. Monroe says that she will be looking for someone with a broad base of knowledge about investment products because she doesn't want to get shoehorned into a mutual fund only portfolio. "I will want to know how well they have done with other clients," Monroe says. "Statistics are important to me-I want to know the average return for their customers."

Despite her generation's comfort with the Internet and online financial transactions, she will be looking for an advisor to place the trades for her because she already has enough to do. "I have other things going on," she says.

But for every Evangeline Monroe, there are others of her generation who see value in a bank-based advisory relationship. Philip Mikal, 32, co-founder of San Francisco-based Cardit, a third-party bill-payment service that lets customers use a credit card to make mortgage payments, does his investing through a bank-based advisor at HSBC. "When I first got a brokerage account, I started off with Schwab in the late 1990s and early 2000s, I was buying a lot of tech stocks and I took a bath," he says. "Why should I ever do that again? My advisor would have told me to sell when I didn't."

Having started four different businesses at his relatively young age, Mikal is financially savvier than most and does the majority of his investment research himself. "My investment style is conservative," he says. "I like funds that pay a fixed rate of return with protection from downside risk."
Mikal's favorite investment is the Permanent Portfolio family of funds, where he focuses on fixed income offerings. But he still relies on his advisor for input and guidance, and is willing to pay extra for trades because of that. "My relationship with my account manager at the bank is very much, 'If you want advice I'm here for it.' I guess you could call my investing self-directed, but my advisor is there if I need to bounce ideas off him."

WHO DO YOU TRUST?

So how do investment advisors reach out to the younger high-net-worth investors? First and foremost, by understanding that this is a generation of investors who have a very different mind set than their parents did when it comes to investing for the future.

"This is the generation that has seen major companies totally wipe out their parents' retirement accounts after they worked there for 30 years," says Bryan Sims, CEO of Brass Media, a Corvallis, Ore., company that provides financial education materials to twenty-somethings. "They don't trust easily." Sims speaks not just from professional experience, but from personal knowledge as well. He founded Brass in 2003 at age 21, when he was a college student.

According to Deloitte Consulting, the new generation of investors "came of age during a time of incredible change and scandal in modern organizations" and was, at the same time, "the most hovered-over generation ever in our country" enjoying "unprecedented parental supervision and advocacy."

These two facts go a long way in explaining what this generation will want from a relationship with a financial advisor: They will want significant personalized attention, but they won't necessarily reward that attention with unwavering trust. This sets the bar especially high for bank-based advisors.

"In a lot of cases, if investment advice is a secondary service offered by a financial institution, it's not going to be high touch enough," Sims says. "If they are going to go with an individual, they will want to understand what's going on. They want the options explained to them, and the pluses and minuses."

Younger investors are more skeptical about the type of investment products advisors recommend. "They are going to ask questions like, 'Are you just selling me one of your own products because it is one of your products, or is it really the best fund for my future?'" he says.

This is also the first generation for which online discount brokerage firms were never a novelty, so making the case for a commission-based service is a particular challenge for investment advisors looking to attract its investors.

"You can't compete on the same business model as an e*Trade or a Sharebuilder," Sims says. Where bank-based financial advisors must stand out is on the education and service side. "People are scared of beginning to invest if they don't know what they are doing," he says. This creates an opportunity for bank-based advisors to put themselves in front of younger investors. He recommends holding free seminars and distributing educational periodicals targeted to a younger audience.

Constultant KPMG conducted a global study, Beyond the Baby Boomers: The Rise of Generation Y, about Gen Y for fund management companies seeking to sell to, find, hire and retain the next generation. Its findings are illuminating for advisors about how the industry views members of Gen Y in terms of what they are looking for in financial products, what kind of work lives they expect to have and where fund management firms go to recruit them (see "How to Sell to Generation Y," below). Interestingly the study found that while "50% of fund management companies see the need to engage Gen Y as customers over the next half decade," only 13% had developed strategies to do so. The industry's wide range of responses about how to reach Gen Y customers indicates that the industry is either "unsure how to attract Gen Y customers or where different approaches are appropriate for different products."

But the venues they chose, college campuses, coffee shops, concerts-correspond to those that Sims recommends for seeking out Gen Y. He also publishes the youth-themed Brass, a personal finance magazine which sells advertising to financial institutions-particularly credit unions-and is distributed through branches as well as directly to schools for use as a teaching aid.

"GOOGLE IT"

But far and away the best way to reach the next generation of young and wealthy is not by distributing pamphlets or setting up a table in the student union. It's having a vibrant online presence. Asked how she planned to research brokers, Monroe, the young real estate entrepreneur in the market for an advisor to help allocate the assets in her IRA, provided a two-word reply: "Google it."

She has been to banking conferences and other events, she says, where information was available, "but you really don't get as much information there as you do online."

Providing information-preferably lots of it-is key to attracting Gen-Y customers. "The way this generation thinks is: 'First I need to understand why I should set up a Roth IRA,'" Sims says. If a particular financial advisor can be the person who provides that explanation, whatever the forum, he or she stands a good chance of getting that individual's business. "In this market, education is going to help drive sales," he says.

Wealthy young people are more common customers for the investment advisors at First Tech Credit Union in Portland, Ore., than they are to many advisors. The 15-branch credit union serves high-tech workers in Portland and Seattle, and reports that some 11% of its investment clients are in their twenties and thirties-more than double the percentage typical at most credit unions, according to Kevin Mummau, senior vice president of program development at CUSO Financial Services, a third-party marketer to credit unions based in San Diego.

Kelly Corah, senior vice president for investments at CUSO, which provides the investment platform for First Tech, says that surveys of young investors have taught her and the representatives who work for her that they can rarely expect to be the only source of investment advice these clients have. "We see younger members doing a lot of their own research and coming to us knowing a lot about what they want," she says. "We are not going to have their total relationship; they are going to be at diverse financial institutions."

Deborah Colby, vice president of marketing and business development at First Tech, says that whereas in years past an investment advisor might have expected to be a client's primary source of ideas about how and where to invest, the new generation tends to use them as a sounding board for plans already being made. "The research comes in largest part from family and friends, and social networking sites like MySpace and Facebook," she says. "They will often use the advisor as a validation tool to verify what they have learned on their own."

FAMILY AND FRIENDS

Advisors looking to tap into the younger market would do well to recognize just how tightly connected members of Gen Y are to their friends and family on a day-to-day, even minute-by-minute basis. While their parents might have kept in touch with old college friends through annual Christmas cards, Gen Yers keep them up-to-date on every aspect of their lives through text messages, email and social networking websites.

Colby said that while previous generations may have felt awkward discussing their finances with peers, Gen Y is more likely to consider money matters a normal subject of conversation with friends. This means that an advisor with a good relationship with a few young people can leverage those relationships into referrals at a rate that would have been more difficult to achieve with prior generations.

Not all high-net-worth Gen-Y investors will fit into the mold of the high-tech worker or Internet entrepreneur. Experienced advisors like Charley Fry, now senior vice president of sales and relationship management for LPL Financial Institutions Services, points out that whether by inheriting their parents' abilities, or just their money, a significant portion of high-net-worth Gen Yers will be the children of the previous generation's high-net-worth individuals.

He says that advisors are making a major mistake if they don't leverage their existing high-net-worth clients to gain access to their family members. "If you're only advising an individual or a couple, you are probably not really advising them at all," he says. "Reps who position themselves better as multigenerational advisors are going to self-replicate their book of business. And if you are an investment rep who is only focused on one client and not on their entire extended family, you aren't going to be their rep for long."

WHAT ME WORRY?

Fry has noticed that the new generation of investors believe strongly in the ability of investing to make them rich-or in the case of high-net-worth clients, very rich. "The older baby boomers, I don't think they really thought about getting rich," he says. "I think because of the dotcoms and the awareness of the real estate markets, there is a greater awareness among the younger generation of the ability of investing to build wealth." What scares him about these investors, he says, is their willingness to discount the risk of investing in the markets, which rises from the assumption that the markets will just keep rising.

Greg Salsbury, an executive vice president with Jackson National Life, agrees, pointing out that to succeed with wealthy Gen Yers, advisors need to have a grasp of how this generation approaches financial planning. "There are psychological differences between those who grew up with scarcity and those who did not," he says. "The majority of the post-boomers didn't grow up with scarcity. They are accustomed to buying $4 cups of coffee a couple times a day without blinking. The boomers' parents and the boomers themselves had some degree of scarcity and it weighed heavily in their financial planning."

But instead of plotting out how to survive financially in the event of low-probability, high-impact events, like a severe economic depression, the post-boomer wealthy are far more likely to talk to their advisors about self-fulfillment and having options, he says. "Where a boomer looking at a job offer would ask, 'What will this job pay me and what is the career path?' The post-boomer is more likely to ask, 'Is this fulfilling, is this fun, and will I want to be doing this in five years?'" Salsbury says.

Bob Davidson, a vice president with Old National Investments in Terre Haute, Ind., says that the bulk of his high-net-worth clients are boomers. But as he approaches the younger generation of clients, he has learned a number of things. "As with any generation of clients, communication is the key and we have to be able to adapt to our clients and relate to them at their level," he says.

Like fellow advisors, he finds the level of sophistication of many younger high-net-worth investors is greater than that of the generation before them. "As a group, I think they may be a little more experienced with investing or at least have had more access to information about investing," Davidson says. "They are also more tech savvy, so it is important to have the technology available to help them to understand how to reach their goals - things like financial planning and asset allocation software really help give them a process to go through that is real and understandable."

To that end, Old National Investments, a subsidiary of Old National Bank, provides clients with a software package that includes modules for retirement and education planning. "It is the nature of our industry that commissions and fees are going down and I think the value is in the relationship," he says. "What we sell is a commodity so we have to find a way to provide the value."

There is one final value that Gen-Y investors want in their relationship with a financial advisor: Respect. "On a day-to-day basis, I wear jeans and a T-shirt, or cargo shorts and a T-shirt. But I own my own company and I am, financially, pretty successful," says Sims. When he steps into a financial institution, he is looking for someone ready to talk to him on a peer-to-peer basis. "The No. 1 thing that you hear young people complain about in interactions with financial advisors is that they feel that they aren't really given the time or the credibility they deserve," he says.

While the kid in the coffee shop may not look like he's packing a thick wallet or the deed to a mansion, it's the financial advisor who can see past appearances to deliver what these new potential clients really want who will have success with high-net-worth Gen Yers.

Rob Garver is a freelance journalist living and working in Northern Virginia.