Gen-X/Gen-Y Wealth Is Coming to Wall Street -- Financial Services Needs to "Catch the Wave"

The differentiators and qualities displayed by Gen-X and Gen-Y need to be well-understood and addressed to attract the the next wave of wealth.
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Baby-boomers (those born prior to 1946) are a generation typified by their competitive streak, idealism and eagerness to put their own "stamp" on things. They've lived through booming prosperity and recessions. As compared to their parents (traditionailists) who were patriotic, loyal, conservative, and, so displayed fierce loyalty to their financial institutions. Now the differentiators and qualities displayed by Gen-X and Gen-Y need to be well-understood and addressed to attract the the next wave of wealth. It is also important to consider the source of the wealth. Its is a combination of "wealth inheritors" (from BabyBoomers) and "wealth creators" (IPOs, technology) and even sometimes both!

Wall Street must get to know the new wealth generation and change its old models. They must adapt or die. Smart Wall Street firms have been noticing this paradigm shift and are adjusting for it. Some large banks are even changing the way their offices look for greater appeal to next gen. Gen-X and Gen-Y are turned off by stuffy conference rooms in iv-covered buildings. They equate the look of the office and the state of its technology/client interface . To address this, some global private banks have designed new + wired offices to create a comfortable environment to suit that generation. The space will drive engagement where the bank can provide programming to serve this audience-in real life. Digitally, these firms will add robust and real social media initiatives. training programs and create bridges between social media while understanding of compliance issues and operating in high regulated environments .

What are some of the ideals which are important to Gen-X and Gen-Y? What went wrong in previous revenue models and compensation programs to help boost firm's profits yet bring nothing to the end investor? Where did Wall Street go wrong in the past? Can Wall Street change to learn about Genx-Gen-Y? What should they say? How and where can these messages be communicated?

To gain perspective on this and find out the sentiment of Gen-X /Gen-Y, I sat down with my friend, Josh Brown aka @theformedbroker.

The Reformed Broker is Josh's personal brand. A "reformed broker" is one who has switched from to wealth management side from a broker's mentality. Wealth managers are paid a percentage of the portfolio for investment advice vs. the broker model which compensates brokers per transaction. This leads to potential conflicts of interest as brokers might be inclined to consider recommending a greater number of transactions as these lead to their own revenue. Wealth management is considered to be a more client-centric pay model.

The notion of firm's making money while handling transactions which are losers reminds me of the story behind the movie/Broadway smash, "The Producers." The same premise of making money while producing a flop applies. And the same idea applies to Wall Street. Firms were making money while essentially, producing "flops" for clients. They were paid regardless of the performance of the portfolio. Many times the broker made money while the client lost money. Someone needed to reveal this truth. Gen-X/Gen-Y's qualities are in general natural skeptisc, highly adaptive, self-reliant and more. It was this combination which would lead to Josh's Browns own career change. His unwillingness to accept the "way things are" are indicative of the generational shift which firms must adjust for. I am using Josh as a use case. I think there are lessons to be learned by thinking about Josh's own path.

Josh began blogging as a way of talking about his own career, Wall Street, financial services industry, vent frustrations, and more. This led to a huge social media following of like-minded folk leading to gigs with CNBC, MSNBC and more. His personal brand of honesty, wisecracks and smart ideas even lead him to write a book to expand his writing beyond blogging.

In an easy + fun read, Backstage Wall Street, Josh deconstructs some of the most iconic Wall Street beliefs and structures through his lens--GenX/Y. For example, he says that since brokers are typically paid by transactions and thus can be motivated to "churn" a client for some cash of their own. That's one of the flaws in the transactional pay model. Wealth managers are paid as a portfolio prospers and thus their compensation more tied to performance and service. This is a key swing, says Josh. This typifies the "backstage" which Josh felt compelled to reveal.

Josh says, "Gen-Xers were getting started as investors between 1995 and 2000. As a result, they are far less enamored with stocks than the baby boomers. Also they are ambivalent about whether or not they are 'in the market' BabyBoomers have had a different experience as they were in their peak earning and investing years synced up with one of the best market performances in history--1982-2000. "It's my experience that they get more excited about the markets performance when things are good."

I was also curious about what Josh had to say about Gen Xers as financial advisors. Were they best suited to handle next gen peers? How did their investing style, etc differ from their parents? According to Josh, the "dirty little secret" is that there simply aren't many Gen X advisors today. He said. " The average age of a Wall Street adviser is 50. I was born in 1977 (in between Gen X and Gen Y) and the best and brightest of my generation went into Wall Street careers like investment banking or trading. Being an advisor wasn't 'cool" Also, the large banks used to conduct a variety of training programs. These programs were eventually cut, combined with younger advisors being laid-off during that time and those assets were 'kicked-up' to older advisors. If this happens over a ten-year period, before you know it, the whole workforce is gray."

Josh and I see social media at the intersection of wealth management, transparency and Gen-X/Gen-Y. We are frustrated with the general "clumsiness" in financial services to find their social voice. Social media and compliance regulatory are natural enemies who must find peace. As his own use case, Josh had a grassroots group that followed his viewpoint on the markets, economy and some laughs. (Part of Josh's own appeal is in his humor! He is really funny in a serious industry!) Josh says that, "Initially, I used social media as my primary means of learning about the markets. Since then, I have forged hundreds of important relationships with some of the brightest minds in finance as a result of being "out there" on social media platforms. I can't even imagine running my practice without the intelligence that I derive from my network." I concur. Josh and I met over social media we would each say that it has been a force mutiplier in creating a network of valuable connections and relationships t.

How will Gen-X/Gen-Y demands change Wall Street? Josh sums it up like this, "Why stay at the supermarket when you can open a gourmet deli down the street, give clients more and better selections and keep more of what you earn?" In other words, it's difficult for wirehouse advisors to compete with independents. There are increasing numbers of advisors "going independent" and moving their clients to smaller, more nimble and feature rich platforms. Again this will bode well to attract next gen investors.

Wall Street Version 2.0 -Gen-X/Gen-Y will need to morph and adopt those values to engage the wave of new, younger wealthy clients. Social media will be the natural place for Gen-X and Gen-Y to go to find out what's happening on Wall Street. Some firms also will have their own private social networks for next gen clients to use for engagement. How financial services firms (and others) engage with clients will be need to be an iterative process to succeed.

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