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Catching Young Wealth In The Tech IPO Wave

Harriet Davies

22 December 2011

With companies like Zynga and – potentially in the near future – Facebook going public, a wave of initial public offerings among technology companies could create a burgeoning group of young, affluent and tech-focused individuals, says Stacey Haefele, president and chief executive of HNW, Inc, a marketing firm catering to financial services institutions.

With a list of internet and social media-related IPOs in 2011 likely to be followed by one from Facebook in the near future, there is a lot of stock option wealth being created by this sector, especially as technology start-up companies often lure bright young things with stock ownership deals. But private banks and independent advisors probably aren’t getting ready for this “to the extent that they should,” Haefele believes. “I don’t think the industry has got the sense of how big this might be,” she tells Family Wealth Report.  

The scale of the wealth that can be created can be indicated by the fact that the Facebook IPO is expected to value the social networking giant at over $100 billion (source: Wall Street Journal).

Haefele's own background may be one of the reasons she’s alert to the IPO opportunity. She started her career in investment banking, helping US firms find suitable businesses to merge with in East Germany in the period of privatization – or “matchmaking,” as she puts it. She then moved into management consultancy and onto marketing, and specifically the marketing of services, working at Digitas before joining HNW Inc around 12 years ago, shortly after the firm was founded.

“We’re appealing to a very particular segment, and within financial services – which is very competitive but often commoditized,” she says. What draws her to this is partly the challenge of marketing products and services “which are hard to differentiate and hard to understand.”

The young and self-made wealthy

This is particularly the case with younger clients, which the wealth management sector has found notoriously hard to engage. It’s a critical challenge, as whether by inheritance or newly-minted business wealth, the share of wealth held by this younger generation will grow significantly in the next few years.

“I don’t see a lot of capability in addressing this age group” at traditional firms, and they are not “well-equipped” for the young mass affluent and entry-level high net worth, says Haefele. Because of this, she says independent advisors could “stand to gain” but are not that well-equipped either.

Many wealth managers have been thinking about the younger generation, but mainly in the context of client retention as they become inheritors. Luckily, Haefele believes that to an extent “you solve one you solve the other.” With the caveat that at the ultra-high end of the wealth scale matters are different, largely people have the most in common with others in their age group, she says. So “if you solve the issue of how to talk to young people” in general, you’re a large part of the way there, she believes.

Getting involved

Firms - and individual advisors - need to hit some key basics, according to Haefele: firstly, they need to be discoverable on the web. “If you want to court the generation working in internet start-ups, you need to be online - in particular in social media,” she says, adding that without a good web presence you won’t make it past the first hurdle. “It’s a tough step in financial services but you have to take it,” and part of this is having your company and advisors visible in searches, as this is this group of people’s first source of market research.

Another way of reaching this market is targeting certain industries, such as through technology and social media conferences. “It wouldn’t hurt the independent advisor to visit, and show an interest in the industry where the wealth is being created,” says Haefele. This is one route into discussing IPOs with some of these people, and therefore their potential needs post-IPO.

“These people might not know the kinds of needs they will have: what happens when you’re 'rich' but only on paper? One problem they’ll have a very concentrated stock holding,” she gives as an example.

Because of this, it’s best to approach this gently, and as a “needs-based conversation” so that they can start to see the value of financial planning. She views this as part of a broader trend towards a goals-based form of wealth management.

Beyond branding

Similar to other self-made HNW individuals, this group is more likely to be focused on their jobs than on their money, says Haefele.

“Gen Y - also known as 'Millenials' - may be more receptive to brands, but is also more skeptical of a sales pitch; they won’t respond to financial jargon; they don’t like to be sold to and they will seek multiple sources of reference. They are possibly a more discerning consumer when it comes to authenticity,” says Haefele, and says that they’ll see if you’re interacting on online forums and “saying something real, something smart”. Essentially, a brand is not as simple as an image that can be created with advertising and marketing campaigns, but something three dimensional that should involve many channels of interaction, and positioning your advisors as thought leaders, for example.

“They’re not as drawn to brand, more to substance,” she says. The challenge is authenticity, and considering your events and sponsorship program is also important, says Haefele. On the other hand, she adds, this business is not as likely to be referrals based, as these are newly affluent people whose peers might not yet have wealth managers.

Another issue is the way that Gen Y may not discern between reliable and unreliable sources of info. “Just because you read it in a popular blog, doesn’t make it true,” she notes. “As a brand person it’s a fascinating problem: you can see it as a huge challenge or a huge opportunity.”

Another factor to consider if you’re vying for the young, “techy” crowd is who your employees are. If you can recruit staff who will be in similar circles and have an interest and knowledge about new technologies, this could be an advantage, points out Haefele. Or for banks with wealth and investment banking arms, this crossover can be leveraged as it relates to tech IPOs, although she adds that private banks have “struggled to do this well” in the past. But once you have the right staff in place, one of the main ways of interacting with the younger generation is through social media, which throws up all kinds of compliance issues. For social media to work you have to “loosen the reins a little and allow staff to be themselves, that’s what these channels are all about,” says Haefele.

One problem with this is separating the personal and professional communications. As Haefele puts it, if her “LinkedIn, Facebook and Twitter ‘selves’ all met at a cocktail party: would they all be the same person?” Separating or unifying various online presences is “tricky”, but it is vital despite this to have some kind of online professional personality to make connections, because many of these high net worth individuals “don’t have a fundamental interest in investing,” she says, so if you can’t make them care about that, you’ve got to “find what moves them and meet them on that level."