Tomorrow's millionaires

While some financial planners are already capturing younger customers, many more are overlooking a market that is poised to become a major force to be reckoned with. Louise Weihart reports.

While some financial planners are already capturing younger customers, many more are overlooking a market that is poised to become a major force to be reckoned with. Louise Weihart reports.

Matthew Hayes is a 25-year-old locksmith who saves $170 a week. It is automati-cally transferred into a cash management trust and reinvested once it builds up into a reasonable amount. "I can see the rewards already," he says.

Matthew is one of a new breed of young investors who recognise the benefits of starting financial planning initiatives as early as possible. And, while some financial planners are already tapping into the youth market, many more are ig-noring an area, which although not a great money spinner now, is set to become one in the future.

The youth market has not been considered a priority by many advisers because young people usually have smaller amounts to invest and are thus considered less lucrative than traditional markets like retirees.

Recent research, however, shows that the message about saving for the future is hitting home and that younger people are increasingly becoming a viable poten-tial market for financial planners.

A survey of about 2000 young adults aged between 18 and 35 conducted over the Internet by Mercantile Mutual's new dollars.com.au development site showed a definite shift in priorities from saving for clothes, cars and travel to saving for a home.

"These results are an indication that young people understand the changing eco-nomic environment and the need to become self reliant, particularly as the aging population puts pressure on the government to wind back social security pro-grams," says dollars.com.au project manager Angus Beattie.

He adds that 72 per cent of those surveyed, and who did not already have a fi-nancial planner, said they would consider using one in the near future.

A study by MLC of tertiary educated and currently employed younger people, aged between 25 to 35/40, yielded similar results.

The study divided its subjects into two segments: 'young starters', which ac-count for 20 per cent of the population, and 'nest-builders', which make up of 10 per cent of Australia's people.

It found that 'nest-builders' are more likely to be married with children, own residential property with the associated expenses and be more cash-strapped than their young starter counterparts.

While both groups are not wealthy now, both already invest to some extent and have ambitious future investment goals.

Young starters have been putting their money into investment property, income protection insurance and interest-bearing securities. They also plan to invest in managed funds. And, they place great importance on diversified portfolios.

Around 60 per cent of nest-builders have direct share investments and are equally likely to have income protection insurance. They also view superannua-tion and the share market as lucrative future investment options.

MLC found that 40 per cent of 'young starters' already use financial planners, while 50 per cent of 'nest-builders' are likely to seek advice in the future.

MLC general manager of marketing Martin Crawford says: "The majority of our cli-ent base is currently in the pre-retirement or retirement stage and, although the youth market won't represent significant profits for us or financial plan-ners in the short term, it definitely will in terms of life-time value."

Against this backdrop, MLC is gearing up to attract the youth market's business. Not only is it developing investment systems designed for the convenience-seeking, time-poor segments, such as its MasterKey non-discretionary master trust vehicle, but it is also enhancing its e-commerce abilities and concentrat-ing on making its brand more contemporary.

Meanwhile, many financial planners, particularly younger ones, are already reap-ing benefits from the youth market, mainly from high-income earners in creative and dynamic industries.

John Foley, for one, aged just 26 himself, is a prominent player in the youth market, which he sees as the growth area for his business. "Age," he says, "is no barrier to wealth creation. The same tools available to the 25-year-old are available to the 50-year-old."

Also, contrary to traditional thinking, Foley believes that many in the 25 to 35 age group have more disposable income than their older counterparts.

Foley, who boasts IT and advertising executives, self-employed entrepreneurs and investment bankers as customers, says: "I've got clients in their 20s earning $120,000 a year. They have more disposable income than many 50-year-olds I know, who are tied to mortgages, debts and commitments to children's education."

"The young are more interested in saving for a deposit for a home, than saving for retirement, and are generally not interested in investments, like superannu-ation, which they cannot touch for 30 years," he adds.

"They are also much more interested in tax-effective investments, share market trading, how they can use gearing to increase their potential for higher earn-ings, and a whole range of instruments like options, futures and warrants."

Foley advises young investors to choose young financial planners, who will join them on the journey though all the stages of their financial planning life.

He says planners should start relationships that "may not be all that lucrative now, but that will lead to long-term, value-added relationships, with the plan-ner taking care of all the client's financial needs from initial wealth creation to transferal of wealth to the next generation".

About 60 per cent of Kelsons Financial Services' business, started just five years ago by Kate Kelson-Butterworth, comes from the youth market, mostly young professionals operating in the IT and consultancy fields.

She says: "The youth market is a particularly rewarding market in which to oper-ate. I have highly interactive relationships with my clients, and they are really eager to learn about investment options."

Helen Jones, national marketing and communications manager of AM Corporation, adds: "Young people are definitely more aware of the need to invest than any other generation before. About 40 per cent of our investors are under the age of 35 and some 10 per cent are under the age of 25.

"However, while interest is high, we've found that there is often a wide knowl-edge gap that needs to be filled by education and professional financial plan-ning advice."

To this end, AM Corp is setting up an Internet learning centre, based on similar ones used overseas, to provide an educational resource both to its clients and financial planners.

Perhaps the greatest challenge facing financial planners, however, is being able to relate to and understand the needs and objectives of the youth.

"Young people are operating in a much more sophisticated financial environment in terms of choice and opportunity than their parents. But, unlike previous gen-erations, they're much more consumer aware and have a high comfort level with technology," Jones says.

"When young people want access to information, they want it fast and they're not wary of using the Internet; in fact, they expect to. Of the 2000 members who signed up for our website after a recent promotional campaign, most came from the youth market, as do the more than 100 who are currently signing up each week."

On the importance of this market, Stewart Paul, author of the Marketing Refer-ence Series newsletter, notes: "There is a whole generation out there that is getting used to managing its own finances and which may well be able to bypass financial planners in the long run.

"Financial planners, today, especially the younger ones, would do well to look at ways of starting client relationships that will pay dividends in the long run."

Typical profile of the younger investor

High-income earner in a dynamic industry

Willing to take more risk for a higher return

Always on the lookout for the next good investment opportunity

High dispo