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Chasing HENRY, the Hottest New Prospect

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Forget about “Where’s Waldo?” The search is on for HENRYs. That is, “High Earners, Not Rich Yet.” Forward-thinking advisors are pursuing this millennial subset, a young demographic packed with potential, as New York City-based advisor David Edwards, founder-president of Heron Wealth, told ThinkAdvisor in an interview.

Edwards, managing $295 million in assets, began prospecting for and cultivating HENRYs about four years ago. These clients now bring in 5% of revenue. Why pursue “High Earners, Not Rich Yet”? Because the vast majority of Edwards’ clients are aging baby boomers.

He realized that winning the accounts of folks 25 to 34 years old with lucrative jobs was a smart, necessary move to carry on his successful independent practice once the older generation dies off.

Edwards even has a young certified financial planner on his team who devotes her time exclusively to prospecting for and serving HENRYs.

These men and women comprise a distinct market segment — the term was originally defined with respect to families — whose advisory needs are different from those of their elders. For example, HENRYs are focused on financial planning, grappling with a load of student loan debt and how to save for a house or apartment.

Of course, HENRYs need a more casual approach and communication by phone and texting as opposed to face-to-face meetings.

Edwards, 55, formerly with Morgan Stanley and J.P. Morgan, charges HENRYs a $100 monthly subscription fee. Once an individual’s assets reach $150,000 ($300,000 for a couple), they’re switched to an annual asset-based fee of 0.75%.

Building a budding book of HENRYs is an outgrowth of Edwards’ practice transformation initiated 16 years ago when he ambitiously decided to grow AUM from $75 million to $1 billion. That required expanding from a one-man shop to building a diverse team of advisors, as well as undergoing an extensive technology overhaul. His growing firm is located in a lively Midtown Manhattan co-working space a few blocks from Grand Central Terminal.

ThinkAdvisor recently spoke by phone with Edwards, who named his firm “Heron” after the river-bank wading bird that waits quietly till it spies a fish, then quickly spears it. “We’re spearing opportunities as they come by,” says the wealth advisor. Here are excerpts from our interview:

THINKADVISOR: Why are you devoting resources to acquiring HENRYs?

DAVID EDWARDS: Some firms are focused on millennials, but most advisors are leaving the HENRY market untouched. We’re happy to swoop in first. My corporate strategy is to remain 18 months ahead of my peers.

When did you decide to prospect for HENRYs?

A couple of years ago we were confronting the issue of how to work with the 25-year-old sons and daughters of my clients. We have a $1 million minimum. If we said to them, “I’d love to work with you. Come back when you have a million dollars,” I’d never hear from them again. So I would have created a risk that, as my clients age, I would no longer have a value firm.

Then you sought HENRYs beyond your own book?

Yes. Once we figured out how to serve the sons and daughters of our clients, we started to look further afield. Certainly in New York City, there are plenty of young people making $200,000 or $300,000 a year but who are still paying off many thousands in college loans. So if we wait until they have significant assets, we probably will lose the opportunity to someone else.

How do HENRYs differ from boomers and other older clients?

HENRYs are very comfortable and confident doing a lot of [things] online because that’s all they ever knew. They’re not looking for the same service package as their parents or the same face-to-face conversation my older clients are accustomed to.

How do you prospect for HENRYs?

If you’re a creepy old guy like me, 55 years old, you probably aren’t going to have a lot of traction. You need to hire a younger person. I’ve heard of firms that go as low as 25 on their HENRY advisors, but someone around 30 or 35 is perfect. They understand HENRYs’ lives, so it makes the conversation go more easily and closing go more smoothly.

So one of your advisors, Samantha Gorelick, a 32-year-old CFP, is dedicated to working exclusively with HENRYs. How’s she doing?

Struggling to keep up with the pipeline she has. She’s already working with 15 clients that are sons and daughters of my clients, but she also has 15 clients of her own. She probably meets 50 people in a month and converts five to clients.

Why do HENRYs like working with Samantha?

She understands their career situations, their roommate situations, their desire to text instead of meet face-to-face. If she does meet with someone, it’s usually at a coffee shop. That’s much more casual, as opposed to my meetings with clients over a meal at a restaurant or at the Yale Club.

What’s your best advice to FAs who would like to cultivate HENRYs?

You can’t give them “advice lite.” You need to give them “advice different.” You’ve got to recognize that their interests run a lot more toward financial planning, a little toward investing and that estate planning isn’t even on their radar. They want to get rid of their student loans and when they’re in their 30s, buy a house. When they reach their 40s, that’s when they’ll focus on retirement.

Why did you decide to charge HENRYs a $100 monthly subscription fee?

We thought: How much do millennials pay for a gym membership or cell phone service each month? We provide sufficient service to be a value to them.

When a HENRY’s assets grow to $150,000, he or she starts paying a 0.75% annual AUM fee. Is it equitable for a 30-year-old to pay $750 a year on $100,000, while a client who’s older pays $7,500 on $1 million?

The more money you have and the older you are, the more complex your family gets and the more you need our time. We’re always trying to match up the fees we charge with the amount of time needed to take care of clients, plus pay for all the overhead and still leave some money for me.

Where do you find HENRYs to prospect?

Our offices are in WeWork, a very cool, hip co-working space, where the average tenant is 30 years old. Samantha can stand up and see her prospects 10 feet away. She’s also acquiring clients as she makes her way around New York — like, at the gym and a young professionals organization [for women] that she belongs to, the Six Degrees Society.

Do you too prospect in your office workspace?

I’ve fallen into conversations with young people while getting coffee in the public area. I explain what we do, and they get very excited. Then I hand them off to Samantha.

I assume she works up a financial plan for each client?

Right. The most common issue is how to get rid of student loans. Everyone has them, and $80,000 isn’t [an uncommon] number. The second question is: How much should I start saving to achieve my goal, like buying a house or apartment?

Does Samantha show them how to pay off those loans?

Absolutely. She’s developing expertise on how to renegotiate to lower the cost a bit or what would happen if [a HENRY] keeps putting half their bonus against the loan. How quickly does it go away?

How else does she help clients?

She [received a referral] of a 27-year-old investment banker who has about $100,000 saved up and would like to get married and buy a house. He’s starting to recognize that he’s already looking at thousands of choices. So it’s worth it to him to spend $100 a month to get out of the realm of trial and error and learn the right way early on.

Any especially challenging financial planning problems that Samantha has dealt with?

Today she was working on a very complicated question with someone who a lot of restricted stock and employee stock options. They were trying to figure out how to pull enough money out of that to get a down payment on a house by paying the least amount of taxes.

What about investing in the market? What are you recommending for HENRYs?

As we start putting these clients’ money to work, we put them in the most plain vanilla ETF index funds or mutual fund index funds. The days of creating excess return are over — and I say that as a guy who 20 years ago used to beat the averages. That’s impossible now. So we’re focused on stability and liquidity and trying to get a reasonable shot at matching the blended benchmarks each month; for example, 90% S&P 500/10% Barclay’s Aggregate Bond Index. The easiest way to do that is with plain vanilla index funds — either a mutual fund or ETF version.

How do you accommodate HENRYs’ preference for taking care of business — of all kinds — online?

Very early on, we send them an email link to our client portal, where they self-onboard. They’ll go through an online questionnaire and fill in answers [concerning] 12 topics: What do I want to do? What do I worry about? What’s my timeframe? They can connect their checking account, credit card, student loans, investment account — if they have one — their 401(k)s [etc.]. So within minutes, they have their entire financial life on their phone, which is exactly where they want it to be.

Do you think any of your HENRYs would prefer the robo-advisor experience if you offered it?

There are some extreme do-it-yourselfers that love the robo platform, but they will never be my clients. Between November 2014 and March 2015, we asked [our] HENRY clients and some of our [other] younger clients if they’d like to try using a robo. We had chosen Betterment. They all said no thank you. They want us to push the buttons on their rebalancing, not them; and they didn’t want the responsibility. The uptake was zero, so we stopped offering it. 

Do the other FAs in your firm prospect for HENRYs too?

No. We have three advisors. I focus on executive families because I’m that person [patriarch]. Elizabeth Caputo, a [woman] in her late 30s, focuses on professional women because she’s that person. And Samantha focuses on HENRYs [as above]. So what we’re seeing is that like attracts like.

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