The Wealth Issue on Wall Street

Generation X millionaires and their financial advisors speak out
For Elite Advisors Managing Affluent Investors September 2008 • Volume 18, No. 9
High-net-worth investors
Eric Schnell (left),
Mark Selden (middle),
and Jarrod Kahn (right)

<strong>The</strong>y’re young,
they’re rich and
they’re not afraid
of risk.
This new generation takes a
different approach to investment
advice. Informal referrals from
their friends are the rule.
And they put advisors through
their paces.
Meet the
GEN X
Millionaires
By Helen Kearney
Photography by David Lubarsky
ONWALLSTREET

WHEN FASHION INDUSTRY ENTREPRENEUR JARROD KAHN FIRST DECIDED
he needed help managing his finances, he signed up with his father’s long-standing advisor.
While he appreciated the conservative, steady approach that had worked well for his parents,
Kahn, 39, felt he was missing out on the gains that his friends were enjoying from a more aggressive
style. “I felt that I was a lot younger than my dad and I was just looking to be a little more
aggressive [and] a little more diversified,” says Kahn, who has shifted his account to financial
advisor David Binstock at Oppenheimer. He now enjoys a diversified portfolio that includes
investments in hedge funds and real estate.
Kahn’s experience is far from unique among Generation X clients
(roughly between the ages of 28 and 42). According to Northern
Trust’s 2008 <strong>Wealth</strong> in America study, Gen Xers have a markedly
different approach to investing from their parents and grandparents.
Not only are they unwilling to blindly take on their parents’ financial
counselors, they’re also opinionated about the attributes they look
for in an advisor when they strike out on their own. From a round of
interviews with the young jet set and their advisors, it became clear
that past performance and impressive returns aren’t sufficient to gain a
Gen X client’s business. What’s even more important to this generation
is a feeling of assurance that the individual advisor has integrity and
trustworthiness. As a result, these clients tend to rely more heavily on
recommendations from friends and colleagues when making their
selections. <strong>The</strong>y are more likely than previous generations to use their
personal lives as networking possibilities, down to their children’s
soccer games and other sports events.
Gen X investors also have shown an enthusiasm for alternative
investment vehicles, such as hedge funds and currency funds, that
has largely escaped their older counterparts. Just like the early baby
boomers who invested in plastics because that’s what was hot in their
day, today’s Gen Xers came of age when alternatives were all the rage.
And that, at least in part, has shaped their investment outlook.
Advisors agree that their younger clients are more likely to be
aware of these investments than older clients, who tend to cling to
the traditional stocks/bonds/cash portfolio construction. Michael
Dadich, a Los Angeles-based advisor with Oppenheimer & Co., says
it’s harder for older clients to accept alternative investment tools that
have become popular over the past decade or so. “For younger clients
in their thirties, it’s all they know. It’s normal for them,” he says.
Indeed, according to Northern Trust’s survey, Gen X households
have an average of 23% of their assets in alternatives, compared
with 13% for boomer households. And the more aggressive Gen X
approach is most noticeable in some of the specific asset allocations.
For example, 15% of Gen Xers have invested in structured notes while
just 6% of boomers have done so; 14% of Gen Xers have invested in
currency funds compared to 6% of boomers; and managed futures
funds have enticed 15% of Gen Xers versus 7% of boomers.
One observation that emerged from the interviews with advisors
and their Gen X millionaire clients was that most younger customers
are generally thought to require less liquidity than their older, retired
parents and grandparents. <strong>The</strong>y can afford to tie up their funds in
alternative investments that may have a 10-year time horizon.
But there was also some disagreement with this rule of thumb.
Greg Ghodsi, 44, an advisor at Raymond James & Associates in
ONWALLSTREET
North Tampa, Fla., who oversees about $250 million in assets, doesn’t
generally use alternatives with his younger clients in the $2 million
to $3 million range. “When you’re dealing with younger people with
growing families, expenses tend to be higher than they anticipate,”
he says. “<strong>The</strong>y could also have times when they’re between jobs or
want to start a business. If their money is tied up in alternatives, it
pinches a person.” On the other hand, for older clients, Ghodsi says
he recommends putting around 5% to 10% in alternatives.
If younger clients do want to invest in alternatives but are concerned
about tying up their cash long-term, some advisors recommend setting
aside an emergency fund. Dadich, and his partner, David Binstock,
require that clients keep at least six months of living expenses in
short-term cash to cover emergencies, such as the loss of a job.
Sometimes, a Gen Xer’s zeal for alternative investments can go too
far and needs to be reined in. Shane Brisbin, an advisor with Smith
Barney in San Francisco, says that some of his clients demonstrate a
little too much tolerance for risk. “Many of our clients are business
leaders and natural risk takers. Sometimes we have to encourage
them that they don’t need to take that much risk in their personal
finances.” Still, Brisbin, who oversees about $2.3 billion in assets, is
a proponent of alternatives provided they suit the individual client’s
needs. About 40% of his clients are under 45 and are primarily involved
in technology, venture capital and private equity.
ATTRACTING YOUNGER CLIENTS
Not surprisingly, advisors with a higher proportion of Gen X
clients tend to be in a similar age group themselves. Younger advisors
naturally tap into their social circles to gain access to this group. Ghodsi
of Raymond James says that indulging in his passion for soccer has
benefited his business. “We’ll be out kicking the ball or at a game and
someone might ask questions about investments,” he says.
Others say that the age-old methods of networking and connecting
with prospects are especially important with this group. Younger
clients are looking for answers and advisors just need to position
themselves properly to snag that business, says Jeff Martinovich,
42, chief executive of Newport News, Va.-based MICG Investment
Management. “Younger people starting to make good money but
[who] don’t have a financial advisor, are asking their friends: ‘Who
do you use?’ That age group is a lot more relationship driven,” he says.
Martinovich finds that community activities, being on the boards
of charitable organizations and country club memberships are good
tools for building such relationships.
Referrals and word-of-mouth marketing play out even
more so in select industries, says Rob Bodio, 39, an advisor with
continued on page 40

Eighties fashion may
be something most
of us would rather
forget, but for Gregg
Marcus, it provided his fi rst
foray into the business world.
As a 10th grader in the suburbs
of Long Island, New York,
Marcus eschewed the regular
after-school gigs of his friends,
stacking supermarket shelves
for minimum wage. Instead he
saw an opportunity in the craze
for Olivia Newton-John style
headbands. Getting discounted
material from his father,
who worked in the garment
business, Marcus and a high
school buddy started making
the headbands in his family’s
living room and selling them at
local flea markets. Not satisfied
with this, Marcus also managed
to sell the headbands to
wholesalers and department
stores, including JCPenney.
After high school, Marcus went
to college for a year but quickly
decided it wasn’t for him. “I
was chomping at the bit to get
out and do my thing,” he says.
When he was 21, he moved into
“I trust him. When he
asks me to write a check
and invest, I think he’d
write the same check
and invest himself.”
Gregg
Marcus
Age: 42
Company: Somerset
Mortgage Lenders,
Melville, New York
Advisor:
Steve Brett
Age: 44
Merrill Lynch,
Locust Valley, New York
AuM: Over $40 million
the real estate business and
eventually struck out on his
own starting Somerset Mortgage
Lenders, which arranges
residential mortgages for one
to four-family homes. It now
provides approximately $300
million per year in lending.
As success came, Marcus
hired a local advisor who had
a good reputation for investing
in mutual funds. “Trusting
someone with my money was
a little concerning at fi rst,”
he says. “It was my money,
I busted my ass for it.” After
seeing some steady returns,
Marcus was convinced to invest
with another broker friend
who was enjoying the heady
profits of the tech boom. But
then came the bust. “For a
year or two it was okay, and
then one day I saw the carpet
pulled out from under me and
everybody,” he says.
<strong>The</strong> experience made Marcus
wary of the markets and
the financial advisory business,
so it’s hardly surprising to hear
his foremost requirement for
a fi nancial advisor: trustworthiness.
And he believes he’s
found that with his advisor of
two years, Steve Brett from
Merrill Lynch’s Locust Valley,
New York branch. “He’s not
pushing anything on me,” says
Marcus. “I trust him. When
he asks me to write a check
and invest, I think he’d write
the same check and invest
himself.”
Marcus met Brett through
his children’s sports teams.
Brett started a football league
in the local school district and
that made an impression on
Marcus.
Brett says: “I’d shown
[Marcus] integrity and trust
based on some of the things
I was involved in the community.
With running the league,
I’ve shown an attention to
detail and an ability to put
other people’s interests ahead
of my own.”
Marcus initially asked
Brett to work on his company’s
401(k) plan and was impressed
by his interaction with the
employees and his successful
boosting of enrollment in the
plan. He now also takes care
of Marcus’ personal fi nances.
But Marcus is cautious at the
moment, investing primarily in
blue-chip stocks and mutual
funds. As a result, he doesn’t
feel the need to be in constant
contact with Brett, and says
their monthly phone calls and
quarterly reviews are suffi -
cient. “I think that because I’m
in the space that’s brought this
contagion, this whole global
nightmare, I’m more conservative
now than I’ve ever been,”
says Marcus.
ONWALLSTREET

Jarrod Kahn knows
his business from
the ground up, literally.
As a teenager
he spent summers working
at Cipriani Accessories, the
business his father and uncle
started. His job? Sweeping
the floors, along with packing
boxes and loading trucks. But it
ignited an interest in the family
business. “I would go to work
every morning with my father
and we always discussed the
business,” Kahn recalls.
School, however, was a
different story. Kahn struggled
with a learning disability and
found studying tough. Despite
this, he graduated from Northeastern
University in Boston
before returning to New York
to join Cipriani.
While he no longer had to
sweep the floors, there were still
few family privileges and he was
put to work as a salesman cold
calling. He worked his way up
in the sales department and five
years ago he became co-chief
executive officer. Cipriani, with
annual sales of approximately
$100 million, currently has licensing
agreements to manufacture
accessories for the likes of Calvin
Klein, Lacoste and Guess.
Jarrod
Kahn
Age: 39
Company: Cipriani
Accessories,
New York City
Advisor:
David
Binstock
Age: 38
Oppenheimer & Co.,
New York City
AuM: $250 million
(combined with
partner Michael
Dadich)
Around the same time he
took over the co-CEO role, Kahn
began to question his choice of
advisor who had worked with
his father for years. “I just realized
that his advisor was right
for him but not for me,” he says.
Kahn was looking for a slightly
more aggressive and diversified
investment portfolio that would
suit his stage of life.
Gen X’s Next Gen
WHILE MANY GENERATION X INVESTORS ARE
shunning their parents’ view of fi nancial advice
and going their own way, the children of existing
clients still offer a potential source for building your
Gen X client base, provided you position your
services in the right way.
Merrill Lynch has done just that. To reach this
group and hopefully ensure it remains attached
to the fi rm, in 2004, the fi rm’s private bank set
Kahn tried a few advisors before
settling with David Binstock,
from Oppenheimer & Co., who
he knew from college. Binstock
recommended a diversified portfolio
that included alternatives
like hedge funds and real estate.
While Kahn felt he’d missed out
on some of the gains of past market
runs, he was still concerned
about the risks. “My nature is to
be conservative. I earn my money
working in my business; that’s
my expertise. I didn’t want to
be too risky with my personal
investments,” he says. Kahn
believes Binstock helped him
strike the right balance and feels
comfortable speaking to him at
least once a week, particularly in
the current down market. “I felt
in the past that you can become
just another number. David is
looking at my investments and
calling me to discuss them,”
Kahn says.
Binstock has a face-to-face
meeting with Kahn every quarter
to review his portfolio and sends
him a monthly report. Binstock
believes that being a Gen Xer
himself has been advantageous
in attracting clients. “Being with
someone who’s about the same
age brings comfort. <strong>The</strong>y’re
working with someone who is
their peer,” says Binstock.
Kahn has also recommended
Binstock to friends. “He cares
about his clients, it’s his number
one priority,” he says.
up client advisory boards, made up of the bank’s
customers, to provide feedback and suggestions.
<strong>The</strong> message from the boards was clear. It wasn’t
the performance of their portfolios or investment
strategies that was on the minds of the bank’s
wealthiest clients; it was how their children and
grandchildren would cope with their wealth, says
Karen Klein, a director in Merrill’s private banking
and investment group.
In response, Merrill set up fi nancial “boot
camps” for the children of their private banking
and advisory clients. Participants range in
ONWALLSTREET

Eric
Schnell
Age: 37
Company: Steaz
Bucks County,
Pennsylvania.
Advisor:
Michael
Dadich
Age: 39
Oppenheimer & Co.,
Los Angeles
AuM: $250 million
(combined with partner
David Binstock)
Eric Schnell likes to
practice what he
preaches. As the cofounder
of an organic
soft drink company that promotes
natural foods, fair trade
and environmentally friendly
business practices, he feels his
personal investments also need
to reflect his philosophy. “I may
not make as much in one of my
investments as maybe another
company that’s not socially responsible,
but I can sleep better
at night knowing that the money
I put in is doing good in the
world,” he says.
Schnell’s social conscience
was developed early. Growing
up in Boston, Mass., his
parents were “die-hard hippies.”
Schnell’s mother owned
a wellness center that offered
natural therapies.
age from 21 to their early 40s, with most of
them in their late 20s. <strong>The</strong> camps are run
in conjunction with the business schools
at Wharton, the University of Chicago and
UCLA, and last for two and a half days. <strong>The</strong>y
include classes on understanding fi nancial
concepts as well as topics such as talking
to others about wealth, sharing assets with
siblings and pre-nuptial agreements. “<strong>The</strong>y
fi nd that for the fi rst time they are able to be
open about their concerns, their lifestyles
and their challenges,” says Klein.
Schnell’s financial advisor
of three years, Michael Dadich,
is very open to his approach. In
fact, Dadich’s partner, David
Binstock, actually helped Schnell
devise a 401(k) plan that
invests in socially responsible
funds to offer his employees.
Steaz, the company Schnell
co-founded in 2002, produces a
line of organic sparkling green
teas and beverages. Three years
ago it took in a minority equity
investment from Maris Acquisitions
and three months ago
Swiss-based Inventages private
equity fund invested $10 million
in the beverage company. Steaz
is on target to hit sales of $14
million for 2008. Schnell intends
to sell the company within the
next five years.
Schnell sought out Dadich’s
advice three years ago when his
business started to expand. As
a former broker on Wall Street
himself, Schnell knew what
<strong>The</strong> entry requirements are stiff. For the
private banking camps, the family must have
a net worth of at least $50 million; for the
advisory camps, at least $25 million.
While there aren’t any advisors present
at the camp, Klein says it still makes the
participants more interested in fi nancial
affairs. “<strong>The</strong> goal isn’t to turn them into
MBAs,” she says. “We want to have them
feel comfortable with the language of fi nance
and be able to ask questions of their advisors
and at family meetings.”
he wanted in an advisor. “I
was looking for an advisor I
could trust, that also has an
unbiased opinion of the products
he recommends and is
very proactive in his approach,”
he says. He asked friends for
recommendations and Dadich’s
name stood out.
<strong>The</strong>y now speak once or
twice a month. “I know Eric’s
a busy guy,” Dadich says. “He’s
in a high-growth phase of his
business, so he wants to do the
initial meetings and then hand
it off to someone. That’s where
the trust comes in.”
Right now, Schnell and
Dadich are focusing on estate
planning, in anticipation of the
sale of the company, and sticking
to safer investments such
as blue-chip stocks, mutual
funds and Treasuries. Schnell
wants to stay fairly liquid in
case an opportunity arises for
the company to acquire another
brand. “But I look forward to the
day when I can call my advisor
and say: ‘Hey, we’re sitting on
$25 million right now, let’s have
some fun,’” says Schnell.
ONWALLSTREET

It’s Mark Selden’s time to
be aggressive. At the age
of 34, he believes he can
afford to take some risks.
“If I’m going to roll the dice on
some speculative investments,
now’s the time to do it. When
you’re older and the family is
growing, you don’t want to
gamble as much,” he says.
Selden’s willingness to take a
chance started early. He recalls
being a six-year-old trying to sell
finger paintings on the corner
of his block for $10 each. His
father, concerned his son would
be disappointed by the lack of
interest, suggested he sell them
for $1 instead, and then maybe
someone would feel sorry for
him and give him a quarter. “I
said, ‘yeah dad but if I sell them
for $10 maybe someone will give
me a dollar,’” Selden says.
Mark
Selden
Age: 34
Company: CrosStar
Network Solutions
and diversified
business interests,
New York City
Advisor:
Jeff
Martinovich
Age: 42
MICG Investment
Management,
Newport News, Va.
AuM: $200 million
After graduating from
Syracuse University, Selden
started a calling card company,
which evolved into CrosStar
Network Solutions, his telecommunications
consultancy that
helps businesses find the lowest
rate carriers. Along with that
firm, Selden has investments in
a number of businesses, including
New York-based restaurant
chain Big Daddy’s Diner.
As Selden’s business interests
expanded he felt he
needed some help managing
his personal fi nances. He met
his current fi nancial advisor,
Jeff Martinovich, seven years
ago at an event for the Young
Presidents Organization, a
leadership and networking
group. He was impressed by
Martinovich’s frank approach
and knowledge of the markets.
“When he talked about the
markets, he talked about them
realistically,” he says.
Martinovich is a keen proponent
of alternative investments
as a diversification tool. He
generally invests 5% to 20%
of a portfolio in alternatives.
“So many people boom and
bust,” he says. “In tough market
times, [using alternatives]
means younger clients don’t end
up riding a roller coaster.”
Selden is impressed by the
variety of investment opportunities
that Martinovich offers and
appreciates how he guides him
through the process, explaining
what the investments are and
why he thinks they’re a good
match for his portfolio. And, he
says, the returns have also been
impressive. But that’s not all that
keeps him with Martinovich. “I
trust him because I know whatever
I’m doing he’s doing as well.
He’s risking his own money as
well,” Selden says.
continued from page 36
Wellesley, Mass.-based GW & Wade. Approximately one-quarter of
Bodio’s clients are under 45 and a number of them have made their
money in the technology sector. Bodio notes that technology is a
tightly-knit community. “<strong>The</strong>y’ll tell each other about their [advisors]
and they say: ‘If it’s good enough for this guy, who’s my colleague or
boss, and I trust him, then it’s good enough for me.’”
Another finding from the Northern Trust survey shows that
Gen Xers communicate more frequently with their advisors than
previous generations. In fact, 61% of those surveyed say they prefer to
collaborate with their advisors compared to 50% of boomers.
However, the form of communication they favor can differ. Bodio,
who oversees nearly $300 million in assets, says that younger clients
prefer email conversations and WebEx meetings. “Nine-tenths of
correspondence and meetings are done over the Internet. Getting
them in for quarterly meetings is nearly impossible,” he says. When he
ONWALLSTREET
does have face-to-face meetings, Bodio has learned to keep his dress
style fairly casual. He recognized this after turning up for a meeting
with the chief executive of a technology company only to realize that
he was overdressed in his regular suit and tie. “He comes out of the
elevator wearing cargos, a black Ramones T-shirt and a pair of Vans,”
Bodio recalls. Now the advisor sports khakis and a golf shirt for such
occasions. “<strong>The</strong>y’re not looking for a cookie-cutter financial advisor.
<strong>The</strong>y want someone who fits their profile,” he says.
Smith Barney’s Brisbin also finds differences in the way his
younger clients communicate with him. <strong>The</strong>y don’t necessarily
contact him more often, but they tend to do more due diligence
before hiring an advisor. “<strong>The</strong>y make you put in sweat equity to
win their business,” Brisbin says. “We present a lot of scenarios and
models before we even win the business and that analysis makes
the clients feel comfortable with us.”