“We believe young adults are an underserved market,” says Steve McClain, Vice President of Direct Marketing for American Century. “They don’t know where to go to get started, and they feel like they don’t matter. But over time they are really our future.”

Financial services companies are beginning to understand and tap the potential of this market—adults in their 20s and 30s. While their pocketbooks may be shallow now, the paybacks of providing wealth management services to young adults will deepen and multiply as their wealth grows.

Wooing Young Wealth   

One of the most comprehensive regional marketing strategies aimed at young investors is American Century’s mywhateverplan.com. The site, which mainly targets 28 to 35 year-olds, allows investors to open an account with a $500 minimum investment, with a $100 minimum monthly contribution. It directs clients to invest in one of two portfolios, depending on their goals and risk tolerance, and it offers access to an online financial coach for advice.

While this pre-packaged approach to investing may have been rejected by baby boomers who tend to prefer face-to-face consultation, American Century believes it provides an ideal forum for a generation of tech-savvy young adults who prefer the Internet’s convenience and interactivity over more traditional methods of conducting business. The “My Whatever Plan” Web site came out of two years of research in which American Century conducted one-on-one interviews with their target age bracket, user testing of the site, and even a class project on college campuses in which marketing students were posed with the challenge of how to engage young people in investing.

“We found that the best way to reach these folks is online,” says McClain. “An easy in and out experience on the Web is critical. People in this demographic don’t necessarily want to be experts, but they want services that are easy to use.”

UMB is also catering to a younger, tech-savvy audience through podcasts on umb.com. Topics range from “Investing in Your Twenties” to “The Car Buying Experience” and are posted on both umb.com and Apple’s iTunes.

“I think listeners were surprised that a traditionally conservative financial institution in the Midwest would even know what a podcast is let alone produce and distribute one that is not only informative but also entertaining,” says Andrea Carroll, UMB Assistant Vice President and Assistant Director of Marketing. “The Web is really evolving into a hub of interactivity for consumers, and commercial Web sites need to respond to that trend. Ultimately, we are trying new ways to reach customers and prospects when, where, and how it’s convenient for them.”

Many financial services companies do not currently have a comprehensive marketing plan in place to attract young adults. Yet they’re probably communicating to this group through existing channels, such as parents who are often already long-time clients. Another way to reach out to young people is through a financial company’s own young employees.

“Most of what we do is through networking. Most of my financial advisors belong to different clubs and organizations. We’re hiring young people as advisors right out of college, and they work with their natural peer group,” says Rick Funke, Managing Principal for Waddell & Reed.

Many banks seek to attract young professionals as customers for wealth management services through their commercial banking departments, which have groups dedicated to specific industries, such as medicine or law.

“Our medical banking group will work with clients as they employ new physicians, for example, and we’ll work with these young professionals as they accumulate wealth,” says Scott Boswell, Director of Sales Management and Senior Vice President for Commerce Trust Company.

The Minds of Young Investors

Today’s young adults tend to switch jobs much more frequently than their parents’ generation, thus they will often roll a 401(k) or IRA plan several times. They won’t have the benefit of a pension plan to support them during retirement and they know they won’t be able to rely on Social Security to the extent retirees did in the past. Armed with this knowledge, young adults are increasingly proactive when it comes to saving for their own futures. Yet one of the challenges for financial companies in working with young adults is that their approach is much different than that of older generations.

“Many young people have a high level of knowledge. They are coming into the workforce very in tune, and while they might not have a lot of assets they are asking the right questions—they are putting a blueprint together early even though they don’t have the assets to execute it,” says Steve Soden, Chairman and CEO of Country Club Financial Services Inc., a subsidiary of Country Club Bank.

Soden also notes that his company is receiving a lot of interest in financial planning services from single young women. Soden believes that because women are waiting longer to get married, they are thinking more pro-actively and independently regarding their own future financial security.

Peter Mallouk, President of Creative Planning Inc., observes that younger investors are typically “far more aggressive” than older generations. This is due to the length of time they have to recuperate from dips in the market, as well as the fact they have not experienced as many low market fluctuations as their elders have.

Funke notes that one of the challenges his staff encounters in working with young adults is that they often are carrying a lot of debt, such as student loans, car payments, and credit card debt. “We have to come up with a plan to both take care of the debt while saving for the future,” says Funke. 

Never Too Early to Start

The most obvious reason to start investing and saving at a young age is the power of compounding. The sooner you start, the more time your money will have to grow. In addition to time being on your side when you’re young, starting a wealth management plan at a young age typically leads to 1) developing good habits that stick, and 2) the ability to create a more comprehensive, longer term—and often more successful—financial plan. Soden calls this a “lifestyle mentality.”

“If young people get into the habit of investing and saving now rather than spending everything they make, they have the opportunity to set themselves up well for the long haul,” says Soden.

“Wealthy people invest in context,” says Mallouk. “They don’t just throw their money into various investments. They have an overall financial plan with long-term goals and invest in vehicles with the highest probability of getting them the return they need. The longer the time horizon, the higher the probability any given investment mix will produce close to its expected return.”

Chris Costello, CEO of The Retirement Planning Group, recommends that young people put together an overall plan that includes maxing out retirement accounts when possible, systematically tackling debt, establishing a “rainy day” cash account with three to six months worth of living expenses, and putting term life and disability insurance policies in place. He also urges that people under the age of 50 be invested heavily in equities versus bonds.

In addition to the wealth of financial planning information and investing tools available online, many financial planners are willing to meet face-to-face in order to create a plan for a flat fee. This is often true even for clients who may not have enough assets to meet some planners’ minimum account size.

“A big misunderstanding is that you have to have a lot of money to work with a financial advisor,” says Funke. “Waddell & Reed’s sweet spot is the middle class and upper middle class. We work with people from their first job out of college through retirement.” 

While young adults’ wealth may be meager now compared to their parents’ generation, it will grow exponentially in the coming years, and financial companies can’t afford not to begin making this group a priority.