Asset manager outlines how many of the exciting corporate names that millennials and gen Z might connect with are not available on public markets
Jay Bala doesn’t think that young investors get excited about a GIC or an S&P 500 ETF, especially not when an advisor is talking about them. Those strategies might be boring by design, but Bala says that young investors with even a cursory understanding of the industry know that they don’t need an advisor to buy them. Bala is the co-founder, CEO, and senior portfolio manager at AIP Asset Management and he argues that forging a connection with the next generation of clients involves giving them exclusive access to names they recognize.
“I think one of the points of connectivity for this industry has always been about giving people access to something they can’t get naturally and one of the ways to do that is to talk about a name that people understand,” Bala says. “30 or 40 years ago you got clients in the office by asking them if they wanted to buy Coca Cola stock, because that’s what’s in your fridge. Today advisors don’t talk about stocks, they talk about ETFs, but the reality is anybody can buy an ETF.
“I think the way you attract them is the old-fashioned way, you give them a brand they know and you show them that they can’t access this brand without you.”
Coca Cola stock, though, is not exactly being gate-kept by advisors anymore. Bala instead says that advisors will be able to find those exclusive names on the pre-IPO market. Bala notes that a few decades ago the pre-IPO market was for venture capital moonshots. Today, however, that market is replete with household names like Epic Games, SpaceX, and Open AI. Using those names as an entry point, he argues, can give advisors that immediate point of connection with younger prospects and the children of their baby boomer clients.
Bala is not advocating for young clients to go all-in on pre-IPO names. Rather, he thinks accessing those names can be a viable entry point for advisors to use, even if they follow that up with an allocation to more traditional public equity and fixed income strategies. He notes, too, that his own firm is currently working on a product that can access the pre-IPO market.
Curtis Holt-Robinson and Tara Lalehparvar agree that among young clients, an existing familiarity with a brand can help advisors market their services and encourage those young people to start investing. Lalehparvar and Holt-Robinson are the co-owners of Skyward Financial, an advisory team specializing in serving younger clients. However, they caution against playing too much to a demand for ‘what’s hot.’
“I think trend chasing is not a good investment strategy for the average person, especially if we're talking about a younger demographic who do not have a very sophisticated level of financial literacy and experience,” Lalehparvar says. “It can be a tool that [advisors] can use to related to millennials and gen Z. You can talk about these big names and shift that into talking about owning hundreds of different companies.”
While Bala sees an appeal in using products that access the pre-IPO market, he accepts some of the drawbacks that may come with them. For one, alternative investment products tend to have higher fees than public assets and many young investors exposed to DIY channels have been biased against the impact of investment fees. He argues, though, that the potential for alpha generation and the likely small allocations that a strategy like this would warrant should offset any major concerns about fees.
Lalehparvar and Holt-Robinson have seen the challenges that come with more of a focus on fees. They address those concerns with full transparency and education, about their own fee structure and about how the whole industry makes money. In the case of an alts fund with higher fees, they would outline why those fees are higher and how they might be justified in working with their client to decide what to invest in.
Fundamentally, Bala argues that more novel strategies like a fund accessing pre-IPO names should give advisors another tool in their kit. That tool can serve their clients’ goals of growing and preserving wealth just as it serves advisors’ goals of growing their books and connecting with the next generation of clients.
While Holt-Robinson and Lalehparvar agree that connecting to a brand can be a useful means of getting clients in the door, young clients are fundamentally motivated by the same drivers as other generations: achieving the life goals that come with building and preserving wealth.
“There’s the old marketing expression that you don’t sell the steak, you sell the sizzle,” Holt-Robinson says. “The investment instrument is important to understand, but the value of investing isn’t the product it’s the result. It’s that you can buy a home or you can retire well. That’s the important thing. I think advisors are marketing the wrong way if they’re trying to make a product look sexy.”
