Advisor Profile: Investing in Youth

Between memorizing lines for upcoming student productions, Sophia Bera would steal away to the local Barnes & Noble near Minnesota State University at Mankato and head straight to the personal finance section. There, she immersed herself in the finer points of student loan repayments, the beauty of compounding, and 401(k) investing strategies. As a women studies and theater arts major, she says she was "determined not to be a starving artist."

Her diligence paid off. In 2005, at the age of 21 and three months after graduation, she bought her first home. Soon, friends were coming to her to ask for advice on their own finances.

"They wanted to know, should I put money into my company's 401(k) plan? How do I make a budget?" Bera says.

Bera realized she could make a career of offering advice, and she began to study for the Certified Financial Planner exam. By 2010, Bera was working at Cahill Financial, a financial planning firm, in Minneapolis.

"My friends kept coming to me and saying, ‘I really want to work with you,'" she recalls. "But the firm had minimums that they couldn't meet."

Bera saw the potential market in these young professionals. Though they hadn't yet amassed the mountains of assets that financial advisors require to begin offering advice, they had potential. And they needed professional help.

"People were going through these big life changes," she says. "They were getting engaged, getting married, buying homes, wondering if they should buy a car or lease a car. Should they be putting money in a Roth IRA? Their careers were growing, and they were starting to make more money."

She itched to work with her own clients. That chance came in 2010 when Bera was hired at LearnVest, an early entrant into the digital advisor space geared toward young women. LearnVest offered its clients remote access to a fee-only advisor and charged a subscription fee. Like her friends, her clients were just starting out and facing life's big financial decisions. There were lots of opportunities to steer them toward better financial decisions. But something was still missing. She wanted to strike out on our own.

Making Millennials Profitable In 2013, Bera formed Gen Y Planning. From the start, her focus would be on millennials and younger Gen-Xers. At 35, she's right in the middle of both those demographics.

Working with younger clients early in their careers, Bera says she's creating a sustainable practice for the long term. Coaching her clients on critical financial decisions today helps them lay a solid foundation that can have a direct correlation with how much money they will be able to amass. And as their wealth grows, so will her business, Bera says. Though she offers a simple menu of services, that's likely to change as her clients' needs become more complex.

"I don't even know if what I do will be called financial planning in 20 years," she says. "I'm more like a money therapist."

Most advisors aren't keen to work with clients still building their wealth. They want to work with them when they've already accumulated substantial assets. Under the traditional assets under management model, it's hard to turn a profit with millennials. At a fee of 1%, the industry standard, it would take a minimum of at least $500,000 to make it worthwhile.

With that in mind, Bera offers a different model. She charges a planning fee at the beginning of the relationship and a monthly retainer, an increasingly popular fee structure. Monthly retainers are an easy sell because millennials are used to subscription services such as Netflix and Amazon Prime. Bera's typical client pays $1,500 at the outset of their engagement and then $149 to $499 a month, depending on the complexity of the services the client needs. With 50 clients, Bera says her yearly gross is in the six figures.

"The industry is so focused on AUM, and that's going to be a problem for many advisors because all of these robo-advisors are coming in and pushing down the fees you can charge on AUM," she says. "The industry average is 1%, but what happens when a decade from now you can only charge half a percent?"

The retainer model provides a more stable revenue stream, she says. And it allows Bera to focus her clients' attention on where the real value is: the planning.

"Right now, people are giving the planning away for free and chasing assets," she says. "That makes no sense. Advisors are giving up a lot of money they could be making if they used a monthly retainer."

A New Type of Office What millennials prize, Bera believes, is flexibility. And her business provides it for both her clients and herself. As such, there's no physical office for client meetings. Though she launched her business in Minneapolis (she has since moved to Austin, Texas), her clients reside all over.

Instead of in-person meetings, Bera conducts hers by video conferencing, usually after her clients have put their kids to bed and can focus on their finances. It's a way to get inside people's homes and put them at ease. In the process, Bera says, she learns a lot more about what's going on in their lives, information she uses to help them in many other areas.

Bera doesn't put much emphasis on investing. She uses Betterment for Advisors, which creates investment models based on a clients' risk tolerance and time horizon. She uses Morningstar to research the exchange-traded funds that Betterment's models invest in.

"One of my core values is simple first, sexy later," she says. "If you want a complex stock-picking strategy, I'm not the person for you."

Outsourcing, Bera says, allows her to spend more time on what matters to clients, like student loan repayment strategies or credit cards. That has the potential to increase wealth much more than optimizing investments. So, for now, a barebones solution like Betterment suffices. But that can change. For example, several of Bera's clients are small-business owners or consultants, and they need access to a SIMPLE IRA or solo 401(k) for retirement savings, something Betterment doesn't offer.

The Next Generation of Planners Bera is a member of the XY Planning Network, a referral network launched by Michael Kitces and Alan Moore in 2014 to help young planners connect with millennial clients. Through the organization, Bera has worked with new planners to help them launch their own businesses. The key for young planners, she says, is to find their niche, much as she's been able to do with millennials. "There are tons of niches that people aren't exploring that much," she says, "like couples with special needs children."

Instead of worrying about the competition, Bera welcomes it. "I say, ‘Thank God,'" she says. "As much as I love working with 50 clients across the country, I can have even more impact by coaching 100 different planners to do the same."

• Sophia Bera, CFP, founder of Gen Y Planning.
• How she caught our eye: Runs practice geared toward millennials and young Gen-Xers.
• Career path: A dual major in women's studies and theater, Bera became a self-taught financial planning expert. In 2005, she enrolled in CFP courses and worked at a few planning firms as an associate before landing at LearnVest as a financial planner. Bera founded her own firm in 2013.
• Personal: Bera enjoys true crime podcasts and is learning to play the ukulele, like her hero, Warren Buffett.
• Favorite funds: Vanguard's LifeStrategy series.

The author is a freelance contributor to Morningstar.com. The views expressed in this article may or may not reflect the views of Morningstar.