Here’s How You Win Hundreds of Prospective Tech Millionaires From the Wall Street Firms
Tech startups are set to have a big 2019. Unicorn companies like Slack, Airbnb, and Palantir are set to IPO this year. Hundreds of their employees are about to gain equity shares worth multiple millions and will need advice on how to invest their new wealth.
Hiccups like Morgan Stanley’s handling of Uber’s May IPO — when it both handled the IPO that sank in value upon listing and loaded clients to its pre-IPO fund — have arguably thrown into the harsh spotlight the need for investment clients to have independent advice.
“There are hundreds of Uber employees making a couple million dollars or more in equity from its IPO. If you’re an RIA serving account sizes between $1 million and $4 million, there are a lot of people who need good advice out there,” Palecek says.
Many startups are also bought by companies like Google, Salesforce, and Amazon, and can lead to people receiving significant payouts, says Palecek. But finding these clients can be tricky, and advisors hoping to capitalize must use digital marketing and have the right talent to serve them.
About 70% of Summit Trail Advisors’ clients are tech-focused entrepreneurs or employees at tech firms with between $250 million and $1 billion in assets. Most are partially compensated through equity shares.
Use Digital Marketing to Reach Tech Employees
Why start with digital marketing? For one, it’s the native environment for the target prospect. More than any other client type, these tech workers will look first to the internet and their social media feeds for an idea of which advisors can serve them.
Reaching employees of pre-IPO firms can be difficult — if not impossible — without an established digital footprint, sources resoundingly tell FA-IQ.
Sacramento-based RIA Towerpoint Wealth claims to have cracked the code. “We are generating six new business leads with tech firm employees every day,” Joseph Eschleman, president of $200 million AUM Towerpoint, says. And his digital marketing is the cause, he says.
To establish its credibility in the market, and to make itself searchable to tech prospects, Towerpoint published a white paper on LinkedIn about Restricted Stock Units. A financial instrument that most tech employees would understand (or eventually research), Restricted Stock Units act as promises of company shares that vest over time.
In exchange for their name and email address, viewers scrolling through LinkedIn could freely read the white paper, Eschleman says. By getting the names and email addresses of readers, Towerpoint could then contact them as new client leads.
“It really helped fuel the firm’s growth with tech employees,” he says. Using digital marketing on LinkedIn is particularly key to Towerpoint’s growth with technology clients, Eschleman adds. “From a cost standpoint, LinkedIn is priced very well. But we also have a Facebook page where I post every day, and I sometimes write on Twitter as well,” he explains. Eschleman also claims RIAs are uniquely positioned to capitalize on tech clients over the wirehouses.
Sudden Money Institute
“I was with Wells Fargo for 18 years. The average FA there was not particularly tech savvy,” so relating to younger tech clients can be difficult for them, Eschleman says. Additionally, “no one at any of the big Wall Street firms can harness digital advertising as needed to reach these digitally-oriented clients, because [big firm employees] either don’t know how or aren’t allowed,” he claims. At Wells, Eschleman could post on LinkedIn but was limited to using pre-packaged content or original content delayed up to 48 hours for clearance, he says. “Liking” or commenting on people’s posts was prohibited.
“It creates a perfect storm in a way. We have one 38-year-old client that sold their business to Slack and was paid in Slack shares. Now that Slack is set to IPO in June, it creates a big liquidity event,” Eschleman says. “Many of these clients can be multi-millionaires by the time they are 35 and they are in need of advice.”
There are, of course, still substantial compliance issues for digital marketing. But solutions for RIAs are increasingly effective rather than prohibitive, says the advisor. Towerpoint outsources its compliance needs to Advanced Regulatory Compliance. “It hasn’t been difficult following SEC regulations” about advertising.
Servicing Tech Employees Means Having the Right FA Staff
Advisors need to retain tech clients after finding them -- and that means having the right staff to fulfill their needs.
“You need a significant higher-level of expertise for someone going through an IPO than other clients, because you are providing completely different advice. FAs need to talk about the drivers of clients’ wealth and their business, [or the business they are a part of]. It all comes together and that means understanding the nature of the business each client is in,” David LaPlaca, founder and CEO of $661 million RIA Intellectus, says.
Intellectus has an advisor with 25 years of M&A investment banking experience expertise on staff to service these clients, LaPlaca says. He is used to dealing with companies going through IPOs and can provide specialized advice to employees of tech firms or startups going through that process, he adds. He understands the employee remuneration contracts and the financial instruments of the M&A process.
Summit Trail Advisors
The situation for such clients is completely different from a lot of client relationships because these people have not yet harvested their wealth, Evan Schmidt, financial advisor and shareholder of $400 million tech employee-focused Schmidt Financial Group says. “A lot of smart decisions need to be made to harvest the wealth. And that requires a completely different advice set than someone who walks into the door and says I have a bunch of money and need advice,” he says.
Palecek also recommends RIAs focus on building out their FA team to serve these clients.
“Find great advisors who have some experience dealing with clients like this, including a tax advisor that knows the legal and estate sides of business. Between those people you can knock out most things,” he says. From there he recommends RIAs start their own “personal advisory boards for pre-IPO planning” and find an estate attorney. The estate attorney comes into play in the upper echelon of advice where clients have “more money than they will ever spend in their life,” Palecek says.
Keeping Tech Clients
Winning your first equity-holding tech client isn’t easy, Schmidt warns. It can be “a bit of a chicken and the egg situation,” he says. You need one tech-focused client to win others, but it’s hard to win your first client without others, Schmidt explains. “I am fortunate that I am second-generation at this business and don’t have to solve the major chicken or the egg problem,” he says.
Schmidt Financial Services entered the market when Evan’s mother Glenda Schmidt founded the firm to serve people at Microsoft holding significant single stock concentrations and grew its startup technology-focused client base from there, Evan Schmidt explains. Schmidt Financial targets equity-holding tech employees with between $2 and $5 million in assets.
But even without a long-standing pedigree, tech clients can be won over with intelligence and competence -- and hard work and persistence, say Eschleman and LaPlaca.
“You have to play in traffic to be successful and eventually if you do, you will get hit,” Eschleman claims. “Never say never. I built my career after the crash of 2000. It’s always possible,” LaPlaca adds.
And it gets easier after the first win.
“Since we focus on a niche where clients move from company to company, they often tell each other about our services and we gain a wider tech sector footprint,” Schmidt says.
Within the RIA space there are also “not that many well-respected RIAs out there. In any given market you can very quickly build a short list of the good firms doing a bulk of the good work,” Schmidt claims.
Technology-centric clients mean huge business for RIA firms, Susan Bradley, founder of the Sudden Money Institute, says.
“Advisors don’t know if it calls for a one-time liquidity event or a longer-term move. If you get it right, they could turn into good long-term clients,” she says. It might only take one client at a burgeoning tech giant to open the door to more clients at that same firm, Bradley says.
With established books of business, Schmidt Financial Group, Summit Trail Advisors, and Intellectus all now rely solely on referrals for new business.