Investor demographics are shifting, and that should be a wakeup call for the financial industry. Over the next five years, the whole of baby boomer clients is estimated to drop from 46 percent to 43 percent, and senior clients are estimated to make an even sharper drop from 23 percent to 14 percent.1 On the other hand, Gen X and millennials are poised to represent a collective 41 percent of financial clients — a jump of around 11 percent over current statistics.1
Populations age, so this is hardly news to financial advisors. Statistics like those noted illuminate the need for a change of focus from baby boomer clients who are largely in the decumulation phase of their portfolios to attracting younger generations of accumulators. While the prevalent trend is to focus on millennials, Gen Xers cannot — and should not — be ignored.
By 2030, members of Generation X are projected to quadruple their assets to an estimated $22 trillion.2 The 37 to 52 year olds who make up this group are in their prime earning years and are established decision makers in senior management or entrepreneurial enterprises more so than boomers or millennials.2 These indicators suggest financial fluidity, yet 43 percent report being behind on savings and 37 percent believe they will not be able to afford retirement.3
Why the disconnect? Gen Xers were hard hit by the housing collapse of 2007 and the ensuing financial crisis.2 Pair this with carrying six times more college debt than their parents did and more general debt than any other generation, and a partial explanation is revealed.2
A larger issue also emerges. More than half of Gen Xers are not working with a financial advisor, the majority of whom state they prefer to manage their own assets.2 However, this generation is often overlooked by financial professionals and, in turn, does not feel empowered to seek out advice.3 As a solution, about 40 percent have turned to robo-advisors for assistance.4 The trend may suggest a growing comfort with technology, but it also reflects a level of mistrust between these natural-born skeptics and financial advisors.3
Generation X prioritizes trust over technology when it comes to financial advice, but their trust isn’t easily earned by financial advisors.2 You must prove how a professional relationship will add value and perhaps improve their financial position. To do so, use these three areas of emphasis to guide meaningful conversations with prospective Gen Xer clients:
- Life-stage planning is essential. Gen Xers tend to be midcareer accumulators. While not necessarily detrimental in and of itself, the sandwich generation often carries financial responsibilities for parents and children in addition to themselves. Advisors can help Generation X take control of competing financial demands by modeling certain situations — children attending college, aging parents — and developing an individualized, comprehensive plan for covering these costs and still saving for retirement.3
- Saving for retirement cannot be put off. Determining the reasons behind why Gen Xers may delay saving for retirement may not be as important as emphasizing the long-term cost of the delay — often totaling hundreds of thousands of dollars in as little as 10 years. Since around 40 percent of Gen Xers prefer not to think about or concern themselves with retirement investing until they are closer to their retirement date5, financial advisors can run the hypothetical numbers to illustrate the dollars-and-cents consequences that Gen Xers could face.3
- Understand your risk tolerance. Gen Xers commonly miscalculate their risk tolerance, leading them to more exposure to losses or, conversely, missing out on growth opportunities by being too conservative. Since this generation could realistically be in retirement for up to four decades, managing equity growth and fixed-income investments may maximize future buying power and financial success. A financial advisor can help strategize a balance between high- and low-risk investments and introduce tools to find that risk/reward comfort zone.
Reaching the next generation of retirees and forming meaning client-advisor relationships with them requires understanding Gen X’s unique needs, characteristics and mindset.
Article provided and written by Cuna Mutual Group
1Investment News, New report sounds alarm over demographic changes facing advice industry
2FinancialPlanning, One demand from the generation advisors need most
3U.S. News & World Report, Why Gen X Investors Shouldn’t Go It Alone
4MarketStrategies International, Cogent Reports: Gen X Powering Robo-Advisor Growth
5MarketWatch, Generation X: Don’t slack on your retirement