X Marks The Spot
By Jeff Schlegel
Generation X usually isn’t
perceived as being ready for
prime time when it comes to
financial planning, but consider
a couple of stats regarding this
demographic. Take a look at a
recent study by The Phoenix
Companies that studied
high-net-worth individuals with
at least $1 million in
investable assets. Among this
universe of paper millionaires
in America, the age group with
the highest percentage of people
with more than $2 million was
Generation X, at 47%. The total
sample survey—which also
comprised baby boomers and their
parents’ generation—was 39%. And
a four-year-old survey conducted
by MainStay, a division of New
York Life Investment Management,
found that Gen Xers had an
average household income of
$144,000 versus $131,000 for
boomers and $87,000 for the
boomers’ predecessors.
The latter data is somewhat
dated, but the overall trend
isn’t, and the point is that Gen
Xers—a group roughly defined as
32 to 43 years old—have
basically outgrown their slacker
stereotype and roared into
adulthood with greater wealth
potential than their parents’
generation. Granted, many of
them are at a stage in life
where they’re focused on such
matters as accumulating assets,
growing their businesses and
saving for their childrens’
college, but some of them
already have an eye toward their
retirement savings because
they’re acutely aware they
probably won’t have Social
Security and pensions as safety
nets. The result: Many are
actively engaged in planning for
their retirement at a younger
age than the boomer generation,
and they want professional help
to guide them.
“I tell financial advisors
that if they’re going to be in
this business beyond the next
five to ten years, they have to
pay attention to this group,”
says Walt Zultowski, senior vice
president of research and
concept development at The
Phoenix Companies, a life
insurance and annuities company
in Hartford, Conn. “They are
significantly different from
other high-net-worth people
we’ve dealt with before.”
Different, they are, and
advisors who serve the Gen-X
marketplace should expect to
play ball differently with this
generation than it did face to
face with previous generations.
“They want to work with a lot of
advisors, they want information,
and they want to be involved,”
says Zultowski. “In a sense,
they want to be the general
contractor” that directs all of
the input regarding their
retirement savings.
That’s a different approach
than the “quarterback” model
that some comprehensive planners
use to coordinate the various
financial aspects of their
clients’ lives. But despite Gen
X’s desire to maintain a sense
of control over their
portfolios, Zultowski notes
they’re also the group least
likely to take the time to
properly manage their finances.
For now, the advisory
business is mainly focused on
boomers and the generation
before them. This is
particularly true for older
planners who have grown up in
the business along with their
older clients. “Advisors have a
peripheral knowledge of
Generation X,” says Steve
Gresham, senior vice president
of asset management at The
Phoenix Companies. He and
Zultowski are collaborating on a
book called The Gen X Advisor.
“Gen X is like a musical group
or movie they’ve heard of but
haven’t seen because it’s not a
generation in their world.”
Gresham says that Gen Xers
have more information at their
disposal, are more careful about
who they listen to, and have a
greater sense of self-direction
when it comes to financial
information. “They won’t
necessarily bow to what the
advisor says,” he notes.
“Advisors can see that as a
threat to their authority. And a
lot of advisors have told me
that they’re not interested in
training another generation as
clients.”
Indeed, there can be a lot of
upfront education and planning
work for advisors with their
Gen-X clients. “Initially,
younger clients may need extra
attention,” says Bobbie Munroe,
owner of Fraser Financial, a
planning firm in Atlanta. “They
lack experience on almost
everything.”
But Munroe says there is
potential value in entering
younger people’s lives during
their formative financial years.
“With guidance at an early age,
the up-and-comer is likely to
become an ‘A’ client,” she says.
Kirk Kinder, the 37-year-old
owner of Picket Fence Financial
in Bel Air, Md., counts about a
dozen fellow Gen Xers among his
40 clients. He says most of them
come from dual-income households
earning $100,000 to $150,000,
and on average most of their
assets are tied up in 401(k)
plans or in their homes.
“There’s not a lot of
comprehensive planning to do,”
he says. Kinder says those with
a lot of taxable assets outside
of their 401(k)’s often prefer
just doing a financial plan or
getting advice at an hourly
rate. A few are on retainer at a
full-year rate of $2,500 to
$5,000.
Kinder says his Gen-X
clients are detail-driven and
want to understand why he
recommends certain courses of
action. “I have to be prepared
to show them some serious
analysis,” he says. “Advisors
who aren’t providing good
financial planning services are
going to have to shift their
approach as Gen Xers get older.
Advisors are going to have to
work more for their money.”
Advisors also have to be
more tech-savvy when dealing
with Gen X. “My clients demanded
that we do more electronic-based
communication,” says Karen
McIntyre, vice president and
managing director of financial
planning at Vantage Point
Advisors in Blue Bell, Pa. She
notes that life in the
instant-communications world can
be intrusive, and she sets
boundaries for BlackBerry- and
e-mail-addicted clients
regarding when they can and
can’t expect a reply. “I tell
them that when I’m not working,
the phones are off,” McIntyre
says. “You can call and leave a
message, and I’ll respond during
business hours.”
That said, McIntyre says she
loves serving Gen-X clients.
“The younger generation
understands the need for a
comprehensive relationship and
they use it to the fullest,” she
says. “These folks are getting
more value than people who never
really understood what
comprehensive planning was 15
years ago. If you manage their
expectations and deliver on it,
they’re yours forever.”
Among McIntyre’s Gen-X
clients is a couple in the
medical profession: He’s a
cardiologist; she’s a
pediatrician. They’re getting
close to paying off their
education loans and are in the
middle of buying into their
respective practices. In a few
years, they’ll start saving for
retirement. “But for now, they
have bupkis,” she says.
Still, some Gen Xers come
with a do-it-yourself mindset
that makes them less willing to
delegate authority to their
advisors. “It’s an arm-wrestling
thing,” says Bedda D’Angelo,
president of Fiduciary Solutions
in Durham, N.C. “I’m constantly
fighting them to move in a
certain direction.”
D’Angelo says she has one Gen-X
client who wanted to double
check that she had set up the
automatic transfer from his
checking account to his Fidelity
brokerage account, which is
D’Angelo’s custodian. He tested
it by putting $10 into his IRA,
but because he had already fully
contributed to his 401(k) plan
for the year, the $10 became an
excess contribution that created
all sorts of hassles. “That’s a
typical Gen-X thing,” she says.
“They’ll do something on their
own without looking at the
consequences, and I spend months
cleaning it up.”
That said, D’Angelo says she
enjoys working with Gen Xers who
appreciate what she can
contribute to the process, even
if they’re not the proverbial
golden goose egg. “If I wasn’t
in a position to pick and choose
clients, they wouldn’t be a
profit center, because they’re
more work with this daily
education thing versus the $2
million boomer with an IRA
rollover—where all you have to
do is an annual review and
proactive portfolio
maintenance.”
Bobbie Munroe, the Atlanta
planner, says Gen Xers can
become good clients after they
get comfortable with an advisor.
“They’ll shop around in the
beginning and can be
distrustful,” she says. “But
once they trust you, they’re
pretty good about delegating.”
More than anything, McIntyre
is advising them on matters such
as handling bonuses. She has
also helped them decide how an
investment opportunity in an
office building will help them
achieve their long-term goals.
“At this point, we’re doing
everything but investing,” she
says.
McIntyre’s firm uses a few
client service models—a
traditional fee-based model of
1% of assets; an assessment-only
model consisting of a diagnostic
plan; and a hybrid model that
sets an annual project fee of
$5,000 until a client reaches
the firm’s $500,000 minimum to
qualify for the traditional
fee-based model. That works well
for Gen Xers who’ll likely
remain as long-term clients. “It
allows people who are going to
get there to get there with
guidance,” she says. “For people
we work with, $5,000 is very
manageable. They pay their house
cleaner more than that.”
John Deyeso, the 31-year-old
founder of Financial Filosophy
in New York City, says advisors
serving Gen Xers will have to
transition them from one fee
model to the other as the
clients’ financial landscapes
evolve. “Some Gen Xers will
transition in two to five years,
some in ten years or maybe even
longer,” he says.
Various studies of Gen Xers
have portrayed the group as a
free-spending and debt-laden lot
who are wary of financial
advisors, in part because they
distrust the product-oriented,
hard-sell approach. One study of
5,000 Gen Xers done earlier this
year by Charles Schwab found
that almost 45% said they have
too much debt and 47% said they
live on a very strict budget
with nothing left over to sock
away. When it came to saving,
43% said their focus was on
saving for a big trip. And 46%
said that turning to financial
advisors for help might cost
them more money than they make.
On the flip side, many Gen
Xers have made small fortunes in
the high-tech industry, while
others are successful doctors,
attorneys and entrepreneurs.
They are the potential
next-generation target market
for advisors, and many are more
ahead of the game financially
than their parents or
grandparents were at this point.
Research from The Phoenix
Companies found that Gen Xers
are a contradiction—they’re the
wealthiest group, but they’re
also the most pessimistic. “They
see clouds on the horizon
regarding their financial
future,” says Gresham. The
reason for this pessimism, he
says, is that baby boomers and
the generation before them
enjoyed three things that the
Gen Xers say they might not: a
home whose value is greater than
what they owe on it; stable
Social Security and
postretirement medical coverage
benefits; and a defined-benefit
pension plan. “Take away all
three, and it’s not a pretty
picture,” Gresham says.
That provides an opportunity
for advisors. Some people
believe clients are more
comfortable dealing with
advisors in their own age group,
and vice versa. But Gresham says
that’s not necessarily true, and
that many Gen Xers want advice
from older advisors who’ve been
through the wars and can lend
their perspective. “An advisor
can know what’s ahead for them
better than they do,” he says.
