Like it or not, we’ve all been assigned our respective generational pigeonholes, from the Pilgrims to the latest American timeline iteration, Generation Y. Groucho Marx once said that he wouldn’t want to be part of any group that would accept him as a member. But Groucho himself, born in 1890, was a member of the 900,000-strong Lost Generation, spanning people born between 1883 and 1901. Definitely not lost are the Baby Boomers, all 70-plus million of them, born between 1946 and 1964. It’s a demographic the minutiae of which have been force-fed ad nauseum to financial professionals nationwide–and mined deeply for its wealth of clients.
While hip Boomers can readily identify the rock band behind the lyrics, “War…uh-huh, huh…yea; what is it good for?” their immediate successors, Generation X, remain, like, clueless. It’s a shortcoming worthy of forgiveness when considering that some experts are touting GenX as a frontier market for financial advisors–a market that at least one recent study claims is seriously overlooked. Why? With an surfeit of Boomers, no one’s needed them as clients–yet.
In general, though, there appears to be a lack of understanding of this segment, compounded by a closed-mindedness on the part of some financial professionals who hold fast to GenX stereotypes portraying them as motivationally challenged, instead of the skeptical, politically and socially aware, well-schooled and oftentimes wealthy do-it-yourselfers that many of them are. One advisor calls GenXers the “perfect client,” adding that she is “delighted with their mindset.” Are there many with six-figure incomes? “More than I ever imagined,” she says.
The GenX potential hasn’t escaped the notice of New York Life Investment Management LLC. The money management and investment services firm conducted a survey in March 2001 through its MainStay division to see exactly how deep this potential ran. Previous research, the survey states, showed that roughly one-third of millionaire households in the U.S. are headed by someone between 18 and 39 years of age, though this figure may have changed due to the lackluster economy. Nonetheless, the New York Life researchers concluded that, in the words of a press release trumpeting their findings, “financial advisors are missing an enormous untapped opportunity.” Few investment pros have thus far focused on Generation X, affirms Beverly Moore, head of retail marketing and managing director at NYLIM. “It’s a huge untapped market.”
But there are some financial advisors who have little interest in reaching these GenXers as a market segment per se. “I think the marketplace is getting carried away with labeling demographics,” maintains Morris Armstrong, of Armstrong Financial Strategies in New Milford, Connecticut. “The question can be asked, ‘Who works with the middle market,’ since obviously a large number of GenXers are not ‘wealthy’ but rather middle class.” He makes the point that when one refers to the GenX High-Net-Worth faction, one will find there issues not far removed from those pertaining to HNW clients of virtually any other demographic.
That logic notwithstanding, GenX proponents would use Beverly Moore’s argument that GenXers have needs not shared by other HNWs and exhibit certain attitudes towards their finances which, when met and understood by advisors, afford the latter “access to a whole new group of clients.” (We’ll explore these unique characteristics later.) It’s a group, proponents are quick to argue, that holds within its ranks much wealth indeed. Forrester Research data show that over two million GenX households are classified as HNWs, with over $708 billion in total to invest.
Like the viability of the demographic itself, this figure is quick to draw fire. Scott Kays, of Kays Financial Advisory Corp. in Atlanta, has a hard time believing the number is so high. He wonders, too, how much of that money is actually investable and not paper wealth dependent on future market events. But believers in the GenX potential take these figures to heart. They’re cognizant of those GenXers whose assets were decimated last year by a flagging technology market (where many but not all wealthy GenXers made their money) and backfiring company stock options. They count among wealthy GenX clients those in a variety of professions unrelated to technology, and not enriched (or impoverished) by company options.
“They have great jobs, great incomes, great career paths, and are often a lot more frugal than their parents,” says Sheryl Garrett of the Overland Park, Kansas-based Garrett Planning Network, a national network of advisors who eschew asset management fees, retainers, and long-term contracts or commissions in favor of as-needed financial planning services and advice billed by the hour. It’s an approach that resonates with GenXers and works extremely well for Garrett and others with similar business models.
GenX proponents believe they have a few other aces as well. First, while some GenX client portfolios may be of modest proportions today, many of these people are scarcely 25 years old. They haven’t had time to accumulate impressive portfolio assets–but many undoubtedly will. Garrett sees this as the perfect time to “nurture and invite” this demographic into advisor practices. The fact that not all GenXers have high net worth isn’t seen as a deterrent by Andrea Spatz, either. A CFP with Louis Wallensky Associates in Los Angeles, Spatz doesn’t target any particular demographic, and most clients come to the 33-year-old firm through referrals. But as “comprehensive planners” who bill through a combination of fee and commission, they are able to serve the basic life and disability needs of less affluent GenXers.
“These people are prime for that,” she says, adding that most of the basics of financial planning are best done at that age. “Get ‘em while they’re young and just starting out. You can build lifelong savings habits and dollar-cost averaging because, frankly, a client can do more for themselves than we can do for them. If they learn to live beneath their means and save, that’s far more valuable than any kind of investment portfolio we could put together.” As an added benefit, the advisor is liable to have clients like these for life. And according to Sheryl Garrett, they’re especially good clients for planners just starting out in business.
Anatomy of Generation
Who exactly are these GenXers? How do you go about finding them? How do you service them once you’ve found them? According to the U.S. Census Bureau, this generation, born between 1961 and 1981 (and which the bureau counts as those 22 to 35 years of age), numbers 51,976,339, or 19% of the total United States population of 274,634,000. In her report, “Generation X and Investing,” Forrester Research analyst Ekaterina Walsh notes that with a 47%/53% male/female makeup, this group is relatively well educated, and has a median annual household income of $40,000. Of the 64% of GenXers who are “online,” 23% bank there, and 7% trade stocks or mutual funds there.
GenXers boast an average net worth of $117,000; 2% of GenX households have $1,000,000 or more; 33% have less than $24,999; while 19% have $50,000 to $99,000, and 15% have $100,000 to $199,999. This latter figure is noteworthy because it helps put the New York Life Investment Management survey–and its enthusiastic pronouncement of the GenX demographic as a gold mine of advisor opportunity–into clearer perspective. This survey, conducted by Greenfield Online and released in May, draws upon the responses of GenXers who are 22 to 34 years olds with more than $100,000 in investable assets; that represents some 20% of all GenXers.
In the Forrester report, Walsh found that GenXers are active, independent investors. Of those survey respondents who said they used a brokerage channel, 52% gather their own investment information and make investment decisions on their own, while 45% “always seek advice from experts before making investment decisions and rely heavily on their counsel.” Of GenXers surveyed who own stocks, 41% said they use the Internet to research stocks and conduct transactions. (The NYLIM report notes that 63% of the GenXers they surveyed obtain their financial information from the Internet.) Of these stock holders, 67% said they consider financial advisors to be an important source of information; 63% cited daily business news and newspaper quotes, while 62% and 55% cited the Internet and friends and family, respectively.
Of those GenXers in the Forrester study who own mutual funds that are not in 401(k) or 403(b) plans, 79% found financial advisors to be an important source of information; 70% said magazines; 69%, fund-rating services; 58%, family or friends; 43%, the Internet; and 16%, advertising. As for investment style, 91% said they invest to grow their money, with 84% claiming to be long-term investors; 69% said they were investing primarily for retirement, while 53% said they were investing to provide income for themselves. Twenty-eight percent said they wouldn’t consider investments where they might lose money. Only 13% claimed to be experienced investors.
Who You Gonna Call?
A profile created by Colorado College shows that GenXers have learned from their Boomer parents’ mistakes: they are marrying later, having kids later (which accelerates a couple’s savings through dual incomes), and want to spend more time with their families when they have them. In fact, 46% are still crashing with Mom and Dad. In a generalized nutshell, GenXers are educated, techno-savvy, and independent-minded do-it-yourselfers. They appear more realistic than Boomers about money matters, perhaps even pessimistic: More GenXers believe they will see a UFO than a Social Security check with their name on it. But they are, at heart, validators. As Garrett puts it, while they may be regulars on the Internet, a lot of GenXers would prefer to get their advice “from a financial geek rather than a gadget.”
Besides, as planner Andrea Spatz posits, self-reliant GenXers who may proclaim, “I would never use an advisor” (as did the son of a 50-something Boomer friend of Spatz’s, much to their amusement), may change their tune when beset with life-altering events or time-consuming activities such as raising a family. Steve Thalheimer of Thalheimer Financial Planning, who launched his fee-only practice in Silver Spring, Maryland, just two years ago and has adopted the business model of Garrett Financial Planning, reports that his practice has been picking up with GenXers for these very reasons.
The NYLIM survey notes that a “significant” percentage of HNWs who don’t currently have a financial advisor believe they need one. While 39% of the HNW GenXers surveyed use an advisor, fully two-thirds of the remainder will consider using one in the future, the report states, adding this: 58% said they still need to put together a comprehensive financial plan, and want to do so. A majority said they were concerned about their financial future–86% of GenXers using or expecting to use a financial advisor said that retirement is extremely or very important to them. “GenXers are more focused on trust and an advisor’s willingness to communicate and give them advice,” reports NYLIM’s Moore. The problem is they don’t know whom to turn to for this type of relationship, which is the only one many will accept.
If it’s true that, as Moore says, “most financial advisors have demonstrated little understanding or interest in reaching these investors,” it could be said of GenXers that they in turn have demonstrated little understanding and much mistrust of financial services professionals. Garrett maintains that GenXers have been turned away by many traditional planning firms with high minimums and turned off by the prospect of relationships with asset management or brokerage firms–firms that primarily have busied themselves with understanding and implementing the needs of Boomers, not GenXers. What GenXers want, Garrett says, and what’s not readily available to them, are validation and professional advice without ongoing asset management fees, retainers, and long-term contracts or commissions. They wish to be consulted with, not sold to, and want to be very involved in the process.