Advisors who have focused their efforts on boomers’ retirement needs should make sure they’re not neglecting Generations X and Y. A survey conducted by Greenwald & Associates and sponsored by Security Benefit, a Topeka, Kansas-based insurer, found younger investors lack direction and could benefit from an advisor’s guidance.
The “Gen XY Financial Maturity Study,” released Monday, found two-thirds of Gen X and Y investors haven’t calculated how much they need to save for retirement. Furthermore, 65% say it’s harder for them to save than it was for boomers and older generations.
“There seems to be this generational difference that’s clouding retirement planning for Gen X and Gen Y,” Al Dal Porto, vice president of market research with Security Benefit, told ThinkAdvisor on Thursday. “A lot of that is that they lack direction. When you don’t have an end-goal, it’s really hard to set a plan or get a plan ready. It seems like they’re fighting an uphill battle when it comes to saving for retirement.”
There are opportunities for advisors to help younger investors, the report found. Almost half of respondents feel they are behind in saving for retirement and the vast majority (90%) know it’s an important goal. However, 71% are using employee sponsored plans like 401(k)s, 403(b)s or 457 plans and just 39% have used an IRA to save for retirement.
“What’s also good to see is they do have a lot of time on their side, especially Gen Y; they’re still young enough. They need to focus on growth and accumulation.”
However, Dal Porto said, the survey also found that 81% don’t currently have an advisor.
“When they are looking for advice,” he added, “one of the questions in the survey showed the No. 1 source that they look to are financial advisors and planners. Four out of 10 actually look to them for that type of advice. What we have to try to do is get the financial advisors in front of more of the Gen X and Gen Y [investors] to start those additional conversations. They know that they need to save, they know it’s important. Some of them are starting with their work plan, but we have to find ways to get beyond that.”
Dal Porto noted that one way advisors can reach out to younger clients is through those boomers who are their current clients. “One of the ways that we think would be important for advisors to try to work with them is Gen Y in particular, and some of Gen X, are the children of baby boomers,” he said. “There’s going to be a lot of money passing from the baby boomers down to these younger generations. We think it’s important for advisors to start meeting with the children of their current baby boomer customers, to start building those relationships so that when that money starts to pass, they already have those relationships and they can retain those Gen X and Gen Y clients.”
One surprising finding from the report is how little these two generations value the Internet when it comes to finances. Just 18% of respondents said they would go online for advice on how to save more. Almost 40% said a financial advisor is a major source of financial information and advice, while 27% said the same of their parents.
“We think of these generations, especially Generation Y, as do-it-yourselfers. I would have thought that that number would have been equal to or even higher than financial planners. They understand there’s more to making that financial decision than just going online and trying to get some random advice.”
Dal Porto suggested another way advisors could attract younger clients: by meeting them where they’re most likely to be saving.
“If they can focus more on the workplace accounts—become advisors to 401(k)s,” Dal Porto said. “That seems to be where, especially Gen X and Gen Y, are really starting out. That could be a place where they could build relationships with those younger clients; providing them education, how important it is to start saving younger. It’s been said that compound interest is one of the greatest inventions. Not only is compound interest a great invention, but you can do it on a tax deferred basis. You can really build your accumulation and growth.”
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