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Reaching Unadvised Gen X Investors

Advisors are always looking for an opportunity to find new clients. Some advisors may look to younger generations as they continue to hit milestones that would make them better suited for financial advice. But there may be a generation that advisors are missing. Generation X, comprising 36 million households, could represent one of the next best opportunities for financial advisors to provide in-depth retirement planning.

The oldest members of this generation will reach age 55 by 2020. As LIMRA Secure Retirement Institute research has demonstrated, reaching milestone ages — such as 55 or 60 — can trigger retirement planning activities. Even before that point, many Gen Xers are entering their peak earning years and are growing their financial assets substantially. These investors will be seeking guidance as they navigate through the critical pre-retirement years.

LIMRA SRI analysis finds Gen X households collectively control $6.6 trillion in financial assets. Both in absolute terms and as a share of all financial assets, this amount will grow as Gen Xers continue to contribute to retirement savings, pay down debt and begin to receive inheritances. As with other generations, wealth is extremely concentrated — only about 7% have household financial assets of at least $500,000, a common threshold assets level. Although this is low, this proportion is much higher than among millennials; fewer than 1% of millennial households have assets at this level.

The Difference Between The Advised And Unadvised

Fewer than half of Gen X investors currently work with a financial professional (usually a financial advisor/planner) to make financial or investment decisions. Gen X investors who work with advisors are twice as likely as those who don’t work with advisors to have a formal written plan for managing income, expenses and assets in retirement (38% vs. 19% respectively).

The importance of these plans shouldn’t be downplayed; LIMRA SRI research has repeatedly shown that formal retirement plans result in consumers having higher confidence in being able to achieve their desired lifestyle in retirement. Our studies also indicate that 81% of all formal retirement plans are created with the help of advisors.

The Value Of Trust

The biggest differences between the two groups are found in their trust of advisors. For example, only 20% of unadvised Gen X consumers say they have an “extreme amount” or “quite a bit” of trust in financial advisors to act in their best interest. In contrast, 68% of advised Gen X consumers feel this way.

Our research finds unadvised Gen X consumers are more skeptical about the value of having an advisor. Sixty percent of Gen Xers believe that advisors “act in their own interest” and “sell people things they don’t need.” These were by far the most commonly-cited reasons for not working with an advisor.

If they aren’t working with professional financial advisors, then who — if anyone — are they working with to help make financial decisions related to retirement? Although more than half of unadvised Gen Xers consult a spouse or partner, and 19% consult family members (e.g., parents, siblings), nearly 4 in 10 (38%) say that they don’t consult anyone. Unadvised Gen Xers also describe themselves as “investors” more often than advised Gen Xers do; 33% strongly agree that they are “currently very involved in monitoring and managing their retirement savings” while only 13% of advised Gen Xers strongly agree with this statement.

Can more unadvised Gen Xers be convinced to work with financial professionals? According to LIMRA research, the answer is yes. But in order to break through, advisors must overcome the two primary obstacles we identified in our research.

First, advisors need to build trust with their Gen X clients. Product sales, if any, should be the natural consequence of a thorough assessment and planning process. A strong track record can lead existing clients to build your case for you in the form of referrals to Gen Xers approaching retirement.

Second, they have to provide services above and beyond investment management. Many unadvised Gen Xers consider themselves to be capable of handling those decisions on their own. However, they may not know enough about the complexities involved in transitioning from full-time work to retirement. This includes when to claim Social Security benefits, whether to buy Medicare supplements and how to generate income that will last throughout retirement.

A financial advisor who can provide guidance on these decisions — looming on the horizon for Gen Xers — has a competitive advantage over advisors limited to asset management. In the long run, Gen Xers themselves will benefit by having a clear plan in place and by making more informed decisions about their futures.

Matthew Drinkwater, Ph.D., FLMI, AFSI, PCS, is corporate vice president, LIMRA Secure Retirement Institute. [email protected].

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