Forget boomers and millennials, Gen Xers need advisers’ help the most

Despite having a nest egg of $5 million — much of it inherited — Armando Castellano was always uncomfortable spending money. So three years ago, the 45-year-old musician hired a financial adviser to help him and his wife set up a budget and do some long-range planning.

The adviser, Emilie Goldman, set up a budget with monthly allotments for clothing, cars and a dozen other spending categories. She also set up a plan to ensure that the couple won’t outlive their money.

“It’s completely freeing,” said Mr. Castellano, who plays the French horn in regional orchestras in the San Francisco Bay area. “Now I have stability and clear boundaries.”

Mr. Castellano is part of Generation X, sometimes overlooked by advisers who are paying more attention to baby boomers as they enter retirement or millennials as they look forward to inheriting their baby boomer parents’ money.

And yet, Gen X, those between 35 and 50 years old, may need more help than the other two generations. Even though they are in their peak earning years, they have the poorest financial habits, according to a January survey by Northwestern Mutual Life Insurance. The group includes more spenders than savers, and Gen Xers are also most likely to have more debt than savings, the survey found.

(Related read: 5 reasons advisers should be targeting GenX clients)

Advisers said they see many in this group who already have made big mistakes. Some have failed to save enough to pay for their children’s college educations; others have bought homes that are too expensive or co-signed loans for adult children. Advisers also report the average Gen Xer typically has signed up for too many well-marketed credit cards, and taken on monthly cell phone, day care or private-school tuition bills that stretch the family finances too thin.

“There are a lot of Gen Xers who make $200,000 to $400,000 a year and they’re going broke,” said financial adviser Ted Jenkin, who started oXYGen Financial seven years ago to focus in part on serving Gen X.

STRAPPED FOR TIME

Many in the group are strapped for time, have lost track of their personal finances and don’t even read their bills, which likely come in electronically and may be paid out automatically online, too, he said.

While Gen X incomes may be rising, expectations — what its members believe they need or should be able to provide — have ramped up, compared with baby boomers’. Many more of those in Gen X are sending kids to expensive private colleges, taking exotic and posh vacations, and otherwise “chewing away at the growth of their incomes,” Mr. Jenkin said.

The No. 1 goal financial adviser Philip Olson works on for Gen X clients is to help them clean up consumer debt.

About 38% of responding Gen Xers said they have more debt than savings, compared with 31% of the overall population, according to theNorthwestern Mutual Life survey.

(More on GenX: Gen X lags boomer generation in retirement savings)

“Most advisers don’t get paid for helping with debt strategy,” so there hasn’t been much incentive to become expert in the craft, Mr. Olson said.

Ms. Goldman, Mr. Castellano’s financial adviser, helps clients gain a handle on spending and “lumpy” sources of income such as sales commissions or restricted stock units, or even inheritances. Many also consult with her before deciding whether they can afford to buy a bigger house or remodel their existing home.

Gen Xers appreciate the help, but as a group this demographic is pretty skeptical of financial professionals.

About three-quarters of Gen X investors said they believe most financial professionals are just out to sell them something, according to an Allianz Life survey conducted in November 2014. Many blame the financial sector for the 2008 financial crisis, from which they may have lost jobs or value in their homes and investments, or even watched their parents’ retirement accounts get crushed.

COOL WITH STOCKS

However, Gen X wasn’t as traumatized as those from the younger Generation Y set about investing in the stock market, according to advisers.

Ms. Goldman, founder of Tamarind Financial Planning, said they seem more willing to let their long-term investments ride than those coming after them.

“Generation X saw assets grow before the 2008-09 crisis hit and they have that positive experience,” she said. “Generation Y stepped in when it was horrible and now they don’t’ even want to try.”

Financial adviser Jennifer Harper, who started a practice in January aimed at Gen X, said she sees people who need help saving for college, an expense that will be a bigger issue for this generation because many married late and therefore will be at an advanced age when their kids are in college.

She pointed out that many Gen Xers will still be paying for college during “the retirement catch up years” that many former generations have used to sock away money the decade before retirement.

As it turns out, even Gen X’s idea of retirement looks different than past generations’.

Adviser Michael Rivas, founder of Bienvenue Wealth, whose clients are 90% Gen Xers, said about half of his clients don’t plan to retire in their 60s or really, ever. Instead, they want to open restaurants, or start new businesses or begin new careers.

“This is a change from the last generation, who set their clocks for 62,” he said.

Mr. Rivas encourages clients to “invest in themselves ahead of time,” by starting early to get any additional education and training they’ll need to pursue new careers in their later years.

He also helps them figure out how to fund their dreams, whether that means coming up with a large sum to start a venture or just preparing to live without an income stream for a number of years while the next endeavor gets going.

Mr. Rivas, 49, knows of what he speaks in this area. He opened his financial planning firm five years ago after a career working on the floor of exchanges in Chicago and in other financial services positions.

He said an adviser’s fee structure can make him or her more attractive to Gen X.

Transparency is the most important aspect with this suspicious group. They’re on the lookout for the “gotcha moment” when they find out what they will really pay for financial help, Mr. Olson said.

Spelling out all the fees is important, and many prefer paying a monthly charge, as opposed to annual fees, because that’s the way they’ve grown up thinking about their finances, as monthly obligations.