It's time to take actionable steps toward diversity and inclusion
It’s a hard truth that minorities and women are not well represented in the financial planning industry. In fact, women account for only 23% of CFPs. Blacks and Latinos represent just 3.5% of certificants — combined.
Why is this still the case when minorities represent a large portion of the growing buying power? Women-controlled assets are expected to grow to $22 trillion by 2020, black buying power is projected to grow to $1.5 trillion by 2021 and Latino purchasing power is expected to top $1.7 trillion by 2020.
As a passionate advocate of financial literacy and a tenured personal financial planning professor, I’ve been working with finance professionals to figure out ways to incorporate diversity into their practices. I understand tackling this massive problem often seems daunting — which makes it harder for some people to get behind — but it’s a problem we must solve.
Underrepresented minorities and women are seeing the largest gains in percentage growth when it comes to wealth, which positions them as the next big area for revenue development and growth within a firm. If firms don’t recruit new advisors to help attract the next generation of investors, they are leaving money on the table.
As their wealth grows, these individuals will seek investment advice — and they’ll want to work with a financial advisor they feel comfortable with who understands (perhaps even shares) their values and cultural differences.
It may help to think of this as a traditional business problem.
First, it is simply good business sense to hire a more diverse group of candidates. Companies with above-average diversity and inclusion rates perform significantly better than those below the average, according to Boston Consulting Group data. Hiring and empowering people from a broad variety of backgrounds, cultures and experiences provides companies with new perspectives and potential approaches that a homogeneous group might not ever consider.
These new advisors will make closer connections with the next generation of investors and will ensure the long-term success of the firm by bringing in a new demographic of customers. Ultimately, building strong relationships drastically increases the likelihood that the clients will want to keep their investments with a firm.
As a student myself a few years ago, I had no idea what I wanted to do with my career until I was introduced to financial planning by an older professional. Since my own “aha” moment, I have become a passionate recruiter for the finance industry. In the academic world, I look for students seeking a great career where they can be paid well to help others — and many just aren’t aware that this career lives in financial planning at first.
At the same time, I like to keep one foot directly in the industry by helping advisors tackle this problem head-on by showing them how to recruit younger and diverse hires. I think that’s what all advisors should be doing — keeping one foot in their current market while also opening up to new ones.
A couple of actionable steps that can help bring diversity into the industry include:
Address misconceptions about the industry
I come from a lower-income, blue-collar background, and so I understand that the idea of helping the rich get richer may not be high on many priority lists. However, it is a misperception that the financial planning industry only focuses on the top 5% of earners. That confusion discourages talented people from joining the industry. There are many new models and methods in the financial planning profession to serve clients of all net-worths.
Many financial planning firms also work outside of their traditional markets, like managing retirement plans or 401(k) plans for businesses. These channels can provide an attractive career path for financial planning students motivated by a desire to help others and benefit society. Young planners from diverse or low-income backgrounds may find this sector of the profession more appealing — and their perspectives may help access new, more diverse clients and employees for the firm.
Reach out to the right crowd
A quick scan of attendees at a financial planning conference or the “Our Team” page of a firm’s website often reveals a striking homogeneity. When a conference attendee or a new employee sees that, it can be intimidating. That’s why it’s helpful to approach these potential candidates from another angle and work with colleges and universities to recruit diverse students into the field.
I have found that work ethic, drive and grit are the only truly important factors in success, but in order to convince students of that, we have to break through the intimidation factor. We’ve seen this work well at the university and college levels. That’s where current financial advisors and firm recruitment teams need to be.
We know that hard-working, dedicated employees are likely to accomplish great things regardless of whether they are the only woman or person of color in the room. However, without taking concrete action to increase diversity in the finance industry, many talented people who could be impactful and transformative for the industry will be drawn to other careers that seem less intimidating.
Offer an internship
Probably the best way for diverse candidates to get a genuine feel for this profession is to offer them a paid internship where they can spend 10-12 weeks in the office and contribute to projects and help lighten the load for advisors. Once they get their foot in the door, these candidates are likely to stay in the field. It's a low-cost way for firms and candidates to make sure it’s a mutually beneficial culture fit before offering a full-time position.
It is encouraging to see major custodians like TD Ameritrade Institutional and other organizations, like media outlets, dedicate company time and resources to promoting diversity within the field.
Not only is improving diversity and inclusion the right thing to do, but businesses that fail to do it will find themselves falling behind and losing out on top talent and long-term revenue sources.