Diversity has been one of the main bugaboos for RIAs. The Certified Financial Planner Board in a 2018 survey reported that only 23% of certified financial planners (CFPs) are women and just 3.5% are African American and Latino combined--that’s not a typo--despite their composing 30% of the American population. But why are those numbers so low, and what is being done to move the needle forward?
The CFP Board, several professional organizations and an array of companies are working to boost the diversity of advisors and clients —but they still have a long way to go. But for many larger firms, incorporating more minority financial advisors will necessitate a change of culture, adopting a welcoming attitude, accepting differences, and recognizing how adding them can boost their revenue.
And yet the survey also noted that over 3 million African-Americans and 2.1 million Latinos in the U.S. have assets under management valued at above $400,000, so the firms are missing the opportunity to hire advisors who might attract a wider array of emerging high-net worth clients.
Acknowledging that the numbers are “unconscionably low,” Marilyn Mohrman-Gillis, the executive director of The CFP Center for Financial Planning, said several factors come into play, explaining why there are so few women and minorities as certified financial planners including: 1) a “lack of awareness of the profession of financial planning,” 2) for women in particular, a misperception that financial planning is all about numbers when it’s more about “relationships, listening and strong empathetic communication,” 3) a bias in recruiting that reduces the possibility of hiring minorities and women, 4) a lack of role models.
Underlying the hiring bias, noted Mohrman-Gillis, is that most recruiters traditionally have sought out applicants with “strong networks that can immediately bring sales into the practice” and since many minorities were raised in disadvantaged communities, most don’t fit the profile. What’s needed, she said, is a new and different awareness by recruiters with an emphasis on training in the pursuit of a career path that will make it easier to attract and retain talented Latinos and African-Americans.
“More and more firms recognize that they’re leaving money on the table,” she noted, which is why many firms are supporting the research of the center, whose 2019 Diversity Summit will be held on November 13, 2019 in Washington, D.C. To encourage more minorities to enter the field, CFP issued a video on a day in the life of a CFP, featuring minorities who discuss the rewards of their financial career.
In fact, 68% of African-American CFPs expressed satisfaction on the job, which is 12% higher than their white counterparts. Mohrman-Gillis attributed that high number to the fact that the job is lucrative and presents an “opportunity for blacks to help their community, with much needed advice and financial literacy.” The number for Latino satisfaction was 58%, slightly higher than most white CFPs.
After reading the center’s report, one large firm, which Mohrman-Gillis prefers not to identify, said it was developing new hiring criteria, educating senior management, considering introducing new skills for hiring beyond subjective criteria, and issued a call to action of what managers need to do to encourage hiring a more inclusive staff. That’s a blueprint for success, she added.
Lazetta Rainey Braxton is an outspoken African American CFP who runs her own Baltimore, Md.-based firm Financial Fountains and was former president of the Association of African American Advisors and still serves on its board. Holding nothing back and clearly frustrated, she wonders whether “the profession wants more people of color?”
Braxton describes the problem as a “hospitality issue, and we define it as diversity, inclusion and belonging.” In her estimation, the registered investment advisor and financial planning community has not put out the welcome mat to invite minorities and women into the profession and instead put up obstacles to make them feel excluded. Most firms, particularly wirehouses and brokerage houses, “don’t understand the nuances and challenges that come along with being a minority, including a lack of mentoring,” she said.
Since there are so few African-Americans and Latinos at most firms, many minorities tend to “repress their own culture. Sometimes you allow insensitive comments to become the norm. You have to take a passive, non-threatening, low-key disposition because anything contrary may seem negative,” Braxton said. The result is a kind of self-denial of their authentic and natural selves that often leads to turnover or self-recrimination.
When a client of Braxton’s at a large firm which she prefers not to name, said an ethnic slur at a meeting, she reported it and didn’t feel supported by the firm. As a result, she left to launch her own firm, establish her own culture, and avoid contending with a workplace environment that wasn’t sensitive to her needs.
Fixing these deep-rooted issues is very complex and multi-faceted. Braxton recommends that firms undergo a “hospitality” or diversity audit, just as they conduct financial audits, including: 1) Survey people of color at your firm by anonymously asking them about their experiences, 2) Assess how they’ve done in pursuing leadership jobs, 3) Create a blueprint for devising impartial criteria that sets out guidelines of how people can objectively rise in the firm, 4) Hold middle-management and executive teams responsible and accountable for making these changes.
Since taking the Certified Financial Planner’s certification tests costs from $6,000 to $10,000 and can be a financial burden and deterrent for working-class minority students, Braxton recommended that firms help subsidize these costs to encourage more minorities in the industry.
As a first step, Braxton recommends that the larger firms “reevaluate their business model and corporate culture to see if it’s aligned with the changing demographics in this country.”