From the June 2006 issue of Wealth Manager Web • Subscribe!

Strong Roots

To Luisa O. Nemati, financial planning for Hispanics is comparable to nutritional planning for a family -- except an advisor is feeding the financial needs of her clients. "It all fits together," says Nemati, who graduated from the University of Texas, Austin, where she actually studied nutritional development in the department of home economics. "As in nutritional and dietary planning, successful financial plans require commitment to see the process through," she adds. This probably applies to all clients, but for Nemati, who was born in Costa Rica and is fluent in both Spanish and English, the analogy applies particularly to America's burgeoning Hispanic population.

"I realized that this was my natural market," she says, explaining that when she worked at a large insurance company in Dallas, she dealt with Spanish-speaking clients because other advisors, who didn't speak the language, asked her to accompany them on business calls.

Whether financial advisors are bilingual or not, the Hispanic market in the U.S. translates into a lucrative opportunity. In the United States, the Hispanic population has surged to 41 million, up 17 percent from four years ago, making Hispanics the largest and fastest growing minority in this country. Moreover, they represent $700 billion in purchasing power. Put another way, if one took all the purchasing power of Hispanics in the United States as an absolute number, it would equate to the third or fourth largest economy in Latin America.

However, this is far from a monolithic market. Instead, Hispanics generally fall into three categories--traditional, bicultural and assimilated.

Those in the traditional sector are less oriented to the United States, have not been in this country long and prefer to speak Spanish. They have language limitations and no bank accounts. The bicultural Hispanics have been in the United States longer, but have not started investing and want bicultural products. The assimilated group includes second- and third-generation Hispanics. Some of them may not even speak Spanish any longer. They invest in this country, and they are a prime market for financial advisors.

At a later point in her career, when Nemati worked at a bank, she handled some well-to-do clients and some who were not. Some owned lawn services or janitorial services, as well as beauty salons and other small businesses. Now, she deals with only seven or eight families, and her customers are business owners or people with large personal assets--professionals who come to her by referral.

"When I moved to a full financial planning firm, I dealt with Hispanic professionals--doctors, lawyers, but people who have Hispanic roots," Nemati says. Her firm, Financial Advisors, is the financial planning group affiliated with Weaver and Tidwell LLC, a Dallas-based accounting firm, which employs 200 people, including 10 in financial planning.

Louis Barajas, another bilingual financial advisor, feels, "Latinos need, first of all, a lot more one-on-one consulting. Maybe it is their cultural beliefs, for some things do not help them with financial improvement. It's the peon-patron system--the poor person working for the boss. Thus, the less than wealthy person is concerned with security. They become complacent. They get benefits, a salary at a job and think the company will take care of them for the rest of their lives. They think Social Security is a retirement fund."

Furthermore, they are fatalistic. "They're mostly Catholic, and think, `I'm poor because God wants me to be poor.' They have false pride. Poor people know everything, and rich people learn everything," says Barajas, who grew up in East Los Angeles and now runs his firm, Wealth & Business Planning, in nearby Santa Fe Springs.

In Dallas, many of Nemati's clients are bilingual, using their different languages for different subjects. "Basically, if they have been educated here in the states, for most technical terms we deal with those in English. When we are talking about a business back home, we are all getting along in Spanish."

The same is true for Jorge A. Netto, a senior executive director at Atlas One Financial Group in Miami. Also bilingual, Netto talks business in Spanish with his clients, 98 percent of whom are Hispanic and mostly from Central America. All his clients are U.S.-educated and English speaking, but "They talk business in the language they are most comfortable in, and that's Spanish," Netto says.

In either language, many Hispanics are cautious investors. "Hispanics traditionally are very traditional," says Mario Yngerto, who runs Genesis Wealth Management Inc., a financial planning firm in Dallas. "They believe in what they can touch and see visually, so they predominantly invest in their own businesses and real estate. Period! This is why Latinos aren't big contributors in 401(k)s," Yngerto says.

Hispanics do invest, but they tend to emphasize the income portion. For instance, they feel more comfortable with CDs or high yielding bonds. They know a bond will mature, and that they will get back their principal. On the other hand, they don't like to risk a lot of capital, so they consider equities more dangerous.

"A lot of these people are entrepreneurs, and they have a lot of risk in their business," Netto says. Hence, they go into fixed income--CDs, government bonds, corporate bonds. "Of course, among Netto's 65 client "relationships," there are many "sophisticated and savvy people, and some try equities, hedge funds and emerging markets," he adds.

Like Netto, Barajas puts a good number of people into similar investments, but he assigns a small percentage of his clients' assets to something "funky." Barajas has been in the financial planning business for 20 years, has a staff of eight people and 450 clients, built up over the last 15 years. Some of his clients have net worths of $250,000 and some are multi-millionaires. Wealthy clients, such as doctors, are more aggressive in their investments, he says.

"We're quarterbacks," adds Barajas, explaining that that means estate planning, tax planning and helping out with the financials. For instance, Barajas is working on a financial plan together with one client who has $7 million in assets. . Another entrepreneur started a business out of his kitchen, making tortillas. Now he makes over $1 million a year and has six accounts in which he invests more than $2 million. He is talking to Barajas about becoming a client.

Is Hispanics' investment recalcitrance linked to fears of instability in Latin American countries? Maybe. Like any group, you can't lump Hispanic investors into an all-inclusive category.

"Older generation Hispanics see the volatility in Latin America countries, which bothers them," Nemati says. "In those countries, the stock markets are not well known. It's not something they have grown up with. Here, we hear about it every day in the news. I have gone to countries in Latin America and you don't hear about those markets. People are not exposed to this in their daily environment. They are exposed to interest rates and CDs."

Then you have a different group of Hispanics that has family members living in countries like Peru and Argentina who send some funds to the United States for safekeeping. Those people are looking for assurance that their money is invested in dollars. Seeking a safe haven from political change, they invest their assets in the United States, opening a bank or brokerage account. Many Hispanic investors have been "scared because some of their countries have run into difficulties, like the Argentine meltdown (in December 2001)," Nemati says. These investors tell her, "If we have to leave this country, we have a nest egg in the US."

On the opposite side are people from El Salvador or Mexico, who were laborers and send money back to those countries. "I dealt with a lot of those people when I worked at the bank," Nemati says

Many Hispanic investors visit the states, but Netto goes to his investors in Central America. For instance, one of his clients heads a law firm there, and Netto visits him--along with other nearby clients--three times a year. Also, this lawyer-client calls once very two weeks "to get some color" on the fixed income market, Netto says.

Nemati's clients also call frequently. For instance, a woman doctor in South America who is considering additional investments to serve as a pension when she retires, calls Nemati often.. "They call from their business. It's deductible," Nemati says.

Being bilingual is helpful, but not always essential. "I think it helps a great deal to speak Spanish. [But] not all Hispanics want to speak their language. When you're a professional, some feel English is spoken here," she says. "They are Hispanics who are affluent and who feel comfortable working with English-speaking people. They feel like they are here, and that's what they do. They don't look for someone else if this advisor is qualified. Then ethnicity takes third or fourth place."

If a Spanish-speaking advisor did a poor job, she would lose her referrals, Nemati says: "Everyone is looking for someone to do right by them, to do a good job. Someone who speaks Spanish gets her foot in the door. I don't think an incapable or inept professional would keep their clients just because she can speak their language."

To enter this market, financial advisors might attend Hispanic events such as Chamber of Commerce meetings, work the room and schmooze. "You can become active with those organizations, give presentations, get clients and they recommend you. That's the name of the game," Nemati says.

Yngerto feels Hispanics are already in this market. "It's natural to them. To enter from scratch is very difficult; you must have some affinity to the group."

If a Spanish-speaking person wants to break into this market, they "go to the centers of influence--schools, churches," Barajas advises. "I did tax returns, made presentations at schools and churches. You meet with the principal of the high school, the priest of the church. I shared my story. We had a shared purpose, trying to help the people of the community and be part of the community. There was some comfort level there. You say, 'I'd like a few minutes of your time to help the community.' Financial planning is a process, not a product," Barajas continues. "The principals and the priests will know immediately if you are in it for the money or to help the community. If you help the community, the money will be a byproduct."

Barajas has also used the literary pathway to help his business, writing successful books in English and Spanish about financial planning. Before his books came out, a lot of rich Latinos wouldn't take his calls, but since the books were published, -they do.

Finally, for financial planners, race is not an issue--on either side. Hispanics want to work with someone who is a professional. Sometimes, unfortunately, one Hispanic will use his language and background to gain a countryman's confidence and then cheat him, the bilingual advisors warn.

"A Latino looking to invest wants someone who has a good reputation, credibility and will treat his clients well," Barajas says. "You have to have an affinity for working with these kinds of people. You will work harder, but you don't have to be Latino or even speak Spanish. You could be an Anglo as long as you have your priorities straight."

What's in a Name?

Not all people living in Latin America, born in Latin America or with Latin American roots are Hispanics.

For instance, people living in Brazil consider themselves Latino. During a conference on the Hispanic market at Chadbourne & Parke, a New York law firm, a gentleman from Brazil sitting in the audience, politely informed the speakers that he was a Brazilian and a Latino--not Hispanic.

The speakers explained that the U.S. government created the term "Hispanic" for census purposes. It was not meant to offend anyone.

Of course, the word Latino only applies to males. To be 100 percent politically correct, a female should be referred to as a Latina.

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