From the June 2007 issue of Wealth Manager Web • Subscribe!

Black Wealth

Advertisers got the message long ago: African-Americans drive luxury cars, own valuable real estate, drink expensive beverages and vacation in exotic resorts. In fact, while the median income of blacks may continue to lag considerably behind that of whites, the African-American community commands significant wealth. According to the target market news report "Buying Power Of Black America," black households had $679 billion in earned income in 2004, an increase of 3.5 percent over the $656 billion earned in 2003. But are they working with advisors, and if so, how?

The 2006 Black Investor Survey sponsored by Ariel Capital Management LLC and Charles Schwab & Co. found that African-Americans continue to be enthusiastic about saving for their retirement and their children's education and recognize the need for financial planning. The ninth annual survey--which has come to represent a window into black investment behavior--found that African-Americans who work with a financial advisor contribute more money on a monthly basis to their retirement plans than those who go it alone.

And according to the Financial Planning Association's 2004 Attitudes and Impressions survey, some 56 percent of African-Americans surveyed say financial planning is a high priority--compared to 39 percent for all survey participants. Yet just 20 percent of African-American investors have a financial planner as opposed to 27 percent for the population at large.

Neither figure may be impressive, but the statistics certainly indicate that the African-American community is largely underserved by the financial services sector.

African-American advisors are building successful businesses serving black--as well as white--clientele. As in any niche market, affinity counts. But the financial services industry is still waging an uphill battle to achieve meaningful diversity through recruiting women, Hispanics, Asians and African-Americans to the profession, leaving each of these target groups with an advisory vacuum.

So, how can wealth managers tap into this lucrative pool? What are the issues and challenges involved? How do advisors go about building and educating their clientele when many blacks (like so many of their white counterparts) did not grow up thinking about the stock market?

The first step is to recognize that blacks' needs have changed, says author Jesse Brown, who has written several books on black wealth-building, including the current best seller Pay Yourself First. "African Americans historically have not perceived the need to invest, but the need is greater now because their goals have changed. The need has shifted over the years from an immediate pay-as-you-go attitude to a greater need for investing," Brown says.

The African-American community, he adds, is much more aware of the need for capital to pay for health care, fund a more comfortable retirement, care for aging parents, and pay for the education of their children and grandchildren. "The problem is a matter of education and trust," Brown says. "Broker/dealers and financial advisory firms need to do a better job of educating African-Americans-- especially anyone of first generation middle-income wealth--about the importance of legacy and estate planning. So my advice to advisors would be to understand the goal of the African-American investor. If they can understand the goal, they can match the goal with the proper investment product."

On the advisor side, recruitment and retention of African-American advisors has long been a problem. "The retention rate within the industry is low in general, but even lower among people of color and women," remarks Lanta Evans-Motte, president of the Association of African-American Financial Advisors based in Bethesda, Md. "It's a tough business in general--reflected in a lot of people not succeeding--tougher for people of color for internal and external reasons.

"There are recruitment issues, development issues, and retention issues that haven't been addressed, and they don't have easy answers," she continues. "A lot of companies are recruiting people of color, but they have yet to be successful in retaining those people. It's almost like a revolving door. There is a lot of talk about diversity issues, but many big firms don't have mentor or sponsorship programs. It's not that people don't qualify, but who is speaking for them? There is no one speaking for them when they're not in the room."

From the investors' perspective, prominent black academics emphasize there is an increasing interest in investing among African-American households, but major challenges remain in reaching this growing niche. John Williams, PhD, dean of business administration and economics at Morehouse College in Atlanta, one of the pre-eminent black institutions of higher learning in the U.S, says African-American households do want to invest, but lack sufficient knowledge to assemble efficient portfolios. Rather than invest in financial assets like stocks and bonds, he says they are traditionally more likely to invest in real estate--including their primary residence. "They feel more familiar with real estate through having owned and kept up their own homes. Their portfolios in that sense are not diversified." Williams estimates that approximately 60 percent of the net worth of black American households today is invested in their primary residence--about twice the amount across all ethnicities.

Since it hasn't been their usual practice to seek out financial advice, there is a learning curve to finding trustworthy advice, according to Williams. "(African-Americans) receive investment advice from the same accountants that prepare their annual taxes and people who sell them insurance rather than from certified financial advisors."

One entree into this potential market for financial planners is through the established networks of African-American religious organizations. Blacks are often heavily involved in religious activities and community affairs. "By getting involved in community-related activities and religious organizations, (advisors) can build trust within the community, and it has the potential for referrals in that arena," says Melvin C. Smith Sr., CFP, ChFC, with First Financial Group Inc., a wealth management firm in Birmingham, Ala. "A second way is through the referral process of building trust with existing clients who will refer others to your practice. A third way is through good old-fashioned networking within professional organizations in which you are active."

Finally, the role is the same for everyone: preparation and hard study. Smith started in financial planning by chance as a second career after retiring in 1996 from BellSouth Telecommunications in Birmingham as marketing director. He was struck by the lack of preparedness of many of his fellow employees who had not contributed to their 401(k) plans and had too much debt and too little savings. So he started offering free seminars at churches, colleges and other organizations in Birmingham. As a result, he was approached to become a financial advisor and eventually joined his current firm.

Seeing the seminars as a way to educate the public and connect with potential clients at the same time, Smith went on to found the not-for-profit Financial Discovery Forum in Birmingham. A dozen or so African-American professionals, businessmen and businesswomen in diverse fields present anywhere from 50 to 70 workshops on financial planning each year. "My business has more than quadrupled since I started out," says Smith. His 350 clients have an average net worth of $200,000 to $250,000, and he manages $50 million in assets.

Women advisors are as welcome in the African-American community as men. At Essence, the prominent black women's lifestyle magazine, Kimberly Allers, senior editor, personal finance and careers, says many black women make the financial decisions in their households. "Advisors should approach them with an understanding that African-American women have more financial pull than other women," says Allers. "Because of our role in our communities, we tend to support extended families, our churches and our communities. For black women there is a greater expectation to help others financially that may be relying on us like a niece, an aunt or someone in our church. Understanding the whole context of black women and their role in their family and community can help advisors."

Certainly, there are financial advisors who--though not African-American themselves--have a good percentage of clientele who are, and lots of experience dealing with this community. Rita Cheng, a planner with Ameriprise Financial Services in Bethesda, feels her diverse background helps her connect with a mixed clientele that is 30 percent African-American. Cheng, who is a quarter Czech, a quarter Irish and half Chinese, says the problem is that many African-Americans--like the population in general-- simply don't know where to get financial help. "They want financial planning, they need it, and are willing to pay for it. So you have to understand you need to put a lot of time into building the relationship," she explains.

Thomas G. Gaertner, CFP, and Melissa J. Eckstein, CFP-- partners at MPC Financial in Brookfield, Wis., who have a clientele that is 20 percent African-American--agree that education is paramount. Says Eckstein: "We consider it our job to educate all clients, and minorities really respond. We're not just telling them what to do; we're educating them on what to do and why."

"This gets to the whole question of trust," Gaertner says. "If you've established credibility and trust in what is an underserved population, your referral network is strengthened. All our business is by referral."

Wall Street has floundered in this area in the past. And a recent U.S. General Accountability Office (GAO) study, while acknowledging some inroads, concludes that the overall success rate is still limited. But it seems at last Wall Street is getting the message. Merrill Lynch, Smith Barney and A.G. Edwards, among other major firms, are developing programs they hope will be more successful in attracting minorities as financial services professionals as well as clients.

Merrill, for example, has established an Office of Diversity in its Private Client Group whose goal is to redress the lack of minority staff. Maura Gallagher-Vaughn, director of Analytics and Assessment for the division, says, "People who are attending these new programs show greater growth in business measures over their peer group who qualify, but didn't attend for whatever reason."

A.G. Edwards recently held its first multi-cultural financial consultant forum at its St. Louis headquarters, seeking input on how better to recruit, retain and support people of diverse backgrounds. "We've found there is tremendous potential to grow our sales force with African-American financial consultants and other diverse candidates," says Mary Atkin, executive vice president of staff at the firm, who concedes that current numbers "aren't where we want them to be."

Lanta Evans-Motte of the Association of African American Financial Advisors, says, "Progress is being made, but it's slow, and you're starting from small numbers. There's lots of potential to help African-Americans manage their financial resources." And for wealth managers, that means lots of opportunity to grow your practice.

Bruce W. Fraser, ( is a freelance writer in New York who writes on financial services topics.

Nobody Knows My Name, by African-American author James Baldwin, is not a title that applies to Stanley T. Funches whose name is, in fact, becoming very well known in Birmingham's African-American investment community.

Typical of the young, ambitious wealth managers now emerging to serve their communities, Funches, who holds the CFP and ChFC, is a planner with First Financial Group Inc., a wealth management firm in the Alabama city. "I am 36 years old and started in business at 28. Being a young African-American male, it was tough getting anyone to trust your competency level," Funches says. "But I studied my craft, obtained valuable credentials, and worked hard to provide great service and advice to my clients so they would tell others."

Funches has two subsets of primarily African-American clients. One is an older group of pre-retirees and retirees with an average age of 50 and an average net worth of $515,000. The other group is typified by a young African-American professional couple with an annual household income more than $125,000 and a net worth of $75,000.

Funches says most of his clients are referrals. "Ninety percent of my clients come through recommendations from others," he says, adding, "I have used the Birmingham Chamber of Commerce, the Southern Regional Minority Business Council, and educational seminars to grow my business." Funches assists Melvin C. Smith, another planner in his firm, in presenting the Financial Discovery Forum, a series of workshops targeting Birmingham's African-American community.

Funches believes people are recognizing that middle-class African-Americans have higher incomes than ever before. "But we as a community are still struggling with increasing our net worth and investable assets. We are consumers, not investors. In the African-American community, the idea of savings has been passed down from generation to generation. But where to save and where to get good investment returns have not been passed down because of a lack of access and education about the financial markets."--BWF

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