From the July 2008 issue of Investment Advisor • Subscribe!

Minority Report

By 2050, minority groups will be the majority of Americans. Are you ready?

Our nation is often described as a melting pot, but I think it's also somewhat like a popcorn popper. People from different cultural backgrounds are likely to pop up anywhere in the country, even in places you might never think to find them. For example, there are sizable communities of Somalis in Lewiston, Maine; Latinos in Fargo, North Dakota; and Pacific Islanders in Des Moines, Iowa.

Clearly, investment advisors who are skilled in dealing with clients of a different ethnic, racial, or cultural background have a competitive edge over those who don't. It's rare, however, to find any guidance on how to talk to and reach clients from different cultures, and rarer still to come across any information on the distinctive attitudes toward money that they may bring to your office.

In exploring this topic, I went to the source: advisors who specialize in cultivating client relationships with specific ethnic or cultural groups. Some are members of these groups themselves; others are not. With the caveat that my research is neither comprehensive nor statistically valid, I invite you to share what I learned.

In the first of a two-part series, I'll concentrate on our nation's two largest minorities: Hispanics (with a particular focus on Mexican-Americans) and African-Americans. A future article will address financial attitudes among Muslims, Jews, Indians, Japanese, and Chinese.

But first a cautionary note. The reporting for this article reminded me that it's both fascinating and dangerous to examine cultural differences. Fascinating because there is so much that's interesting about a different population's history, values, and behaviors; but dangerous because it can lead to prejudging individuals who are always more complex than any stereotype. Regardless of your clients' cultural or ethnic identity, remember that most of them have the same goals: to create a more secure future for themselves and their loved ones, and to make a difference in the lives of their children and others they care about.

Working to Live

"I don't have everything I love, but I love everything I have," Rose Carbonell's Venezuelan friend told her. In "Dinero vs. Money," an article published online at www.cheskin.com, Carbonell, a graduate student in Hispanic marketing communications at Florida State University, contrasts her friend's belief that money is good, but not the most important thing in life, with a typical American attitude that one's life should be used to build wealth.

The difference in these outlooks may have a religious component. Carbonell points out that in The Protestant Ethic and the Spirit of Capitalism, Max Weber argues that the capitalistic spirit has its roots in the Protestant Reformation's emphasis on hard work, frugality, and personal responsibility. This conceptual framework encouraged capitalism to flourish in the U.S. In Catholic countries, by contrast, people tend to be wary of unfettered capitalism. (In my view, they may also be more invested in the importance of caritas, or caring--the source of our word "charity.")

Carbonell's friend told her, "As long as I'm healthy, my family is around, and I have my friends, I'll be happy, no matter how much money I have...I'll work to live, not live to work."

Money and Fate

International financial planner Raoul Rodr?-guez Walters agrees that cross-cultural differences are often rooted in different historical experiences. Rodr?-guez, whose firm, Mexico Advisor, has offices in Portland, Oregon, and San Miguel de Allende, Mexico, points out that years of dysfunctional regimes have given people in many Latin American countries an adversarial view of government. It's not unusual for legal and accounting professionals to aid citizens in cheating on their taxes. As a result, Latino immigrants to the United States may put up tremendous resistance to the idea of paying their "fair share" to the IRS. Rodr?-guez often has to educate these clients about the necessity of paying taxes honestly in the U.S.

Repeated political coups and freezings of bank assets in their homeland have made many Latino immigrants equally wary of financial institutions, according to Carbonell. She posits that a discomfort with the concept of interest-bearing debt has its roots in the long Moorish domination of Spain. The association of wealth with iniquity is another legacy of centuries of oppression. Being poor is seen as a better alternative to being wealthy (and hence corrupt).

A fatalistic attitude toward life is also part of the "different mindset" of Hispanic culture, as I was told by Louis Barajas, a financial planner in Santa Fe Springs, California, and author of The Latino Journey to Financial Greatness: The 10 Steps to Creating Wealth, Security, and a Prosperous Future for You and Your Family (HarperCollins, 2003). For example, a farewell to a new Mexican client, "I'll see you next week with the rest of the paperwork," is apt to be answered by "Si Dios quiere"--"If God wills."

Fatalism is also echoed in the belief that "If I'm poor, God must have intended me to be poor." This may explain why so many Latinos opt to spend their money on present-day needs and wants, instead of investing to improve their situation. Barajas's answer to fatalistic clients is that God wants them to be happy and secure. He tells them about other immigrants who started with nothing and became wealthy, and sometimes shares his own story of achieving success after growing up poor in a Los Angeles barrio.

Macho, Macho Man

Hispanic machismo offers unusual challenges to an advisor's ingenuity. The more blue-collar a Latino is, the more macho he tends to be. Louis Barajas, who as "Doctor Dinero" writes a column for Hispanic men in Open Your Eyes magazine, handles hombres like this in an interesting way. Sitting across from them in his office, he says, "There was a very wealthy man at this chi-chi firm, interested in me because I was a poor Hispanic, who wanted me to succeed. He told me, 'The difference between the poor and the rich is this: the poor know everything; the rich learn everything.'" Barajas continues, "'I can see that when I work with someone like you, who comes in, willing to learn and wanting to take the best care of his family, and who will listen to me because I was a poor Hispanic who made it, I know I can help you succeed.'" (Because of his skill in aligning himself with his client, I wager that he usually does!)

Another frequently encountered cultural difference, according to Barajas, is dual families. It's not unusual for men to have a wife in one home and a mistress in another, with children by both women. In fact, the civil code of most Mexican states allows a woman from la casa chica to share in her lover's estate if she is excluded from his will. This means it's fairly common for a husband to be a financial planning client by himself, while in the U.S. it would be more common to advise a husband and wife together.

Life insurance can be a touchy issue. Barajas told me that a male client often resists buying life insurance, suspecting that the money will go to "El Sancho"--the guy who will take his place when he's dead. Barajas's response is forthright. "I know you may fear your money will go to El Sancho," he tells these clients, "but there are ways we can protect it so it goes right to your kids."

La Familia

I asked Barajas whether it's customary for Hispanics to have a college fund for their children. He told me that when he speaks to a Hispanic audience, he often asks, "How many of you believe that education is the way out?" Everyone in the audience raises their hand. "How many of you are putting away money for your kids' education?" Out of a thousand people, he says, maybe five hands will go up.

This is a serious problem. Although the high-school dropout rate for Hispanics has been declining, the latest data from the U.S. Department of Education shows that it was still over 22% in 2005. In the barrio where Barajas grew up, more than 60% of teens never complete high school. Nationwide, he says, only 7% of Hispanics graduate from college.

Because many Hispanic immigrants are ill-educated themselves, they often aren't aware of their role in motivating their children to get a good education. For example, they may not show up for Parents' Night at school, believing that their kids' success is completely up to the teacher. Barajas encourages these clients to get more involved by requesting them to bring in their kids' report cards. He also asks the children's teachers to write letters home that explain what the child needs to do in order to graduate and succeed. "Sometimes they need tutoring; sometimes they need dental work," he says.

Raoul Rodr?-guez Walters adds that among Mexicans and other Hispanics, less emphasis is placed on being independent from one's family. In the U.S., he observes, children can't wait to turn 18 and leave home. Even if they go to a nearby college, they often rent an apartment of their own. In Mexico, it's unusual for children to want to leave home, even for college. Most will live at home happily while pursuing their studies, and continue to stay there until they marry. In fact, parents often continue to support their children well after the latter are married. Similarly, older parents often live with los ni??os or very near them. Children who work usually contribute money or pay for services their parents need. The idea of an assisted living facility is scandalous to most Mexicans.

Conspicuous Consumption

When it comes to spending, the stereotypical Hispanic lays out his or her money on fashionable clothes, souped-up cars, and lots of bling--accessories that give their owner status on the street. There's some truth to this stereotype, as Wharton finance professor Nikolai Roussanov and two University of Chicago collaborators recently reported in "Conspicuous Consumption and Race: Who Spends More on What," (as found in the Wharton school's online business journal, Knowledge@Wharton, May 14, 2008).

Roussanov concludes that the explanation of this behavior--which is also characteristic of many young African-Americans--is economic, not cultural. The determining factor is the need to appear visibly wealthier or more successful than one's peers. (This display isn't unique to the barrio or the ghetto, I might add; witness the plethora of oversized McMansions, glitzy Porsches, and the like in high-end neighborhoods populated primarily by European-Americans.)

Whatever the reason, the consequences are serious. Compared to whites at the same income level, Roussanov says, both Hispanics and African-Americans spend as much as 30% more on visible status items, which takes a toll on other budget needs. For example, Latino and black households spend 50% less on healthcare than their white counterparts. Latinos spend 16% less on education than whites do; blacks spend 30% less.

Observing how deeply entrenched status spending is, Roussanov wonders, "How do we promote going to an expensive college rather than buying an expensive watch?"

The Need for Advice

Many Latinos aren't used to paying for advice. When they need counsel, they go to a person in their family who is successful and ask this compadre what they should do. Often, the closest thing to a financial planner in a Hispanic neighborhood is a storefront advisor who will marry you, divorce you, prepare your tax return, notarize your documents, and even plan your travel.

Clearly, planners like Raoul Rodr?-guez Walters and Louis Barajas are bucking the system. The price they pay is a lot of "handholding" and patient education of their Latino clients. For example, many clients who come from an agricultural background believe in investing only in what they can touch and feel: real estate. To help them feel more comfortable with diversification, Barajas says he rewrote the basic concepts of stock and bond investing so they could be understood by someone like his father, who has a sixth-grade education.

A Matter of Trust

To explore African-Americans' financial attitudes more fully, I spoke with Walter Gray of Ameriprise Financial Services in Edina, Minnesota. Gray, a member of the black community who has been a financial advisor for 23 years, noted that African-Americans as a group are sometimes very extravagant with their money, and yet can be very private about it. Like Hispanics, they don't save as much as the average white American; they also tend to be skeptical of the stock market and wary of people promoting financial products.

The roots of this secrecy and distrust are deep, Gray told me. "Going way back, African-Americans had to hide their money so it wasn't taken from them by the Man. As they accumulated more money, it was stored in a hidden coffee can, buried in the mattress." Today, Gray notes, many African-Americans still do not have checking accounts. Like Latinos and many other immigrants, they use check-cashing stores instead. Working-class black families usually pay their bills with money orders.

In the past, the black community has also been the target of many unsavory practices, from pyramid schemes to insurance scams. As I read the available literature and talked with advisors serving this community, the word "trust" came up over and over again.

Saundra Davis told me, "I watched the insurance saleswoman come to our house for 20 years for a policy for my mother, and I'm thinking, 'She's paying this amount of money for a policy that does nothing.'" Davis is not only executive director of Sage Financial Solutions, a financial planning organization for low- and moderate-income families in San Francisco, but also a black woman raised in a largely Latino community. "When you're in a family that doesn't have a tax preparer or a financial planner, if you don't want to feel like you're dumb or uneducated, you just go along," she says. "You trust someone who sounds educated. You don't know any better." This experience fueled her passion to teach her clients how to take care of themselves financially.

Family and Community

Middle-class black parents tend to be willing to put up some of the money for their children's education. Working to come up with the rest, they feel, will help their kids learn the value of the college experience.

Estate planning is a thornier matter. Most clients want to leave a legacy for their family, but haven't put anything in place to accomplish it. Most do not even have a will. "It's my personal opinion that having a will is your moral and civic responsibility," Gray tells them.

He encourages clients to be philanthropic if they are so minded. Citing a report by John Havens at Boston College's Center for Wealth and Philanthropy, he points out that African-Americans give away a higher percentage of their income than any other ethnic group, mainly to their churches.

Kimberly Allers, careers and personal finance editor at Essence magazine, observed in a June 2007 Black Wealth magazine article by Bruce W. Fraser that many black women make the money decisions in their household. She urged advisors to approach these women with the "understanding that they have more financial pull than other women." They're expected to help others financially--particularly family members.

In both black and Hispanic families, individuals typically bear a lot of financial responsibility for their relatives, according to Saundra Davis. "One of the glaring differences I notice in working with Latino and African-American clients is the responsibility they feel to support other family members financially," she told me. "In an ethnically diverse family, the first one to go to college doesn't have to do it alone. The whole family rallies around to help them get there." Afterward, she added, the person who "makes it" may feel obliged to place the family's needs ahead of his or her own financial well-being.

The strength of family ties can make it difficult for an advisor to plot a client's future. If someone else in the family has a financial need, the client is expected to liquidate his emergency fund and other resources to help out. Davis asks a client in a situation like this, "What do you believe you owe the family? What can you do that will be truly helpful?" Sometimes, she says, giving money is not the solution.

In one case, Davis worked with a Hispanic woman who was trying to pay down student loans and other debt when she discovered that her brother was in financial distress. She agreed to take over monthly debt payments for him, which meant working an extra shift and postponing paying off her own debts. "We advised her to tell her brother that this support would end in three months," Davis says. "But when we checked with her at the end of the first month, she hadn't done it. Two months, and she still hadn't told him. In the final month, she decided she would extend for another three months." The solution? "It had to hurt enough," Davis explains. "I had to make her need the money." Forced to adjust her spending and cancel a trip she could no longer afford, the client got the message. Instead of continuing to pay endlessly for her brother's money mistakes, she sent him to a financial planner.

Davis helped this Latina woman learn that unless she was living the life she wanted, she couldn't assist anyone else. Now she is more financially secure, and her brother is getting the education he needs to manage his money better.

The Opportunity for You

There's still a perception that the only path to financial success in the black community is through sports or entertainment. Gray tries to dispel this limited thinking as he works with clients and speaks to broader audiences. He feels that better-educated African-Americans are becoming more comfortable with the stock market. As they realize they can become successful investors, he anticipates that they will pass this knowledge on to their children.

Unquestionably, the need is there. The average black household earning more than $50,000 a year has saved less than half as much as its white counterpart ($48,000 versus $100,000), according to the 2007 Ariel-Schwab Black Investor Survey.

Gray laments a "have to own it now" mentality among many African-Americans who are weighed down with debt. Despite being financially overextended, they tend to want "the most house they can afford and the most car they can afford," and like to buy and wear trend-setting new clothes. (He reminded me that Bill Blass used to go down to Harlem to see what people were wearing, then redesign these looks for the general public.)

Of course, there are many black individuals who don't fit the generalized picture of status overspenders. Lee Baker, an African-American who is a financial planner with Apex Financial Services in Tucker, Georgia, wrote me, "My experience is that those who seek out the services of a financial advisor do not tend to fall into this category. Most of my clients drive the same car for 5+ years, own a home, have retirement plans, etc." As Nikolai Roussanov's research suggests, these economically secure individuals don't feel as strong a need to flaunt visible signs of wealth.

Still, many other African-Americans are living for today more than for tomorrow. "They don't have as much hope to hope for," Walter Gray says. For all these reasons, the sales cycle is longer with black clients. There's a greater need to educate, nurture, and build trust.

For financial security, many African-Americans--again like Latinos--prefer to invest in land rather than intangible securities. In 2007, 76% of white families in the Black Investor Survey reported investing in stocks or stock mutual funds, but only 57% of blacks did--the same percentage as 10 years earlier. Baker notes that even when he helps his black clients build a more diversified portfolio, "Quite a few... have additional real estate in the form of unimproved land, rental homes, or apartments."

African-Americans "feel more familiar with real estate through having owned and kept up their own homes," according to John Williams, dean of business administration and economics at Morehouse College in Atlanta. In the Black Wealth article mentioned earlier, Williams estimated that 60% of the net worth of black households is tied up in their primary residence, twice as much as the national average.

With greater awareness of the need to fund healthcare, a more comfortable retirement, care for aging parents, and education for their children and grandchildren, African-Americans' interest in the stock market "is greater now because their goals have changed...from an immediate pay-as-you-go attitude to a greater need for investing," according to Jesse Brown, author of Pay Yourself First and other books on black wealth-building, who is also quoted in the article. Echoing Walter Gray, Brown says the chief obstacle is "a matter of education and trust."

How You Can Help

According to the Financial Planning Association's 2004 Attitudes and Impressions survey, 56% of African-Americans believe that financial planning is a high priority, compared to 39% of all survey participants. Yet just 20% of black investors have a financial planner, as opposed to 27% of the general population.

Because of African-Americans' active participation in churches, some advisors are getting involved in religious and other community-related activities to build familiarity and trust. Melvin Smith Sr., a financial planner with First Financial Group in Birmingham, Alabama, finds clients through free financial seminars at churches, colleges, and community organizations, as well as word-of-mouth referrals. He also founded the nonprofit Financial Discovery Forum, where black professionals present 50 to 70 workshops on financial planning every year.

Although I personally believe that any sensitive, non-judgmental advisor can work well with clients from a variety of cultural and ethnic backgrounds, a good number of people are bound to feel more comfortable dealing with someone from a similar background or culture. Still, that leaves plenty of room for other advisors to learn how to listen and speak to minority clients. If you aspire to be one of them, the following guidelines may help you create more solid relationships.

1. Consider your biases about the potential client's background. Are you expecting to meet an overspender with no savings, or someone who will sacrifice her own security to support everyone else in the family? Do your best to drop any limiting beliefs. (It may help to research historical and social aspects of the client's culture, as Raoul Rodr?-guez Walters suggests.) The important thing is to enter the relationship with an open mind. Remember, your job is to tune into each person's unique fears, hopes, and dreams.

2. Practice "exquisite listening." In the initial meeting, devote time to hearing your clients' anxieties and desires, as well as family influences that may be affecting them. As Saundra Davis puts it, she helps them "remember their dreams, what's most important to them, why they go to work every day." The better you understand the forces that drive a client, the stronger a bond you will be able to forge.

3. Speak in terms they can relate to. This doesn't necessarily mean tossing off glib references to "El Sancho" (especially if your accent is no better than mine) or "bling." It does mean discerning what your client is really concerned about and longing for, and explaining how you can help them in down-to-earth language (as Louis Barajas did in rewriting the basics of investing).

4. Cultivate patience. It may take a while to get some of these clients fully on board with you. Remember, it was months before Davis could motivate her Latina client to set limits on supporting her hapless brother.

5. Suggest hands-on work to help educate your clients. For example, to get parents more involved in supporting their school-age children, Barajas asked them to bring in report cards and teachers' comments about the kids' needs.

6. Develop a resource list, if you don't already have one. It might include consumer credit counseling, low-cost marital therapy, the local Agency on Aging, interventions for addictions, Debtors Anonymous, an Alzheimer's and/or cancer support group, and more.

7. Know when to refer your clients to someone else. If, despite your efforts to cultivate a "beginner's mind," you find that working with certain clients makes you impatient, angry, frustrated, or anxious, consider referring them to another advisor (perhaps someone who shares the clients' background) who may be better able to meet their needs. Persuade your clients that your own limitations are at fault, so they don't think there's something wrong with them.

You may notice that many, if not all, of these guidelines are valid for your entire clientele, no matter what their backgrounds are. What's different is that when you lack an understanding of a client's history, traditions, and often language, you need to work harder at building a bridge so that the client feels respected, heard, and understood.

Saundra Davis sums it up nicely: "While it is true that people of different ethnicities have differences in the way we perceive and deal with money, a simple truth is that most people have similar financial goals. They want to be able to live in a safe and healthy community, they want to provide for their children and ensure they have opportunities to live their dreams, and they want to retire with dignity knowing they will be able to enjoy their senior years with sufficient financial resources to meet their needs."

I couldn't agree more.


Olivia Mellan, a speaker, coach, and business consultant, is the author with Sherry Christie of The Advisor's Guide to Money Psychology, available through the Investment Advisor Bookstore at www.investmentadvisor.com. She also offers money psychology teleclasses for financial advisors and for the general public. E-mail Olivia at moneyharmony@cs.com.

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