Advisors must deal with affluent African-Americans’ perceptions, distractions, needs and goals

As the number of African-American consumers reaching new levels of affluence grows, so does the opportunity for a trusted financial professional to educate these consumers about planning concepts and products that create and protect wealth.

To be successful in this education effort, a good financial professional must understand the perceptions, distractions, needs and goals of African-American clients. For example, for many in this group, ideas for sound financial strategies were not passed down, or spoken about at the dinner table, by their parents because of a past lack of knowledge. In trying to become financially educated today, many may be overwhelmed with media images attempting to lure them into symbols of wealth. Thus, addressing the perceptions, distractions, needs and goals of African-American clients will enable a financial professional to tap this underserved market.

Perceptions

Financial professionals, understanding that not everyone is the same, should be aware that certain common perceptions exist in the African-American community. Where there is much buzz around investment products, certain wealth creation and preservation products are poorly understood or have negative associations. Life insurance is one in particular that holds great potential to be explained.

According to LIMRA’s MarketFacts Quarterly-Spring 2004, African-Americans are attracted to the conservative aspects of life insurance, yet many families are uninsured, underinsured or leave some members uncovered. Lack of knowledge and negative perceptions lead many to believe that life insurance is only used for burial costs, that there is no personal benefit to the person insured, that someone is profiting from another person’s death, or that the companies issuing policies are all out for themselves.

To overcome these perceptions, financial professionals should use both concepts and facts to explain current benefits and future effects. For example, discuss the living benefits that accumulate for the insured while he/she is alive–tax-deferred cash value in whole life policies that can be borrowed against to help purchase a home or help supplement retirement income, and earned dividends on a whole life policy, if and when the company declares them. (Remember also to explain that loans against a policy decrease the death benefit and cash value by the amount of the outstanding loan and interest.)

Also, share the benefits for those who are loved and left behind. Explain what a legacy really means: that the inheritance they never received can be created and passed to their children and grandchildren no matter what their job or savings are today; and, that they can leave their children better off than when they started. Isn’t that what we all want out of life? Show how one can leave money to churches or other organizations, or give examples of what other races/religions/ethnic groups are doing to build up their families, businesses and communities through life insurance and financial planning.

Lastly, there are stories of companies that either never paid out on policies, or went out of business before payout. These situations not only resulted in a loss of all premiums paid but have created a bitter and untrusting perception for some. In response, the financial professional can distinguish the financial strength of his/her own company by stressing its credit rating, reserves and time in existence, etc., and be prepared to show that companies with financial strength will be there for clients in the future.

Distractions

Luxury product makers–auto, apparel, electronic, beauty, etc.–recognize the ever-increasing earnings of African-Americans, and their marketing efforts targeting them are at an all-time high. The University of Georgia’s Selig Center for Economic Growth projects that the nation’s African-American buying power, which rose from $318 billion in 1990 to $585 billion in 2000 to $723 billion in 2004, will continue to rise to $965 billion by 2009, up 203% in 19 years. The race to capture this disposable income is fierce, and financial services companies must seize the opportunity to better educate and redirect spending habits, and to paint a clearer picture of how to help achieve financial goals.

There is also room to contrast subtly symbols of affluence such as cars, clothes and electronics, all of which are depreciating assets, with true wealth that can be passed from generation to generation; to highlight where one may be overextending finances in order to look good or compete with the Joneses; to show how focus on instant gratification steals from cumulative gains in the future; and to talk about the risks and returns of true wealth generators like investment property, small business/franchises and sound financial products.

Needs

How much is enough? It is important to convey that life insurance is not grandma’s $5,000 burial policy that the man came to the door to collect on. Nor is it the workplace program that pays one year’s salary to your family as long as you are still employed with the company. The benefit of life insurance is to replace a person’s lifetime income, which may be used to pay the mortgage, car payment, credit cards, childcare and living expenses. In fact, the greater potential is to show how these products can pay off the mortgage, fund college education, provide cash to start a business, give cash for down payments for children’s homes, pay for the daughter’s wedding, or allow the widowed spouse to live off the interest of the money in the bank. This is how the affluent use these products.

Like all affluent clients, African-Americans must also prepare for living longer, dying prematurely or becoming disabled. They should be told how they can fund their own inheritance by insuring parents and how they can reduce financial concerns later in life by enrolling in a long term care insurance plan today. These are also important pieces of responsible retirement planning.

When concerns about budget arise, financial professionals can suggest a mix of term and permanent insurance that will provide clients affordable coverage. In addition, professionals should show how both protection and accumulation products, when taken together, can help African-Americans address their financial concerns and help achieve their financial goals.

Goals

Financial professionals should be prepared to spend time with potential clients to assess and explore ways to meet client needs and financial goals. Topics that can enhance appeal include economic independence, economic empowerment and personal fiscal responsibility.

As done for other affluent groups, financial professionals can provide an overall picture of financial wellness to African-Americans through a fully encompassing financial analysis–life insurance, retirement, long term care, disability and investments. One-product offerings will not convey experience and a thorough understanding of goals and expected results. A financial professional should note that some of the important shared values in the African-American community include caring for elderly parents and relatives, providing for a child’s education, actively participating in the church, and giving back to the community.

As increasing education levels and incomes of African-Americans move more toward affluence, there is an opportunity at this time to introduce financial strategies and products of interest to the affluent. This introduction, coupled with the addressing of perceptions, distractions, needs and goals of African-American clients, will effectively illustrate that financial security is achievable. Remember, it is not that these clients are not interested; rather, it is more that they do not know the full benefits these products can provide and are not being approached by those who do.

Eugene Mitchell is assistant vice president, marketing management, for New York Life Insurance Company.