If you’re not actively seeking African-American clients, you’re overlooking a growing market. According to the “2011 Prudential Research Study, The African-American Financial Experience,” this group’s income and wealth are increasing. The study reported that 40 percent of respondents earn between $50,000 and $99,999 and 18 percent earn more than $100,000 per year.
“We found that nearly six in 10 of this population that were surveyed earned more than $50,000 of income,” says Mark Hug, executive vice president of marketing and distribution, Prudential Individual Life Insurance. “I would say that is a great opportunity for financial planning whether it may be for retirement, for life insurance protection or income protection.”
Recognizing common goals
On the surface, senior African-Americans’ financial goals closely resemble those likely to be found in other demographic groups. Lazetta Rainey Braxton, CFP, founder of advisory firm Financial Fountains in Chicago, says that her senior African-American clients are mostly concerned about:
- Ensuring that their estate planning documents reflect their wishes and expectations.
- Determining the most tax-efficient way of withdrawing funds from personal and retirement accounts while accounting for the taxability of Social Security benefits and pensions.
- Making sure their investment allocation is appropriate for their goals, time horizon and risk tolerance as retirees.
- Understanding Medicare and long-term care coverage and determining if there are gaps in coverage.
- Balancing their financial needs with the needs of their adult children and grandchildren.
The Prudential study found that survey respondents rated “educating children about debt avoidance, providing college tuition, and passing money on to heirs as very important, significantly more often than did the general population.” Additionally, the study found that “African-Americans are significantly more likely than the general population to cite charitable donations as an important financial goal.”
The continuing improvement in African-Americans’ finances is good news for advisors who wish to serve that market. But advisors should recognize potential differences among races’ and ethnic groups’ financial behaviors and preferences. For example, the 2007 Ariel/Hewitt study of 401(k) savings disparities examined data from nearly 3 million employees across 57 large, primarily Fortune 500 companies in the U.S. It’s striking how many African-Americans had outstanding loans or had taken withdrawals versus the other groups.
In the Prudential survey, respondents often expressed a need for increased use of advisors and products but they also showed a reluctance to take advantage of them. Much of the hesitation appeared to come from a lack of knowledge, the survey authors noted: “Our survey revealed that the lower the level of knowledge respondents had about complex financial products, the lower the level of ownership of these products, the fewer advisor relationships, and the lower the level of industry trust.”