Consciously pursuing diversity “offers a range of benefits for recruiting, retention and firm culture,” according to a recent FlexShares study on diversity. But the hurdle for the advisory industry is high.
Indeed, although 32% of the U.S. population is black or Latino, only 3.5% of certified financial planners are. As the study report states, “the U.S. population is rapidly becoming more diverse, but the advisory industry remains very homogeneous.”
Gender also lags. Although 51% of U.S. population is female, only 14% of financial advisors are. Plus, the study finds women are four times more likely than men to work with a female advisor.
However, the study reveals that investors are more likely to choose advisors like them in ethnicity or race. For example, 98% of white clients work with white advisors, 75% of Asian clients work with Asian advisors, and just over 62% of non-white or Asian clients work with non-white or Asian advisors.
It seems, though, that the industry may be forced to change as the growth of minorities is projected to expand going forward. The millennial generation will be the most diverse generation in America and the largest generation in the workforce, according to FlexShares’ research.
In terms of wealth, the wealthiest fifth of the black and Latino households numbered more than five million and had average wealth of about $400,000 in 2015, according to the CFP Board Center for Financial Planning.
Why Recruiting Matters
One key finding of the FlexShares’ study is that 61% of advisors recruit colleagues from their professional and personal networks, which may explain the homogenization of the business.
Forty percent attract talent from other firms, while 26% recruit finance and business majors at universities. Only 8% hire non-business majors.
Despite the fact that 68% of investors state they have no preference for advisors in terms of ethnicity (68%) or gender (76%), when it came to hiring, people remain inclined to hire those most like themselves.
Unfortunately, when advisory firms rank efforts most important for their growth plans, attracting and hiring more diverse talent is second to last — coming in ahead of hiring professionals who were re-entering the job market or changing careers.
Firms deem integrating technology as most important.
The study also finds that larger firms are most likely to prioritize diversity — 58% of firms with over 200 advisors vs. 33% of firms with two to five FAs.
How does diversity help retention? Immensely, according to the study. In fact, firms with diversity initiatives are more likely to report success with hiring efforts, 85%, than those without these initiatives, 70%.
Further, it found diversity may contribute to more effective teams, with 72% of investors preferring the team approach. Also, 43% of investors 40 years old and under say diversity is important for financial teams.
What Advisory Firms Can Do
One way to prioritize diversity is to have a more effective recruiting plan, FlexShares concludes. It recommends advisory firms take these six steps:
- Develop a diversity recruitment plan. Look outside personal networks. Make a plan and use measurable metrics.
- Build relationships with groups committed to diversity. This includes recruiting at diverse colleges as well as through professional associations for advisors of color and women.
- Use inclusive language in job postings. Limit job requirements to essentials.
- Offer flexible work hours and locations.
- Make opportunities for advancement clear to new hires. Develop milestones to signal progress and contribution to the firm’s success.
- Institute diversity, equity and inclusion training. This helps teams better understand their cultural differences and look for commonalities.
FlexShares conducted its study in October and November 2019 and collected nearly 570 responses from advisors.
More than 200 investors between the ages of 30 and 65, and with yearly household incomes of about $200,000 and investable incomes of some $500,000, shared their views.