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Investors Prefer Advisors Similar to Them: Survey

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What You Need to Know

  • Financial advisory firms must address the disconnect between what the industry looks like and changing demographics, a survey found.
  • The survey found a growing number of investors want an advisor of the same age, race or gender.
  • Only 39% of solo advisors said diversity efforts should be prioritized, vs. 59% who are part of a team of 3 or more.

Consumers are making it increasingly clear that they want a financial advisor whose racial, gender and age profile is the same as their own, according to a new survey from Northern Trust Asset Management’s FlexShares Exchange Traded Funds.

FlexShares said this trend reinforces the need for financial advisory firms to address the disconnect between what the industry looks like and changing U.S. demographics.

The joint survey of financial advisors and consumers found that among people who work with an advisor, 61% of clients have a preference on their advisor’s age, compared with 31% in the initial 2019 survey; 38% on gender, versus 12%; and 34% on race, versus 8%. FlexShares said these preferences are largely due to wanting an advisor of the same demographic. 

For example, among consumers who said an advisor’s gender is important, 72% attribute this to wanting an advisor of their own gender. Women today are five times as likely as men to use a female advisor, up from four times in 2019. 

FlexShares conducted the survey in March and April among 400 advisors and 200 consumers ages 30 to 65 with median assets between $500,000 and $750,000.

Diversity Hiring Programs 

As consumers increasingly prefer to work with an advisor of a similar profile, many advisory firms are making a concerted effort to diversify their talent pool. 

Fifty-two percent of firms surveyed consider increasing the diversity of staff a strategic priority, up from 45% in 2019. Furthermore, among the 66% of firms surveyed that are actively recruiting, 55% said they are looking for diverse talent across all seniority levels. 

Efforts to make recruiting more inclusive have led to hiring success. Seventy-seven percent of firms that have taken action on diversity, equity and inclusion (DE&I) report success in hiring new professional talent, compared with 56% of firms that do not have DE&I initiatives in place. 

Moreover, 58% of respondents said their DE&I program has been a selling point in attracting new hires. 

“Advisory firms of all types need to match their workforces to better reflect the current and future client universe, which is becoming younger, more female and more racially diverse,” said Laura Gregg, director of practice management and advisor research at FlexShares, in a statement. 

“While the industry is working toward change, more needs to be done. Our research aims to educate firms about the business imperatives of diversity efforts to support the industry’s push in this direction.” 

Meeting Diverse Clients’ Needs 

As the face of wealth changes in the U.S. with a growing portion of racially diverse and female investors, 63% of advisors in the survey said attracting a diverse client base should be a strategic priority for financial advisory firms. 

Many firms are focusing their efforts to attract diverse clients on engaging with specific groups. Of those firms that have taken DE&I actions, 73% have efforts aimed at attracting female clients, 47% at attracting race- and ethnic-based groups and 46% at attracting the LGBTQ community. 

Advisors said a client’s age and physical or mental ability require the most tailored planning experience, outside of specific programs. 

Specialized marketing programs and diverse advisor teams have proved effective to an extent, though firms report remaining difficulties in engaging diverse clients, according to FlexShares. 

Seventeen percent said the biggest barrier to creating a more diverse client base is the homogeneity of their location: 15% cited client bias or the client’s preference, 14% pointed to a lack of understanding of what to do and 13% cited the unavailability of qualified diverse staff. 

Larger Firms in the Vanguard 

Larger advisory firms — likely owing to their size, resources, staffing depth and, often, a prominent public image — have been leaders in DE&I efforts, the study found. Larger firms in all channels are typically more likely to view diversity as a strategic priority and to incorporate DE&I efforts in recruitment and retention policies. 

The survey identified a marked difference between these larger firms and solo practitioners with regard to DE&I programs. Only 39% of solo advisors said DE&I efforts should be prioritized, compared with 61% of advisors who work as part of a duo and 59% who are part of a larger team. 

FlexShares noted that expanding diversity in the solo segment may require increasing the overall number of diverse solo advisors through active recruitment and training. 

“When it comes to implementing DE&I programs, one size does not fit all firms,” Darek Wojnar, head of funds and managed accounts at Northern Trust Asset Management, said in the statement. 

“We recognize that larger firms may have comparatively more resources and staff to support these initiatives. However, we believe firms of all types can play a role in expanding diversity in the industry through activities that are tailored and scaled to each practice.”