Schwab, Ariel Execs Speak Out on How Clients and Firms Can Boost Diversity

When the issue is hiring more African American financial advisors, a firm’s top management must indeed support and sponsor the move. But the impetus must come from clients and employees, argues John W. Rogers, Jr., chair and co-CEO of Ariel Investments, in a recent interview with ThinkAdvisor.

Clients “need to insist that the company they work with look like America. If wealthy families told their advisors, ‘We want to see a diverse team in our [advisory] relationship,’ all of a sudden, those institutions would show up with a diverse team,” explains Rogers (right photo) in a joint interview with Kelly Johnson, fixed income portfolio manager with Charles Schwab Investment Management.

“The momentum [to hire more Black advisors] has to come from the bottom up,” concurs Johnson (left photo).

By virtue of their Ariel-Schwab Black Investor Survey, the firms are winners in multiple categories of the 2021 LUMINARIES, ThinkAdvisor’s new industry recognition program. Ariel and Schwab are recipients in the categories of diversity and inclusion, as well as thought leadership, among others.

Their 2020 Ariel-Schwab Black Investor Survey queried more than 2,100 Americans with household income in 2019 of $50,000 or more. The Black Investor Survey, which Ariel and Schwab have conducted for more than 20 years, compares attitudes and behaviors for savings and stock market investing between Black and white Americans.

The 2020 study revealed that African Americans’ participation in the stock market is at its lowest level in more than two decades. Little trust in both financial institutions and financial advisors, and in the market itself are largely responsible.

In fact, the survey showed that 55% of Black investors have stock market investments compared to 71% of white Americans. Furthermore, only 21% of Blacks work with financial advisors versus 45% of white investors.

“Implicit bias” causes financial firms to assume that many African Americans don’t have “the kind of wealth to qualify us to walk into a major financial advisory or brokerage firm,” Rogers says. He continues. “It’s intimidating to go into a big brokerage office and sit down. It’s hard to feel comfortable getting that kind of relationship [with an advisor] started.”

Essentially risk-averse when it comes to investing, Black Americans are typically conservative, which makes fixed income “a natural fit,” Johnson says, adding that in time, “often you can “ease” them into “a bit more aggressive” portfolio.

Rogers, a leader in diversity, equity and inclusion issues, founded Ariel in 1983. Based in Chicago, it is the first minority-owned asset management firm founded in America.

Schwab is a leader in developing financial education via partnerships with Boys & Girls Clubs of America and DonorsChoose.org, among others, and offers free personal financial resources online.

Johnson, a certified financial analyst, was previously a senior vice president and client portfolio manager at Pimco and earlier worked for Freddie Mac.  

ThinkAdvisor recently interviewed Rogers and Johnson, who were speaking by phone from downtown Chicago and Orange County, California, respectively.

Said Rogers: “We have to have more African American advisors and financial planners in the field – people that can reach out and build a bridge to the African American community. This can help us build wealth over time.”

Here are excerpts from our interview:

THINKADVISOR: Your 2020 Black Investors Survey shows that African American participation in the stock market is at its lowest level in the history of the survey, which you’ve been taking for more than 20 years. Why is that? 

KELLY JOHNSON: That’s one of the disturbing findings. 

Of all the findings, what stuck out to me is that there’s a lot of concern about trust in our industry — concern about trusting the actual financial markets and about trusting financial advisors.

JOHN ROGERS Jr.: Another point is that the markets have been so volatile over this more recent period. 

When you’re new to the markets, the extraordinary volatility over the last 12 years – first with the financial crisis and then the COVID crisis — makes new investors uncomfortable and exacerbates the confidence issues [with markets and advisors].

The survey shows that just 35% of Black investors feel they’re treated with respect by financial institutions vs. 62% for white investors. But another finding was that the majority of Blacks who work with financial advisors are likely to feel respected by financial institutions. How do you explain this difference?

Rogers: It’s a cumulative effect. You go into these institutions’ offices with a lot less wealth, and you get respected based on the size of your checkbook. When people realize you’re really wealthy, they fall all over you and make you feel special.

But if you’re not, you get short shrift.

There’s also the, kind of, unconscious or implicit bias in our society: When people look at Black Americans, they don’t think there are many of us that have the kind of wealth to qualify us to walk into a major financial advisory or brokerage firm. 

So it’s not surprising that African Americans feel that tension and are uncomfortable. It’s a real problem.

Relatively few African Americans are employed as FAs at the firms, and that’s certainly part of the problem. What needs to be done?

Rogers: We have to have more African American advisors and more financial planners in the field – people that can reach out and build a bridge to the African American community.

That can help us build wealth over time.

Whose call is it to hire more African American FAs? Must it be top-level management?

Rogers: Part of the answer is, of course, you have to have people at the top who believe in diversity and inclusion and who reach out and hire African American leaders. 

But at the same time, the purchasers of financial advisors’ products [clients] need to insist that the companies they work with look like America, because it’s a supply-and-demand issue. 

If wealthy families told their advisors, “We want to see a diverse team in our [advisory] relationship,” all of a sudden, those institutions would show up with a diverse team. That’s really important.

If wealthy families who sit on the boards of corporations, non-profits, universities, hospitals, all those types of institutions start telling their major financial advisory firms they want to see diverse teams, I guarantee those teams will start to show up. 

Seems that a spark needs to be ignited. Because of lack of diversity concerning the Academy Awards, Jada Pinkett Smith, Will Smith and Spike Lee boycotted the 2016 ceremony. Since then, more Blacks have been hired both in front of and behind the camera.

This season, for the first time in its history, the Metropolitan Opera presented an opera written by a Black composer. So, perhaps financial services needs a “kick” to open the floodgates of diversity and inclusion in hiring. Thoughts?

Johnson: That’s the essential point. We’re having a discussion about that at Schwab. A lot of people think that leaders need to drive these things, but I don’t think that’s true. At a big company like Schwab, leaders need to sponsor it and openly support it, but the momentum has to come from the bottom up. 

As John said, it’s the customer, the employees; it’s financial advisors driving this from the bottom up. If you have leadership, sponsorship, economic resources and bottom-up energy, that’s the winning combination.

Rogers: Jane, you brought up the Met and that pioneering night, which was extraordinary.