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

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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, 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. 

But if you look at how the Met spends their money, I bet you’d find that of the law firms they use, the money managers they use, the accountants and media firms they use, 99% of their dollars go to firms run by white men and a few white women.

So, they’ll let us on the stage. But when it comes to economic opportunity for African American business leaders and entrepreneurs, my understanding is that the Met is like most of the museums, universities and hospitals in New York City, which have not shown an interest in helping to create economic opportunity for the African American community. 

In fact, those institutions are notorious for not being open for economic opportunity for African Americans – which helps to explain the wealth gap that continues to get worse and worse in our country.

It’s not surprising that one of your survey findings is that Black Americans were much more likely to think of diversity as very important. Please elaborate.

Johnson: I’ve had the personal experience when walking into different types of businesses, that if you don’t see diversity, you make one of two conclusions: Either that organization doesn’t care, or they’re willfully non-diverse. 

Neither of those is good, and either one can make Black Americans uncomfortable.

So then, the firms themselves are turning off potential Black clients?

Johnson: It can be very off-putting. I’ll again use myself as an example: I’m the first in my family to go to college  the first to have middle-class success.

My savings are my life savings. Therefore, it’s very important to work with people who want to work with you. When you’ve worked and accumulated some wealth, you simply don’t want to blow it.

The survey found that fewer Blacks have financial plans. Is that because they don’t hire financial advisors as much as whites?

Rogers: Yes, that’s for sure. Because of discrimination historically, the Jim Crow laws, and the lack of economic opportunity for Black Americans, we haven’t created as much wealth as white Americans. So we haven’t had the need to build trusted relationships with financial advisors.

It’s intimidating to go into a big brokerage office and sit down. It’s hard to feel comfortable getting that kind of relationship started.

That’s why it’s so important that organizations like Charles Schwab have done such a great job of democratizing the markets and making it easier to build relationships online and not have that intimidation factor at the major brokerage firms.

Many Black Americans make good salaries and have some money. What do they do with those assets if they’re not saving or investing in the stock market?

Johnson: One of the findings of the survey, and it’s my personal experience too, is that Black investors tend to be more conservative than perhaps they should be given their age and financial standing. 

So we tend to invest in CDs and whole life insurance  things that basically return less and have less risk.

Do Black investors realize that it’s possible to create money by investing in fixed income? 

Johnson: Fixed income is a natural fit in a lot of ways because historically we tend to be less aggressive and more conservative than other categories of investors. And it’s a little bit easier to explain fixed income to African Americans who aren’t investors. It’s easier to position it as something that’s low risk, low return. 

Often, you can use it to, sort of, wean them into a bit more aggressive portfolio, ease them into it, without [their committing] the assets upfront.

You’ve worked with fixed income for years, Kelly. What do you like about it? 

Johnson: I don’t like fixed income  I love fixed income. It’s the type of investing that either speaks to you or doesn’t. I think it doesn’t speak to most people. 

But I’m a math guy and an analytical guy, so it [appeals to] the problem-solving side of my brain. And nowadays, with yields so low and with [rising] inflation, it’s even more of a challenge. I enjoy a daily challenge.

Is there anything else when it comes to diversity and inclusion on which the industry should place greater focus?

Rogers: During the Obama administration, I chaired The President’s Advisory Council on Financial Capability, for young Americans.

Carrie Schwab [-Pomerantz] served in a leadership role on the Council with me, and we gave our recommendations to President Obama.

We wanted to see more financial services companies partner with urban public schools to teach financial literacy to urban kids and for the companies to be role models for a financial services career. 

That has been our dream and hope. We need to incentivize financial institutions to truly partner with urban public schools.

Has this already begun?

Rogers: Ariel Community Academy is a small public school that we started 25 years ago. We have a program where many financial services companies in Chicago volunteer there and at Catholic and public schools throughout Chicagoland.  We have over 60 institutions doing that.

And there are some innovative programs around the country, like NYC Kids Rise, which is a great program to get kids [and their families] to save for and invest in 529 [plans] at an early age. There are some programs on the West Coast where Schwab is getting the [financial] community engaged with young people early on.

Johnson: We have a program at Schwab that’s training employee [volunteers] all over the country who are going to go in and teach teenagers [especially those from low-income backgrounds] about basic finance – things like getting a banking account set up, insurance and other basics not taught in schools right now. 

I’m extremely excited about it.

And John, you’ve partnered with the University of Chicago on a financial internship program, haven’t you?

Rogers: We’re really thrilled with it. We’re going into our fifth year where we provide paid internships for minority students who work in investment offices of major endowments. 

That’s a great place to work because you learn all about private equity, venture capital, hedge funds, real estate, fixed income  all aspects of capital markets. 

You could have a career one day being a chief investment officer of a major non-profit – should you decide to go that route.  

Coming to a place like the University of Chicago, many young people have no idea that [as an intern], you could [start on such a career path]. It’s a new world to them. We’re growing the program, and it’s getting stronger and stronger.

(Photo: Kelly Johnson (left) and John Rogers)