Financial advice business grapples with diversity challenges

Could a wave of retirements open unprecedented opportunity for minorities?

Jan 15, 2014 @ 12:30 pm

By Carl O'Donnell

Practice management, diversity, recruiting
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While America is only decades away from becoming a minority-majority country, the financial planning industry is still stuck with demographics that are eerily reminiscent of a 1950s sitcom.

Just look at the statistics. At 76% male, the industry claims only a slightly higher proportion of women than in police jobs nationwide, according to the Bureau of Justice Statistics. Young people don't fare well either, with more than half of planners topping 50. Perhaps most significant of all, the industry lacks racial diversity, with only 8% of planners coming from minority groups.

“I'm so sick of going to conferences where I never see any people of color,” said Lazetta Braxton, who runs her own financial planning company called Financial Fountains.

The industry is now at a crossroads. More than ever before, there is tremendous opportunity — and incentive — for financial planning firms to diversify. A survey released by Edward Jones last week highlighted the need for more diversity among financial advisers to better serve client needs. And Bank of America Merrill Lynch's $160 million settlement for a racial bias suit last year also encouraged the discussion about the need for change.

There are signs of progress.

The planning industry kicked off in the 1980s, building a business model around high-net-worth clients. Today, many of those affluent individuals are retiring or passing away, compelling financial planners to court younger clients, often from minority backgrounds, said Ms. Braxton.

“African-Americans and Hispanics are an increasingly large part of our client base,” said Jesse Abercrombie, a financial adviser with Edward Jones. “We are seeing more and more minorities moving into the upper-middle class.”

Meanwhile, more than 20% of financial planners are nearing retirement, creating job openings all along the organizational hierarchy, according to a report by Accenture. The question is whether these positions will be filled by a more diverse array of professionals, Ms. Braxton said.

There are many reasons why clients may prefer advisers from a shared background. Important personal connections can take place around many dimensions of identity, Ms. Braxton said.

“I am an African-American, a woman, and a member of Generation X,” she said. “And I have built client relationships among each one of those shared traits.”

The industry has room for improvement at every point along the employment pipeline, from the recruitment, to the promotion, to the retention of minority employees.

“I don't feel like the majority of firms are using best practices, although there are certainly some trend setters,” said Crystal Cooper, the director of financial planning for Strategic Wealth Management Group.

The first challenge firms face is largely outside of their control. In undergraduate institutions across the country, there is a lack of awareness among minority students — and students generally — about the financial planning profession.

The industry is young, so there is still a shortage of colleges that have financial planning majors, as well as of professors with financial planning experience, Ms. Braxton said.

Additionally, schools with traditional finance majors don't always know how to point students in the direction of financial planning, she added.

This shortage carries over to the recruitment process, limiting many firms' access to minority talent. The companies with the most successful efforts court historically black universities, as well as African-American student organizations, such as the undergraduate wing of the National Association of Black Accountants. But to really change things, this approach needs to become routine industrywide, Ms. Cooper said.

“I'm not sure that every financial planning firm even knows historically black universities exist,” she said.

Once a minority employee joins a firm, the next step is to make sure their climb upwards isn't blocked.

“Sometimes what can happen is a historical pattern where all the people who are promoted to a certain job come from the same demographic,” said Alan Hiss, a senior sourcing consultant for the diversity sourcing group at Wells Fargo & Co.

Situations like this usually are subtle, but can prevent a minority employee from making connections that might help him or her move into a new area of the firm or develop advanced skills, Mr. Hiss said.

The solution, he said, is to create strong intra-organizational networks designed to provide employees with mentors beyond their immediate supervisor. For example, the Black/African American Connection is a network at Wells Fargo that organizes events promoting professional development for African-American employees.

Once a firm succeeds in attracting and promoting a talented minority employee, one last challenge remains: retention.

The key to successful retention is creating an environment that feels welcoming for all employees, Mr. Hiss said. This involves a company committing itself to understanding cultural differences, and making sure that the entire workforce is trained in diversity and inclusion, Ms. Braxton said.

“The most successful firms are adopting a new attitude,” said Mr. Hiss. “For too long, the attitude has been defensive – 'How can we avoid being sued for discrimination?' Today, the focus needs to be, 'We want to expand to new markets, and we are going to need a diverse workforce to do that.”

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