The fact that women are underrepresented in the registered independent adviser industry is well established. Women represent just 30% of financial advisers of all types and 23% of certified financial planners — the latter a number that has been virtually unchanged for 10 years. Meanwhile, nearly half of advisers surveyed by Charles Schwab & Co. reported having no female advisers in their firms.
With the understanding that a diversity imbalance exists, it's time we take action to address it. Why does it matter that our industry moves toward becoming more diverse? Equally important, what steps can we take to help us get there?
THE CASE FOR DIVERSITY
Statistics offer a compelling business case for bringing more women into the RIA profession. Private wealth is on track to grow from $14 trillion today to $22 trillion by 2020, and women will control 66% of it. Women are also due to inherit 70% of the $41 trillion in intergenerational wealth transferred over the next 40 years.
There is more at stake for creating a diverse workforce than simply balancing the scale towards equality. It's a strategic move that can help businesses better serve their clients and capture a share of potential opportunities on the horizon. The benefits of achieving a more diverse workforce are also more than hypothetical. They can be seen in the results. For example:
• Firms with female executives generate better financial results. A diverse workplace raises a firm's collective intelligence and strengthens its value proposition. According to the Catalyst report, “The Bottom Line: Connecting Corporate Performance and Gender Diversity,” Fortune 500 companies with more females in top management positions have a 35% higher return on equity and a 34% higher total return to shareholders. Meanwhile, we learned in a recent Schwab study of nearly 600 RIAs that diversity is being discussed more often at firms where compensation averages $250,000 or more (53%) than at firms where the average compensation is $100,000 or less (31%). The data supports a meaningful correlation between diversity and business performance.
• Affluent women are key growth drivers for RIAs. Women today account for 51% of all workers in high-paying management jobs. Women investors are key decision makers in six of 10 client relationships and are more likely to engage with advisers than are men — 46% versus 34%.
However, advisers can be better positioned to capture this opportunity. According to the 2014 “Power of the Purse” study from the Center for Talent Innovation, 73% of women described their current adviser as “not interested in me.” By contrast, 70% of women in another study indicated they prefer a female adviser. Women investors don't necessarily require a female adviser, but it makes sense that women are drawn to RIA firms with which they see an affinity — a firm they feel they can relate to and connect with, and that demonstrates a clear understanding of their overall financial picture. RIA firms with diverse teams will be better able to leverage this opportunity.
TURNING OPPORTUNITY INTO ACTION
As the business opportunity for RIAs becomes increasingly apparent, our industry needs to create greater urgency around the need to address it. Women historically have not gravitated to the financial services industry on the level that men have. According to our study, women who do pursue financial services careers are typically more aware of the traditional Wall Street firms than of RIAs. Additionally, the mean number of men in client-facing roles at RIA firms is three compared to one for women. The challenge requires a concerted commitment to change. Here are a few things RIAs can do now toward achieving greater diversity:
1. Advocate for the RIA model.
A general lack of awareness of the RIA industry persists. Communicating — industry-wide and at the local firm level — the benefits of the RIA model and why the industry is a good fit for women is something we can all do to narrow the awareness gap. RIAs emphasize close, personal interactions with clients and offer full transparency within those relationships. Forty-six percent of female RIAs surveyed by Schwab indicated the ability to build and nurture relationships as a fundamental driver of their success.
But how can we better convey this message? In our study we found that one-third (32%) of advisers learned about a potential RIA career from a colleague or friend. The strongest agents for change in our industry will continue to be advisers themselves. In addition to word-of-mouth advocacy, I encourage advisers to create communities and facilitate dialogue as part of the awareness effort. An example at Schwab is our Women's Advisory Council, comprised of successful, trailblazing female advisers, who share the common goal of activating positive change in their communities and industrywide. But men, too, should be involved. We can all seek out career-oriented speaking engagements and discussions at local colleges to help generate greater awareness. We can get involved with organizations that promote women's roles in financial services. By talking about and advocating for the attributes of the RIA model, we can help attract more women to its ranks.
2. Recruit strategically. More than half (60%) in our study said they fill their adviser ranks through networking and word of mouth, while about one-third (32%) promote from within. Effective for meeting shorter-term needs, purposeful recruiting can help in creating diversity within the RIA industry. Just 8% of female RIAs and 15% of male RIAs believe that the RIA industry does a better job than other types of financial services firms at establishing recruiting policies to encourage a diverse workplace. By developing formal recruiting strategies that include a diversity component, RIAs can attract more women to the industry and cultivate them into client-facing roles.
3. Create career paths. Many female advisers currently at RIA firms told us they got their start at other financial services firms in non-adviser positions such as operations (34%); administrative (23%); and analyst (17%). Firms with existing female talent in non-advisory roles should cultivate them by creating clear paths toward leadership positions, including management and client-facing roles. Mentoring, networking opportunities and structured training programs are excellent tactics toward creating career paths for more junior employees. Additionally, hiring or developing women in more client-facing roles can help RIA firms begin to better represent the diversity of the population they are striving to serve.
SUCCESS TOMORROW BEGINS TODAY
Gender diversity is a critical component to the continued success of the RIA model. The time is now for firms to take action and diversify the talent base to reflect the oncoming economic opportunity. Tomorrow's leaders will be those who see the future today and take the necessary action to shape it into tomorrow's reality.
Neesha Hathi is senior vice president for advisor technology solutions at Schwab Advisor Solutions.