The financial profession might not be sending a “whites only” message to prospective advisers, but it's not holding out a welcome sign either.
In fact, the industry has two major problems. It lacks diversity, and it doesn't recognize that it lacks diversity.
The industry must take steps to solve these two problems, but before it can successfully address the lack of diversity in its adviser ranks, it first must recognize that there is, in fact, a lack of diversity, that it is harmful today and will be more harmful in the future as the demographics of the nation change.
The evidence is clear: Only 8.1% of advisers are African-American, 7.1% are Hispanic and 5.7% are Asian. This shows that except for Asians, minorities are greatly under-represented in the financial advice profession, because African-Americans accounted for 12.2% of the overall population in the 2010 census, while Hispanics made up 16.4% and Asians 4.8%.
In addition to advisers, minorities are significantly underrepresented in the ranks of client-facing employees.
Forty-five percent of respondents to an InvestmentNews survey said their firms had a minority client-facing employee, which could include executive assistants and even secretaries. This number, however, was skewed by respondents from wirehouses, large broker-dealers, banks, trust companies and insurers, where 67% of respondents reported minority client-facing employees. For independent advisory firms, the percentage was only 39%.
As evidence that many in the industry do not see this lack of diversity as a problem, the survey showed that only 21% of respondents strongly agreed that the minority community was underserved by financial advisers, though an additional 45% did agree somewhat. On the other hand, 79% of African-American and 42% of Hispanic and Latino advisers strongly agreed that the minority community was not adequately served.
Further, while only 42% of white advisers felt strongly or somewhat that advisers who did not target minority communities were missing out on growth opportunities, 87% of African-American and 57% of Hispanic or Latino respondents agreed strongly or somewhat.
Executives at advisory firms should heed the minority respondents — they know their communities. They know there are wealthy potential clients there who need help managing their affairs.
Besides business opportunities, there are a number of other reasons the industry should reach out to the universe of minority college graduates when seeking to hire new advisers.
First, simple equity. Basic fairness says minority graduates should be given the opportunity to join an industry that not only helps people financially, but also can provide a comfortable living.
Second, there is no doubt talent waiting to be discovered in those minority graduate ranks that will strengthen the firms that hire that talent.
Third, the demographics of the U.S. are changing. Minority populations are growing faster than the white population, and the wealth of the minority population will continue to grow and will need advice.
Fourth, the minority population needs and deserves financial help as much as the white population, if not more. Because minorities' incomes and assets are often lower than those of the white population at present, they need more help to preserve and grow the assets if they are to have comfortable retirements.
Fifth, helping minorities prosper, whether as advisers or as clients, will strengthen the U.S. economy by strengthening the minority middle class.
Advisory firms must step up and increase any minority hiring efforts they have in place. They must get the word out to the minority community that they are hiring. One way of doing that is to offer to serve as guest lecturers in the finance courses at local colleges and universities.
Even better would be to speak at career days at local public schools, particularly those with heavily minority student bodies. Students at such schools might never have been exposed to the possibility of a financial career.
When hiring, managers must be aware of the well-documented tendency to hire people who look like themselves. They must make a conscious effort to hire people who look different and come from different cultures.
The Financial Planning Association has made a start, diversifying its board of directors, sponsoring a diversity conference and starting a scholarship program to make it easier for minority advisers and advisory students to attend conferences and join the FPA.
Now the rest of the industry, especially independent firms, must step up.