How the end of affirmative action could hurt financial advice

Diversity among financial advisors is currently lacking, and the Supreme Court's ruling is unlikely to help.

The Supreme Court’s bombshell ruling Thursday striking down race-conscious college admissions programs will likely hurt diversity within the financial advice profession — but the degree to which it will do so is unclear, observers said.

In a 6-3 vote, the high court’s conservative majority found that the affirmative action programs at two schools — Harvard and the University of North Carolina — are unconstitutional. Beyond the effects on education, the decision could have wider-ranging effects on diversity, equity and inclusion considerations that companies use in their hiring practices.

While even proponents of affirmative action acknowledge significant problems with the system as it exists today, dismantling it won’t help diversity within higher education, and consequently in the financial services world, which recruits from colleges and universities, sources said.

“The decision itself is a double-edged sword. It will have a negative impact, but in the long run maybe there is some light behind it,” said Nandita Das, associate professor of finance and director of the financial planning program at Delaware State University.

“What I personally find is many times the students are not ready for this,” she said of college-level financial planning courses. “What we need to do is start [promoting diversity] at a much lower level. Affirmative action is needed at high schools where the equality is not there.”

The decision is certain to be a shock for the educational system. And although pushing students to do their best can lead to more success, “this is not the right time” to scrap affirmative action, Das said.

Companies might also eventually reconsider some of their diversity practices, Morgan Lewis partner Grace Speights said in a statement.

“While today’s Supreme Court decisions prohibiting the use of race-based decision-making in admissions programs for colleges and universities change things dramatically for higher education, they also could have wide-ranging implications for companies’ and nonprofit organizations’ diversity programs,” said Speights, who leads the firm’s global labor and employment practice. “The impact will not be immediate, as lower courts will need to grapple with how the Supreme Court’s analysis applies in other contexts. But smart organizations will want to look at their employment, supplier diversity and charitable giving DEI and ESG strategies so as to maintain forward progress, while navigating potential legal and reputational risks.”

Although affirmation action has helped improve diversity at colleges, the most substantial benefit has been to white women rather than people of color, said Kimberly Watkins, assistant professor of financial planning, housing and consumer economics at the University of Georgia’s College of Family and Consumer Sciences.

Among 37 undergraduate financial planning programs surveyed as part of a 2021 academic study, 59% of respondents said they did not have in place any particular efforts to improve racial diversity within their programs, although many did have such efforts for gender diversity.

There’s also little in the way of outreach or education to encourage students to pursue financial professions before they go to college.

“Many of them just stumble into our program or the profession,” Watkins said. “More needs to be done at the high school level and even probably before then, so that students know it is a career option.”

Given that, it’s unclear how the likely demise of affirmative action will affect diversity in the financial advice profession, she noted.

However, it’s also possible that the decision will go beyond college admissions, with hiring practices also put under scrutiny.

“The ruling applies to university admissions’ processes, so its impact on the investment profession remains unclear,” a spokesperson for the CFA Institute said in an email statement. “We at CFA Institute advocate for a more diverse and inclusive industry, witness our voluntary diversity, equity and inclusion code for the U.S. and Canada, which more than 100 financial firms signed up to in the first year — representing more than $11.2 trillion in assets under management. We launched the DEI Code because we believe that diverse perspectives lead to better outcomes.”

Although representation in financial services has been increasing, less than 2% of CFP professionals are Black, 3% are Hispanic and just over 4% are Asian or Pacific Islander, according to figures from the organization.

Such numbers do not reflect the demand for representation among the client base, Das said.

“Whether we like it or not, the demographic is changing. And financial planning is so personal. If you don’t understand my value, my culture, how are you going to serve me?” she said. “Why should we be color-blind? You need to understand my values.”