The first step to solving any problem is to recognize that one exists. In this case, that problem is the lack of racial and gender diversity in the financial advisory profession. This lack of diversity isn’t a mystery. In fact, it’s well known – both in perception and reality. Although we are currently in the middle of Black History Month, this isn’t a conversation that’s limited to the shortest month of the year, nor will it be solved by a singular blog post. However, a problem as far reaching and deep as this one needs us to give it time and attention now – and take steps toward solving it. For the purposes of this article, it’s important to note that we are looking at racial and gender diversity, which are important but do not make up the full picture of diversity. In reality, a workforce is made up of diversity of thought, sexual orientation, background, residence, age, abilities and more. However, we are just looking to better understand the racial and gender makeup of our profession.
Finding our Benchmark
Before we dive into our profession, let’s first look at the United States as a whole. The U.S. Census Bureau estimates that of the 327 million people in the United States, 76.6 percent are white and 50.8 percent are women. These percentages can serve as a benchmark for our profession, with the minimum goal being to reflect the diversity of our U.S. population. After all, financial advisors serve the U.S. public, so we should be fairly reflective of the public we serve. Keep in mind that these numbers are a nationwide look. You should consider your local community, too. If you’re in a more diverse city – or a more diverse section of your city – your firm should reflect that diversity.
Diving into Our Profession
Now, let’s turn our focus to our profession with a look at the Bureau of Labor Statistics, which reports that about 7.5 million people working in the U.S. are classified in the “business and financial operations occupations.” Within that classification, 78.8 percent of the individuals are white and 53.8 percent are women. This would seem to fall into our “fairly reflective” goal, but watch what happens when you look at just financial advisors. Within business and financial occupations, 537,000 professionals are “personal financial advisors.” That’s where we find our drop in diversity. Of the personal financial planners, just 33.5 percent are women and a staggering 86.3 percent are white. Meanwhile, 13.4 percent of the U.S. population is black or African-American, yet black professionals make up just 5 percent of financial planners.
A Closer Look
The Center for Financial Planning did some very important – and frankly much needed – research on diversity in our profession, releasing the results in May 2018. The study, which can be found on the CFP® website, consisted of an online survey (quantitative) and in-depth interviews (qualitative) of professionals responsible for recruiting and hiring:
- Black and Latino CFP® professionals
- CFP® professionals who are neither black nor Latino;
- Consumers who work with a financial planner with investable assets or income of $100,000 or more
- Black and Latino business professionals and students, age 20-54, open to considering a career in financial planning.
The results of the study shed a light on four main findings:
- A broad acknowledgement that there is a lack of racial diversity among CFP® professionals.
- Survey participants widely believed there is no difference in skill set among white advisors, black advisors and latino advisors.
- The reason behind the racial diversity gap is widely debated.
- Survey respondents were mostly “highly satisfied” in their career regardless of race.
You can learn more about the exact results of the study with this infographic. The main takeaway is that the lack of racial diversity is clear, yet solving the problem is not. Some may point to reasons such as education, mentorship, financial inequalities or even blatant racism, but the fact remains that a problem still exists.
The Future of the Profession
As the great wealth transfer continues, shifting assets from Baby Boomers to younger generations, we will see a greater need for diversity – for reasons both biological and social. For starters, women outlive men, meaning women will be the first to inherit much of the wealth. That doesn’t mean women prefer or even want a female financial advisor, but it does stress the importance of maintaining a diverse staff. Now, consider the implications of your firm not being diverse as the racial gap closes. A Brookings study predicts that by 2035, there will be more people of color under the age of 37 than white people. Further, people in the 38 to 54 age gap will be just 52.4 percent white by 2035. Organizations such as the Association of African-American Financial Advisors are leading the way in encouraging greater representation for minorities in our profession. We can look to them for guidance as we seek to more accurately represent the population we represent. To start addressing the diversity problem in your firm, ask yourself three questions:
- Does your firm reflect the diversity of your community?
- In what ways may you have unconsciously contributed to the lack of diversity?
- What steps can you take to improve diversity within your firm?
By recognizing the diversity problem now, our profession can take steps toward solving it. Failure to do so could mean your firm risks lacking the diversity required to appeal to the next generation, and thus the holders of future wealth.