Financial advisory firms struggle with lack of diversity, advisers say
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The financial advisory industry continues to struggle with efforts to boost diversity, although more companies appear to be emphasizing the issue in their recent hires, according to the top companies in the annual FA 100 ranking of CNBC.
The profession has long been dominated by white males.
For example, black and Hispanic certified financial planners made up just 4% of the total 87,784 CFPs in 2019, compared to nearly 30% of the U.S. population, according to a CFP Board report released last year. Women have made up about 23% of CFPs for a decade, compared to more than half of the U.S. population, according to a 2019 report.
While financial planners are only a subset of the overall spectrum of “financial advice”, their statistics are consistent with those of the industry at large.
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“Our industry has a lot of the same issues as our company,” said Alison Berman, president and CEO of Palisade Capital Management, which ranked No. 88 on CNBC’s FA 100. “These systemic issues are extremely complex.”
The industry has made some recent improvements. For example, the number of black and Hispanic CFPs increased 12% in 2019, the largest increase on record.
Diversity and inclusion efforts have gained more awareness and momentum after the murder of George Floyd by a white police officer in Minneapolis last year, which sparked national and international protests for racial justice and prompted people to many American companies to publicly engage in diversity initiatives.
Benefits of diversity
Beyond being a moral imperative, there is also a strong business case for cultivating diversity, be it gender, racial, ethnic, sexual orientation or otherwise.
On the one hand, a diverse workforce can attract new clients, who may prefer to work with advisors who look like and understand them, according to Top Companies.
It is becoming a growing problem: People of color are expected to constitute the majority of America’s population by 2045 and will be the “demographic engine of the nation’s progress,” according to the PCP board of directors.
“When a client is working with you, they want to feel comfortable having someone who can relate to their issues,” said Manal Fouz, compliance manager at Azzad Asset Management in Falls Church, Virginia. , which ranked No. 39 on CNBC’s FA. 100. “The more diversity you have with your employees, the more they are able to identify with their customers.”
Among other benefits, evidence shows that diverse companies can recruit (and retain) better talent; they are often more creative and innovative.
The CFP board has compiled a list of recommendations for companies to effectively stimulate diversity among workers, based on research and case studies.
There appear to be several reasons for the industry’s persistent lack of diversity.
Some are due to limited knowledge of the profession among young adults and students, the counselors said. Even companies looking to increase their diversity are going through a difficult time due to the relatively small candidate pool, they said.
“It’s a mandate for us; it’s in our strategic plan to grow diversity and inclusion,” said Kelly Noonan, COO of Willow Creek Wealth Management in Sebastopol, Calif., No. 77 on CNBC’s FA 100. “But we are not getting the candidates.”
The firm hopes that allowing advisers to work remotely due to the Covid pandemic will make it easier to hire diverse talent across the country.
Some companies may inadvertently recruit from traditionally white or male pipelines, Berman said.
However, industry awareness is one of the least cited reasons for under-representation among people of color, according to a CFP Board survey.
Lack of opportunities and lack of mentors or support were most frequently cited by black and Latino vocational training centers, according to the survey.
Research shows that, on average, mentorship programs can increase the representation of Black, Hispanic and Asian American women, and Hispanic and Asian American men, among executives by 9% to 24%.
Barriers due to education, background and culture (such as economic inequalities) rank third.
“You have to be rich in this country to understand that this profession even exists,” Berman said. “You have to have the money to know it’s even an option.”
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