Diversity in Financial Services
October 30, 2018 by Jocelyn D. Wright, MBA, CFP
In August, The American College of Financial Services held its’ 13th Annual Conference for African American Financial Professionals (CAAFP). More than 600 financial service professionals from across the country convened in the nation’s capital for the day and a half event of professional development, continuing education and networking. This is likely the largest annual gathering of Black financial advisors in the country.
According to the Bureau of Labor Statistics (BLS), in 2017 the total number of personal financial advisors reported was 525,000. African Americans or Blacks accounted for a mere 4.8% or 25,200. This marks a four-year consecutive decline in the total number of Black personal financial advisors. Representation, in terms of percentage peaked in 2014 at 8.1% or 35,154 advisors. In absolute numbers, the highest recorded amount was 37,848 in 2015 (7.6%). This represents a decrease of more than 12,000 advisors at a time when an increasing number of companies have implemented diversity and inclusion initiatives aimed at attracting more African Americans in to the profession.
It is also worth noting that over the same period the total overall number of advisors has steadily increased each year from 434,000 (2014) to 525,000 (2017). An increase of nearly 100,000 professionals.
Removing Barriers
If we take a more narrow look, the CFP Board Center for Financial Planning conducted a comprehensive research study entitled, Removing Barriers to Racial and Ethnic Diversity in the Financial Planning Profession. For the first time, the organization released data on the number of Black CFP® professionals in the United States. Of the 80,000 certified financial planner designees only 1,200 self-reported as Black, representing just 1.5%.
Obviously, there is tremendous opportunity for growth throughout the profession for African Americans.
Management consulting firm, McKinsey & Company, released a widely recognized study in 2015 – Why Diversity Matters – that clearly laid out the business case for diversity. Their research found that most gender-diverse firms outperform their peer group by 15%. Further, the most ethnically diverse companies outperformed by an impressive 35%. Given these numbers, it would be hard to deny that diversity is good for business. More diverse companies are better able to attract top talent, improve employee satisfaction and decision making.
McKinsey’s follow-on research that included an even larger sample of companies, Delivering Through Diversity, released earlier this year reaffirmed the previous conclusion. It found that the most gender diverse companies outperformed their peers even more than previously reported – 21% vs. 15%. There was a slight decline in the performance of the most ethnically diverse companies – 33% vs. 35%.
The study served as an indication that successful diversity efforts must begin at the top as the highest correlation between diversity and performance was observed at the executive level. Yet despite this key indicator, only 4% of executives in the United States self-identify as either Black or from an ethnic minority.
Vivian Hunt, co-author of Why Diversity Matters, said “our latest study of diversity in the workplace – reaffirms this global relevance of the link between diversity—defined as a greater proportion of women and a more mixed ethnic and cultural composition in the leadership of large companies—and company financial outperformance.”
When speaking of diversity many tend to only discuss the obvious: gender or ethnicity. With gender being more likely, as the subject of ethnicity generally makes people uncomfortable. Therefore, we are more inclined to avoid the topic altogether if given the option. As a result, we see that white women have benefited the most from diversity efforts. However, the conversation around diversity must not end there, it is far deeper. It includes but is not limited to age, background and experience, thought, abilities, religious beliefs and sexual orientation. Expanded diversity enables firms to better serve an increasingly diverse client population, opening up potential markets for firms that might have otherwise been difficult to access, for example the LGBTQ or Asian American communities.
Companies are better served when employees feel comfortable bringing their authentic selves to the workplace. According to Cloverpop’s whitepaper, Hacking Diversity with Inclusive Decision Making, decision making is improved with the diversity of the team. A direct link was found in their research between inclusive decision making and bottom line results. In fact, inclusive teams make decisions two times faster with half the meetings.
As the graphic indicates, broadly diverse teams (age, gender and demographics) make better decisions up to 87% of the time versus the average team that makes better decisions 66% of the time. Given that financial service firms are beginning to experiment with teaming (working groups of two or more) to increase retention rates among younger, less experienced professionals and other diverse individuals, this can help to further develop the advisors and generate greater returns for the organization.
Mellody Hobson, President of Ariel Investment, speaking at the 2017 Fortune Most Powerful Women Summit on a panel entitled, Breaking the Black Ceiling, commented that we (businesses) need to decide that we are going to stop admiring the problem of diversity and do something about it. She stated that businesses continue to say they are “working” on this problem and businesses don’t work on anything that matters. “You either do, or you do not. There is no try.” In other words, if businesses are serious about diversity and inclusion they are going to treat it as a priority and address it with the utmost intention. For this to be effective it must begin at the top.
New Movement
That said, there are areas where we see movement. They include compensation, awareness, mentoring and sponsorship, and office culture.
- (1) The compensation model that many entering the financial service profession are subject to is being reevaluated as it is a barrier for not only Black advisors but also many other underrepresented groups. The idea of having no ceiling on your income sounds appealing in theory however in practice for someone who is just beginning their career it can be a challenge. Whether a recent graduate with significant student loan debt or an experienced professional considering a career change the uncertainty of income is a serious deterrent.
- (2) A growing number of colleges and universities have CFP board registered programs or offer courses in personal finance or insurance. This combined with efforts to increase financial literacy helps to raise the level of awareness of the profession among millennials and dispel many of the misperceptions.
- (3) Mentors and sponsors are widely known to be an important part of professional development. However, African American advisors are less likely to have these meaningful relationships. Mentors are individuals who will offer an empathic ear especially in the early years and sponsors are advocates (people of influence) who will speak on their behalf for opportunities and promotions. One might argue that you can be successful in your career without a mentor, but it is unlikely that you can excel without a sponsor. Companies are recognizing the value in these relationships and are creating formal programs without the workplace.
- (4) Frankly there are too many offices that simply are not welcoming to advisors that do no represent the status quo (a forty plus year old, white male). A company can craft the best recruiting strategy but if they fail to properly address the environment in the office their efforts will be for naught. Like the book says, Culture Eats Strategy for Lunch. Firms are sponsoring Employee Resource Groups (ERGs) to provide support underrepresented employees, redesigning workspaces to create a more welcoming environment and conducting sensitivity training that includes unconscious bias workshops.
Some companies have established specific targets. Most recently, Citigroup, Inc. CEO, Michael Corbat, announced the creation of efforts to increase the representation of women and African Americans in management by 2021. The firm seeks to increase the number of Black employees in management roles (from assistant vice president to managing director) over the next three years from 6% to 8%. It is important to note that these diversity and inclusion efforts are not a human resource responsibility but instead belong to the firms’ operating committee. Citi’s leaders will be “measured on the progress of this diversity goal on their scorecard, as they are with the firm’s other business priorities.”
Increasing Diversity
In addition, other organizations are working to increase diversity within the profession, including the following:
The American College of Financial Services created the Double by 2027 Initiative with the goal of doubling the number of Black financial advisors in ten years. Part of this effort includes a scholarship program dedicated to assisting individuals interested in obtaining professional designations offered by the College.
The Association of African American Financial Advisors (AAAA) is an organization that was created to address the unique needs and concerns of African American financial professionals. By partnering with such entities as financial planning programs at historically black colleges and universities (HBCUs) and financial services firms, the organization seeks to elevate African Americans in the profession. In addition, the AAAA Foundation has started a scholarship program named after the associations’ founder and first Black CFP® certificant, LeCount R. Davis. The scholarship will assist recipients in covering the cost to obtain the professional designation.
The CFP Board Center for Financial Planning has formed a Diversity Advisory Group made up of practitioners, executives and academics led by Cy Richardson, Senior Vice President, National Urban League, to assist in the development of initiatives to help increase the number of diverse financial planning professionals. The Center is also hosting a Diversity Summit in October where they will release a thought leadership paper and deliver a call to action to the industry.
There is still a great deal of work that needs to be done to improve the status of African Americans in the financial services profession. Time will tell if the efforts currently in place will be effective. ◊
