By slacking on diversity, advisors risk losing relevance
A Chinese proverb says that the best time to plant a tree was 20 years ago. The second-best time is now.
That same wisdom applies to fixing the troubling lack of diversity in our profession. We as an industry must take action now or risk becoming irrelevant within our lifetimes.
Millennials are not only the largest generation in the U.S., they’re the most diverse, and they’ll comprise 75% of the workforce by 2025, according to Deloitte. Diversity is an important consideration for this generation as they choose where to work and conduct business. Employers with a more diverse workforce will have an edge when it comes to recruiting and serving the next generations.
Compare those demographics to the financial planning industry, where less than 3.5% of the approximately 80,000 CFPs are black or Latino, according to new research from the CFP Board’s Center for Financial Planning.
Even as the prospective client base grows more diverse, a majority of advisors remain male, white and over the age of 50.
The inaugural event builds on mounting industry interest in improving its historically dismal record on growing the ranks of minorities and women in wealth management.
FP magazineThe "I am a CFP Pro" campaign will feature younger, more diverse voices from the planning community.
Addressing this imbalance in the planning industry is a strategic imperative. We must take action now, assessing the challenge and committing ourselves to making progress.
The center surveyed more than 2,200 industry professionals, customers, educators and students, as well as Latino and black CFPs who were considering hiring financial planners. Almost 60% of respondents perceived the typical CFP to be white and male, regardless of the respondent’s gender or ethnicity, the study found. Among CFPs, the number increased to 75%, while among black CFPs, the number was 81%.
Respondents generally agreed that white CFPs were more likely to be hired than Latino CFPs (48%) and CFPs(56%). Among Latino CFPs, one third said companies were much more likely to hire a white CFP over black or Latino/a candidates. Seventy percent of black CFP said companies were more likely to hire whites than blacks.
These perceptions hinder the development of a diverse workforce and prevent financial planners from attracting clients that the profession needs to grow. Although the challenge is great, we as an industry can take steps to change the face of the RIA profession. Here are three concrete steps we can take now:
First is a tip from the CFP Board’s recent Diversity Summit: We need to be more open when we tell our stories. It’s about sharing our failures, as well as our successes. Talking only about our “wins” doesn’t teach the lessons that can be learned from someone who went before you.
Second, I am reminded of wisdom that Viola Davis shared with the audience at this year’s National LINC conference. “You don’t know where the other person started the race.” Don’t assume you know someone’s background or upbringing. Ask. This can be true for your associates and your clients. Despite our best efforts, unconscious biases get in the way of seeing what’s truly in front of us.
Likewise, the requirement for new advisors to be responsible for all of their own business development can deter those who are just starting out and who don’t have personal networks to tap into, and those with families to support. It also implies the job is focused on sales and products rather than showcasing financial planning as a profession that’s focused on helping people, which is what attracts a lot of great candidates to the profession in the first place.
We’ve already made positive changes. Some firms have responded creatively to these concerns by shifting their compensation to salary and bonus models. Others assign CFPs to mentor new hires, taking the approach that investment in human capital pays off over time as new advisors build relationships and become more comfortable with business development. This shift in perspective from a short- to a long-term way of doing business becomes an investment in a stronger and more robust firm.
To be sure, there are some advisors who are nearing retirement and don’t see the point of changing how they run their businesses. After all, their current model is working for them, and by the time that demographic milestone hits, they’ll be enjoying their golden years.
Between now and then, they’ll probably want to sell their firm. A firm that’s not acquiring new clients won’t be attracting high multiples for its owners.
Despite the lack of representation in the industry — and the racial barriers they feel hinder their progress — black and Latino CFP respondents reported feeling as satisfied with their careers as other CFPs. An advisor, regardless of his or her background, is inclined to stay with the profession, and serve as a role model for others.
It would have been better to have addressed diversity and inclusion challenges sooner. We can look forward to making an impact. The time to act is now.