Client Service April 1, 2024

DEI Efforts Help Industry Serve Shifting Demographics, Client Needs

Experts say diverse teams can help improve client service and business needs.
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Art by Tilda Rose

The financial services industry would be well served to focus on diversity, equity and inclusion not only to bring more people into the industry, but also to serve the demographics and needs of their client base, according to industry practitioners.

U.S. firms with diverse staff are likely better equipped to serve the needs of clients, to reflect the country’s changing demographics and to fill gaps for underserved communities seeking financial and retirement planning advice. Anand Sekhar, vice president and principal business consultant at Fidelity Institutional, says individuals increasingly wish to work with financial advisers who they can relate to.

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“How we as an industry relate to people is very much (tied) to social and cognitive diversity,” Sekhar says. “It’s very much tied to those life experiences we have.”

Cultural norms and differences can have a direct impact on wealth management and retirement planning advice, he explains.

“As a person of Asian background, there is a cultural norm, where if my dad passed away, I would be expected to take care of my mom,” says Sekhar as an example. “That’s a very different planning need than if my mother were to be in an assisted living facility.”

The advisement industry could also benefit from shifting its recruiting mindset, he adds. He believes attitudes should shift from recruiting diverse staffers, who then move from one advisory firm to another, to consistently attracting new advisers to the industry from a diverse set of backgrounds, for a net gain.

“I think about advisory firms seeing advisers move from one firm to another, but that doesn’t change the net new talent. We need to attract net new talent to our industry,” Sekhar says. “When I think about the word ‘recruit,’ I think about writing someone a check to go from one broker/dealer to another broker/dealer.”

Representation Shortcomings

Representation among both women and minorities continues to disappoint many in advisory and financial services.

According to Fidelity’s 2023 RIA benchmarking study, 43% of full-time employees at RIA firms were women. Further, only 25% of executives and 22% of advisers were women, compared with 64% of support staff and 83% of administrative staff.

Within wealth management, racial minorities are also underrepresented. About 82% of individuals holding a Certified Financial Planner certification are white, while 4.2% are Asian or Pacific Islander, 3.1% are Hispanic or Latino and 1.9% are Black, according to CFP Board data from March. The gender breakdown of CFPs, as of March, 1 was 76.2% male, 23.7% female and less than 0.1% non-binary.

Leslie Tabor, director of business consulting and education at Charles Schwab’s advisor services division, said via email that wealth management firms “shouldn’t underestimate the value of DEI efforts.”

“At Schwab, we’re seeing that hiring from different backgrounds, ideas and perspectives is becoming increasingly important to new talent, and it helps drive firm innovation and performance,” Tabor says. “This rings especially true for younger generations.”

She notes that, as U.S. investor demographics shift within the population, RIAs are recognizing the importance of diverse talent in forging new client relationships.

“A firm that seeks representation and diverse voices within its workforce helps generate honest relationships with clients from a range of demographics who are looking for financial advice from individuals of a similar background,” Tabor says.

Charles Schwab has seen success with its Building an Inclusive Firm Culture consulting program, which “offers RIAs the opportunity to learn, network and develop strategies to build an inclusive workplace that attracts and retains diverse talent,” according to Tabor. “The goal of BIFC is for firms to leave the program with their own DEI vision, strategy and action plan that they can easily implement.”

Growth Opportunity

J.P. Morgan Wealth Management has been working to bring together underrepresented industry advisers and help them build a sense of community, network and grow their careers. In 2022, the firm launched its annual Black Advisor Summit for advisers and senior leaders within its wealth management unit, says Danea Rouse, director of diversity, equity and inclusion at J.P. Morgan Wealth Management, in an email.

“We hosted more than 300 attendees in 2023 in Orlando and will be celebrating our third annual summit in Chicago this May,” Rouse says.

The firm also has a chapter of “Women on the Move in Wealth,” which provides resources to women in the industry and has separately focused on providing content for clients from diverse communities.

“This includes retirement planning challenges in the LGBTQ+ community, financial planning challenges for transgender individuals and estate planning considerations for blended families,” Rouse says. “This content library helps to equip our advisers with specific, nuanced content to help them guide clients through unique challenges in their planning journey.”

As part of its efforts to engage with and educate local communities, J.P. Morgan Wealth Management also introduced in 2022 a road show called “Building a New Legacy,” in which seminars are held around the country offering wealth-building and investing tips for Black, Hispanic and Latina women. So far, the firm has hosted events in Atlanta, Chicago, Dallas, Detroit, Los Angeles, Miami, Newark, New Jersey, and Washington D.C., drawing more than 1,000 total attendees.

High-Value Clients

Emily Mendell, executive director of the Private Equity Women Investor Network, whose members work in the alternative investment space serving institutional, family office and high-net-worth clients, says she sees DEI efforts as crucial to the industry. As gender demographics shift, specifically pertaining to primary wage-earners, Mendel says the industry must reflect and meet those needs.

“Our members are often the primary wage-earners in their household,” she says. Additionally, women have longer life expectancies, “so they will likely outlive their partners.”

“They also may not be making as much as their male partners” for comparable work, she explains. “They may have gaps in their salaries, if they took time off to take care of children for any length of time. They also have different risk profiles (when investing). There are different studies that show that women are more risk-averse than men.”

Those needs, and the fact that women are going to become more important in making financial decisions for their households, show the need for more women in the industry, Mendell says.

“To meet the population where it is, firms who are thinking about hiring, promoting and retaining women are going to succeed,” she says.

Practice Management April 1, 2024

Moving the Needle on DEI in Financial Services

Mitigating the wealth gap and recruiting diverse talent go hand in hand when promoting inclusion in the retirement advisory industry.
Reported by
Art by Tilda Rose

The lack of diversity within the financial services industry has repercussions on marginalized communities, in part because the fee-based nature of services can perpetuate the industry’s homogeneity, both within firms and among clients being served, according to experts.  

However, amidst these challenges, there is growing optimism among DEI experts and practitioners that change is possible. New ideas such as reconsidering minimum fee thresholds for clients, staffing diverse teams to match an increasingly diverse client pool and proactively recruiting among diverse communities are all starting to be considered as ways to combat homogeneity and a “good-old-boys” network in finance.  

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The Wealth Gap  

“When you go to conferences that are mainly adviser-driven, they’re still pretty homogenous, unless they’re aggregating around a topic like diversity,” says Laura Stamps, head of DEI engagement strategy for Financial Finesse.  

She says wealth management is largely a business of networks, in which people with money try to get other people with money to invest. Given the current wealth gaps—by race, by gender, by sexual orientation—advisers from those communities will, in turn, have a smaller pool to work with.  

“There are people that come into this business still building books, starting off in very low salaries,” Stamps says. “Some communities can’t afford to live on such a low wage level after they’re educated, because perhaps there are other households they might be responsible for.”  

The racial wealth gap plays a large role in why wealth management is not as diverse as it could be, she notes. The more work done to mitigate these gaps through financial well-being and intentional strategies to remove barriers to wealth-building, the more hopeful Stamps says she will be that change will happen. 

Preston Duppins Jr., a senior partner in Vilardi Wealth Management at the Association of African-American Financial Advisors, says adviser firms often have an asset minimum—say, $100,000—and if a client does not meet it, that client will be sent to a call center.  

“As an African American, if I’m going into my community that has 10 times less wealth than other people and I don’t accept lower minimums, I’m not serving my community,” Duppins says. “Someone from my community might have $80,000, and they’re the first generation to even work with an adviser.” 

He says if his company is not allowing him to bring on smaller dollar amounts, he could be ostracizing his own people. A lower minimum, he says, is an option to serve groups without generational wealth.  

People Aren’t a Monolith 

Duppins notes that individuals of any race cannot be painted with the same brush, so financial advisories need to consider ways to serve all types of clients. 

When asked if an identify-specific firm, such as a firm staffed with Black employees serving Black clients, could help address the situation, Duppins says that may not be the right answer either, as it will then exclude other groups.  

“It’s been proven that diverse organizations tend to perform better,” he says. “I think the world is changing.”  

Stamps agrees that many more multicultural families do not fit into a single category. If money management is a familial endeavor, it would make sense, she notes, that firms reflect what families look like as well.  

“People are not a monolith,” she says. “People aren’t necessarily going to be served well just because an adviser looks like them. There’s a higher probability that maybe an adviser can understand them culturally, but there’s also so much nuance within the culture that: maybe not.” 

Recruitment  

Recruiting employees is a concrete way for a firm to increase diversity, says Carina Diamond, CEO and founder of Stella Secunda Partners and director of Diversitas at the University of Akron. She encourages advisers to develop a relationship with local colleges and universities.  

“Pick a school nearby, and even if they don’t have financial planning or personal finance, other majors can be great too,” she suggests. “Once you get that relationship, you can start to give back, set up a scholarship, mentor the students, help with a career day. You’re going to get those phone calls from those professors who say, ‘Hey, I’ve got this superstar woman in here, and I think she’d be a great fit at your firm.’” 

Morgan Stanley’s Duppins agrees there must be overt action taken by financial organizations, as the industry is still “a good-old-boy network.” A business owner hiring someone to take over might think clients will abandon the firm if their successor is of a different nationality, has different political beliefs or is part of the LGBTQ+ community, he says, and they therefore recruit people like themselves.  

“My son’s coming into the space, but there are very few people like me, and not every son is going to want to follow his father’s footsteps,” he says. “I think there has to be a tangible program in place to make sure firms are going to [historically Black colleges and universities] and explaining to people the opportunities in this space. That’s what I do. I talk [to every] young person that’s in college in finance.” 

Recruiting diverse talent will help those from underserved communities. Duppins says there are funding opportunities he has been able to give clients that his white counterparts probably would not have been able to provide. He talks about a client, of Cuban descent, who used his own money to fund his business until Duppins told him about the Black Business Investment Corp., which helped him secure funding.  

“Regardless of how you feel in your heart about DEI, you have to acknowledge that there’s a business case: We have to expand the labor pool,” Diamond says. “Frankly, as a profession, we need to look like more like our audience, which is increasingly diverse.” 

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