Many financial advisors act as if their practices exist on an island, separated from politics, activism, and protests. Hence, income inequality can seem abstract to them.
But the renewed attention paid to the Black Lives Matter movement is proving that everything is interconnected. Even independent advisors are affected based on whom they represent, attract, and exclude.
Sixty percent of white families have at least one retirement account, according to the latest statistics (2016) from the Federal Reserve Survey of Consumer Finances. But only 34% of African American families maintain at least one. Latino families are even further down the list with 30%.
Moreover, the median investments for white families totaled $151,000 while blacks had $46,100, and Latinos $43,000.
Some minority experts are saying that wealth management firms could do more to reach out to prospective clients and become more inclusive, yet still maintain – if not increase – their profitability.
Though the number of four-year minority college graduates trails white alumni, nearly 50% of Latinos and 40% of African Americans earn degrees. Aren’t most of them ripe to grow their retirement accounts?
Part of the problem has been the dearth of minorities attracted to the financial advisory profession. In the latest 2019 statistics from the CFP Board, a paltry 1.5% of all CFPs were African-American and 2.2% were Latinos. Women comprised 23% of all CFPs.
Rene Nourse, the founder and CEO of Urban Wealth Management, an El Segundo, Calif.-based firm with three Certified Financial Planners that manages $138 million in assets, spent 25 years at brokerage firms as an advisor before opening up her own shop in 2012. She’s also vice-chairman of the non-profit and volunteer Association of African American Financial Advisors, and is tuned into why so many brokerage houses and advisors often slight minorities.
Brokerage houses, she says, focus almost exclusively on assets under management. If a client possesses a minimum of $250,000 or $500,000 in assets to warrant acceptance, the door is wide open. If not, it stays tightly shut.
“People need advice, not just managing my assets,” Nourse exclaims. “How can you tell people what to do if they don’t know their financial goals and objectives?” she asks rhetorically.
Moreover, most advisors don’t speak their language, literally if they’re Latino, and figuratively, if they’re African-American (her staff has a bilingual Latino CFP). Hence, Hispanic nurses in Newark or African American bus drivers in Baltimore don’t know where to turn to find a sympathetic advisor.
“There are few advisors who look like them,” Nourse points out, and “most people like to work with people who understand their lifestyles.”
“Most brokers focus on investment advice. It leaves minorities out there in the cold, left alone,” she says. What most minority investors want is “financial guidance and planning,” she adds.
Even minority clients who built their net worth through 401(k) accounts don’t receive their just due, Nourse explains. Most of those funds are held in custody and aren’t considered managed assets until they’re cashed in, leaving many minorities excluded. That is, until they retire and roll over their funds.
Rather than depending on savings or non-retirement accounts, the general inability for advisors to recognize 401(k) funds as assets to manage limits the ability of many minority clients to meet the minimum for assets required to be a client, she suggests.
Nourse recommends that advisors seeking minority clients do the following: 1) Lower your minimum. Too many minority investors, who own a house and are taking care of kids, haven’t been able to build up their liquid assets, 2) Avoid charging extra fees to clients who fail to meet the asset minimum, 3) Build long-term relationships with minority clients that focus more on financial planning and building up their assets.
About 60% of Urban Wealth Management’s clients are minorities, mostly because it sets no minimum. “Becoming a client has nothing to do with how much money you have. We’re helping you to plan out your life and help set your goals,” she explains.
Its philosophy revolves around getting the client’s “financial life in gear,” she said, which involves organizing their financial life, setting priorities, and devising a strategy to achieve their financial goals and desired lifestyle.
Many of her clients are minority college graduates and most advisors fail to understand the “legacy” that these clients want to leave their children and grandkids. They’re often the first ones to graduate college in their family and want to “save it, grow it, and pass it on the next generation.”
Kevin Matthews, who wrote Starting Point: How to Create Wealth That Lasts and is founder of Building Bread, which helps millennials achieve their financial goals, says most firms “haven’t catered” to minorities and have overlooked them. “But as minority college graduate levels rise and their assets rise, it’s piquing their interest.” he says.
Firms need to see issues from a minority’s investor’s viewpoint. Many have larger college debts than white people, and many are more suspicious of the stock market and are focused more on safer investments. Many minority investors have been burned by banks, rejected for mortgages due to redlining and don’t trust financial institutions, Matthews notes.
Matthews’ advice: go into the community. Talk to potential investors. Understand their fears and what they’re looking for. Then do an internal audit of your firm, analyzing what you offer and how you’re marketing your services to multicultural communities.
One obstacle is many minority investors think that most firms require millions of dollars to become a client and that misperception needs to be addressed. The biggest trap is trust, Matthews said. Firms need to prove to potential minority clients that they are trustworthy, are looking out for their best interests, and speak their language, literally and figuratively.
Cleary “there’s a serious wealth gap in this country concerning minorities,” which limits their ability to invest with advisors, notes D.A. Abrams, the managing director of the Center for Financial Planning at the CFP Board, based in Washington, D.C. “It’ll take a while before we bridge that gap,” he adds.
But given that gap, advisors must find ways to be “welcoming with minorities and show they want them as clients,” Abrams says.
Financial advisory firms need to send a positive message, which they can do in a variety of ways. Abrams wants to know how many black and brown people are on the senior executive team and their board and what their commitment is to diversity. How are they connecting to the community? How are they supporting organizations of people of color, minority suppliers, women organizations, and LGBT groups?
“If you are supporting them, you’re telling me I’m welcome,” he says.
Though Abrams acknowledges that not every minority member wants to necessarily hire an advisor who shares his or her background, he’d want to see a certain number of staff members who are multicultural.
Hiring more certified financial planners who are people of color “isn’t just the right thing to do. It’s right for their business,” Abrams says. He noted that there are a growing number of affluent minorities who can meet the AUM qualifications of many firms.
If minority members don’t feel welcome, the odds are they won’t become a client is Abram’s underlying message.
If Blacks Live Matter were evaluating most firms’ ability to target minority investors, “they would fail,” Matthews replied. “They don’t cater to minority communities.”
Nourse thinks that a Black Lives Matter platform might be needed to shake-up many financial advisory firms. Though many of them have stepped up hiring of women and minorities, “because their culture and environment is so reflective of the dominant white men’s culture, many of them don’t stay on board for more than two years,” she says.
