7 initiatives advancing diversity in financial planning

October 17, 2022 4:59 PM

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Research has shown that promoting inclusion and diversity helps to drive business performance. With that in mind, some wealth managers are making concerted efforts on their DEI initiatives.

From the ongoing work of Raymond James' Black Financial Advisors Network, founded in 2013, to a new partnership between the BLX Internship Program and eMoney Advisor that's helping to open doors to a career in financial planning for underrepresented groups, here are seven initiatives that are helping to move the dial on diversity.

Continuing the drive for more access and equality

Michelle Tran has crammed a lot into her more than 15-year career in financial services, including co-founding a women-focused fintech organization driven by her understanding of who she is — the daughter of immigrants who came to the U.S. from Southeast Asia by boat in search of the American dream.

This self-awareness raises questions. "What's my impact? How can I make the fact that I'm out here in the world as meaningful as possible?" said Tran, head of enterprise sales at digital 401(k) record-keeper Vestwell. While proud of her achievements, she knows there's more to do on access and equality.

The industry "has intent. But as far as action toward making sure that it happens, I don't think it's always there," she said. "It's been a little bit performative. To say, 'I have this DEI officer and we do XYZ,' but what are you really doing to change the number of diverse people you actually have on staff?"

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Changing the diversity narrative

A new study on the extent to which the nation's 50 wealthiest universities use asset managers with diverse ownership revealed an interesting comparison: the 16 respondent universities have more than 5% of their endowment assets managed by firms owned by women and racial or ethnic minorities, whereas only 1.4% of overall U.S.-based assets are managed by diverse-owned funds.

Ronald C. Parker, president and CEO of the National Association of Securities Professionals, a trade organization for minorities and women in financial services, was disappointed that only 16 universities participated in the Knight Foundation study but hopes for more engagement from the other 34.

"We don't want people to disclose for it to be a punishment," said Parker. "We want people to disclose because we could possibly share best practices or ideas or solutions on how we might change this narrative."

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Few of the richest U.S. universities say whether they use diverse asset managers for their endowments

Taking on the representation challenge

In an industry where less than 2% of CFPs are Black and fewer than than 25% are women, how do you attract and retain a larger proportion of diverse advisors? For Raymond James' Tony Barrett and Kaon Nelson, the solution began with creating the firm's Black Financial Advisors Network in 2013 with the support of CEO Paul Reilly.

The initiative is paying dividends, with advisors such as Tampa-based Camille York Adrien saying the BFAN was "one of the things that brought me to the firm" in 2018 and that she wanted to find a firm that "understood a woman, and especially a Black woman.

"When you are able to see people who look like you be successful, that attracts you to the profession." said York Adrien. "They can see that this is a career for them."

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Raymond James' Black advisors network confronts the industry's representation problem

Creating a pipeline for diverse talent

A partnership between the BLatinX Internship Program and eMoney Advisor is opening the doors to a career in financial planning for a new wave of underrepresented groups, such as Blacks and Hispanics, who currently make up only 1.8% and 2.7% of CFPs, respectively.

BLX interns not only get access to the eMoney Advisor software used by advisors in the business but can also earn an eMoney Fundamentals Certification. Program co-founder Luis Rosa believes the partnership can change wealth management by creating a pipeline for more people of color to enter the industry.

"One of the complaints that we hear from firms usually is that they don't know how to access the pipeline of diverse talent, even if they want to be more diverse," said Rosa. "But now we're creating a pipeline, so we're taking that excuse off the table and we're providing qualified candidates."

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BLX Internship and eMoney partner to get tech into the hands of Black and Latinx advisors early

Building a case for gender diversity

In a study of 353 portfolios over 10 years, the top-performing managers were adept at beating their benchmark indexes in at least seven out of 10 years. But only 50 of these portfolios, or approximately 14%, were led or co-led by a woman.

While women may be underrepresented in portfolio management (as of Dec. 31, 2020, only 11% of fund managers were female), their success has not gone unnoticed. Research shows that gender-diverse leadership outperforms, said Marypat Smucker, principal at Parallelle Finance, a group that researches "gender lens" investing.

"It leads to less fraud, better risk management, better financial performance and better operations performance," she said, making a clear business case for greater inclusion and diversity in portfolio management.

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Women portfolio managers: Numbers are small, but returns are big, study shows

Evaluating the impact of gender and race on trust

Representation, diversity and cultural competency are key issues in an industry where investment firms owned by white men manage almost 99% of the $80 trillion in U.S. assets under management. This is compounded by the fact that less than 2% of CFPs are Black and less than 25% are women.

With this as a backdrop, Miranda Reiter, CFP and assistant professor in Texas Tech University's School of Financial Planning, studied the part gender and race play in how trustworthy a client finds an advisor. "Race, ethnicity and gender are only a few of the factors that influence clients' level of trust," said Reiter.

Focusing on Black and white respondents with no experience of working with an advisor, the study provides valuable insight into the influence of gender and race on client trust that can act as a springboard for more diversity and inclusion in the industry.

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How a financial advisor's gender and race affect client trust

Facilitating the pathway to more diversity

Obtaining CFP certification is one of the key steps on the journey toward becoming a financial planner, but the time and cost of the CFP program can be a disincentive to diverse candidates, who may benefit from pursuing a different designation first, according to a College for Financial Planning study.

Designations such as the College's Foundations in Financial Planning (FFPN) or Accredited Asset Management Specialist (AAMS) may be more viable options for certain demographics and act as a ladder to a career in financial planning that could help increase diversity.

The numbers seem to concur. Between 2005 and 2018, 57% of students enrolled for the FFPN program were women and 7.3% were Black, compared to 29% and 3.1% respectively for the CFP certification. This indicates that a "bridge" designation, with its lower bar to entry, could be a pragmatic stepping stone for more women and people of color to enter the industry.

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Why not pursuing a CFP first may be the key to a more diverse crop of financial planners