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Practice and client management

The industry's opportunity to work with new Black and Hispanic investors

ByTobias Salinger
January 19, 2024 5:56 PM

The wave of new retail investors flowing into brokerage firms in the wake of federal stimulus checks during the pandemic included many younger clients from historically excluded groups.

 A few years ago, the GameStop short squeeze and the larger "meme stock" movement led to a surge in new customers. The growth of non-retirement investment accounts was faster among Black, Hispanic and Asian Americans compared to whites in the U.S. during the six years ending in 2021, according to a Jan. 10 report by the FINRA Investor Education Foundation. Black and Hispanic investors represent, on average, an especially younger group with less wealth than the industry's traditional older, more affluent client base. The slideshow below displays the takeaways from FINRA's research and education arm. 

"While the increase is encouraging, these new investors of color are navigating uncharted waters with little guidance and are actively looking for someone who understands their situation to help them learn more about investing," the report said. "Financial education leaders, policymakers and regulators will need to adapt in order to reach these audiences (non-white investors, younger investors)."  

For an industry promoting financial literacy as one aspect of removing the barriers of access to wealth-building tools and connecting with a new generation of clients and financial advisors, the report presented a glimpse into some of the inherent challenges. 

To convert the new brokerage customers into long-term wealth management clients and professionals, the industry will need to adopt new methods using the examples of innovators and of Black and Hispanic Americans themselves, according to Eugenié George, the author of "Our Money Stories" and the head of content and strategy with Changing How Individuals Prosper (CHIP), a client matchmaking service for Black and Latino customers and financial professionals. In an email, she offered four ideas for the industry at large:

  • "Acknowledge that this work takes time. Build trust and hold workshops in places that you would never go to understand what people are interested in. A few years ago I went to a workshop with Celeste Revelli and she taught a class about money pro bono in Philadelphia, and the demographic was predominantly Black and Hispanic. We had a great time, but it helped put things into perspective to hear what people wanted for their families. 
  • "Reframe what milestones look like for investing: Historically, we've been successful at savings; look at the Freedman's Savings Bank or even with first-generation Black and Hispanic Americans with remittances so if we know what steps they take based on savings, i.e., family, security. We should market in a communal sense. 
  • "Sliding scale: this is a concept that I've seen plenty of yoga teachers take on. It's using a scale pay method. Many folks pay the premium price, but they offer different tiers and only offer three seats. 
  • "Finding folks who are hungry for change. We know that Black and Hispanic female business owners are on the rise. So create a method where we can help them organize their wealth first, through milestones. So find business accelerators and business groups that have women, and ask them what are they interested in."

The report's findings reminded FinLit Tech Chief Education Officer Mac Gardner — a longtime wealth management professional who's the author of "The Four Money Bears" and the founder of a college planning fraternity — of the movie about the GameStop saga, "Dumb Money." As much as the incoming group of younger and more diverse investors reflects a positive sign, the ease of trading through Robinhood and other digital platforms brings real risks, Gardner said.

"You have to have education in knowing that what goes up will eventually come down," he said. "It's almost like a loaded weapon, but you're not teaching them how to use that weapon."

For the most interesting research from the FINRA Foundation's report, "Investors of Color in the United States," scroll down the slideshow. And follow the links below for Financial Planning's coverage of other reports by the FINRA Foundation:

Note: All of the data comes from the FINRA Foundation National Financial Capability Study, an online survey of 2,756 U.S. adults between July and December 2021 who said they have non-retirement investment accounts. Researchers then conducted six online focus groups last March with groups of minority investors aged between 21 and 34.

Black and Hispanic investors are on the rise

Between 2015 and 2021, the percentage of Black, Hispanic or Asian Americans with non-retirement investment accounts rose more quickly than that of white Americans. 

Here are the current shares of the population among each group with brokerage accounts and the varying increases over that span:
  • White: 36% (+3 percentage points)
  • Black: 29% (+9)
  • Hispanic: 30% (+6)
  • Asian American: 49% (+7)

Minority investors are usually younger

Those groups of investors display wide differences in the portion aged between 18 and 34:
  • White: 21%
  • Black: 49%
  • Hispanic: 45%
  • Asian American: 23%

Black and Hispanic investors are more likely to have below $50K in holdings

The share of Black and Hispanic investors with less than $50,000 in their brokerage accounts is nearly double that of white and Asian American investors:
  • White: 34%
  • Black: 59%
  • Hispanic: 59%
  • Asian American: 31%

Big variation in the percentage of investors who bought meme stocks

The researchers asked participants whether they bought or sold GameStop, AMC or Blackberry stock in 2021. Here's the racial breakdown of the percentage who answered "yes" among each group:
  • White: 15%
  • Black: 43%
  • Hispanic: 24%
  • Asian American: 14%

What’s the share of each group getting information from online videos?

Minority investors are more likely than white Americans to get information from videos about business or finance posted online. Here's the percentage of each group who told researchers they learn about finance that way:
  • White: 38%
  • Black: 74%
  • Hispanic: 56%
  • Asian American: 51%

On the barriers to investing

Here's a sampling of anonymous quotes from the focus group discussions about what the report described as "the socio-cultural context of non-white investors."
  • "My male coworkers were teaching me about investments, and a lot of them were white, and it was them teaching us — as in women, Black women — how to invest. They had been doing this for years, since they were teenagers, and they're well into their later adult life. We're kind of just recently investing in the last five years."
  • "We're first generation. Most families here are third, fourth, fifth generation, and they know the tricks. We don't know anything about it. We know to save our money in the bank, where you don't get anything back, as opposed to now learning about all these other ways of having your money work for you."
  • "I didn't grow up with somebody teaching me how to save, teaching me how to invest. So, to have somebody to teach me—who understands that I have zero experience with where to begin—would be helpful because it's less stigmatized I guess, and I don't have to feel stupid asking questions. This is all something that everybody can learn how to do. It's just having the tools and the time to do it, and the right teachers, I guess."
  • "We are not treated the same. We don't get the same amount of loans, we don't get the same approval rates. Just on so many levels, there have been so many instances to make us distrust financial institutions. We've never been favored by them. So why now should I believe that what you're saying is what I should do, and I should trust a financial institution, but they never had my back before?"
  • "First, they're not in our neighborhoods, with the perception that we don't have the capital, we don't have the money to invest. And there's also the perception from us that you need thousands of dollars to even do business with them."
  • "I think one of the biggest things is accessibility. We have all of these apps or these websites at our disposal. … My mom and dad are educated enough that, if they had this at their disposal, they probably would've gotten into it. But they were required to have an agent to exchange stocks, or do anything like that. So, for one, forget about the knowledge and whether you know what you're doing or not, but can you even do it? Do you have a platform to do it?" 
  • "The nice thing for us is that social media and apps kind of lower the barrier to entry. So, in five minutes I could set something up, [whereas] my parents would've had to get on the phone and talk to somebody they didn't even know, couldn't trust, couldn't verify. So, it kind of works out for us."

In conclusion

The FINRA foundation report ended with a call to action for the industry.

"There are fewer older individuals among non-white investors than there are among white investors (for example, over half of white investors are 55 years or older, compared to fewer than a quarter of Black/African American investors)," the report said. "It is therefore likely that many of the differences observed between non-white and white investors are due to age, given that large proportions of non-white investors are part of the new generation of young investors. Survey findings show that non-white investors share many of the same behaviors and attitudes common across all young investors, such as investing for reasons beyond long-term gains, engaging in riskier investments, and relying on social media for investment information. … The findings from this study underscore the importance of meeting newer investors where they are by using channels they rely on — such as social media, YouTube and mobile apps — and leveraging a wide range of voices that different segments of the investing public find relatable and trustworthy."
Tobias Salinger
Chief Correspondent, Financial Planning
Practice and client management Growth strategies Diversity and equality FINRA
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