Going beyond virtue signaling to boost diversity in wealth management

Disrupting the wealth management industry's legacy of excluding women, Black Americans and other minorities takes the recognition that change is a "two-way street," according to two experts.

Amid the growing consensus in the industry of the necessity to recruit a more diverse workforce and serve a wider base of clients, more financial advisors and other wealth management professionals are pointing out that the problem goes beyond workforce representation figures. Fewer than 5% of planners are Black or Hispanic, and less than a quarter are women. Those who have entered the profession can face outright discriminatory practices or other conduct that prompts them to leave large firms or exit from the industry entirely.

With that backdrop, FINRA held its Virtual Diversity Leadership Summit this week using the theme of "resilience in a time of transition." In one panel session, Nandita Das, who is the director of the planning program at Delaware State University's College of Business, and Erika Kirgios, a University of Chicago Booth School of Business researcher focusing on the behavioral science of race and gender in the workplace, explained the complexities that the industry must learn in order to recruit and retain the next generation of advisors and clients. 

Underrepresented industry professionals often face "a double bind," Kirgios said.  

"On the one hand, you can try to assimilate, try to emphasize just belonging and behaving like majority group members in this space, or you can try to use your identity strategically and then potentially deal with concerns about being stigmatized or being treated like a diversity hire," she said. "That balancing act is something that we know that women and racial minorities are facing constantly in decisions or thinking about where to work and how to behave in the workplace."

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That's why "bringing your authentic self" to a potential career as a 20-year-old college student can often be easier said than done, Das said, suggesting that the industry and prospective employers also carry the burden of ushering in a new generation that feels welcome in the field. The approach includes changing workplace culture, as well as thinking about factors such as the cost of moving to New York and a student's need to earn a living wage in an internship.

"The hurdles that my students face are first and foremost, they feel that this is not for them, that they cannot make it happen," Das said. "They're also working full time. So internships are a requirement, but if it puts extra stress on bringing food on the table, they are not going to do it."

Advisory practices, wealth managers and other financial firms can take other steps to show young people and career changers who are women and minorities that they can find a home in the profession, according to Kirgios. The CFP Board's Center for Financial Planning called on industry firms last year to disclose more metrics about their workforces to better track progress. Members of Congress have made similar appeals. Kirgios' research has shown that "sharing concrete numeric diversity targets" is a "surprisingly effective" tactic, she said. 

For one study, Kirgios and colleagues conducted an experiment with companies' real job postings by randomly varying whether the firms included a "values-driven diversity statement" or one that included explicit figures for the percentage of women and minorities in their workforce. Those stated numeric goals boost "women and racial minorities' willingness to apply significantly," especially among highly educated members of those groups, she said.

"Organizations might not do this because they have the perception that women and racial minorities would feel more like a diversity hire or would be more concerned about facing stigma in organizations that share concrete goals," Kirgios said. "But we don't find that actually repels them at all. They're looking for signals that an organization's doing more than just virtue signaling, and so that's one thing that is definitely underutilized."

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To go beyond virtue signaling, firms and professionals should look past a sole focus on the bottom line, according to Das. Studies have shown that diverse workforces achieve better results than homogenous ones. However, ending the exclusion of people based on their race, gender or other characteristics is simply the "right thing to do" and "the just thing to do," she said, noting the example of child labor during the industrial revolution.

"People keep on saying that, 'It's a business case.' We need to go beyond that, because everything that we do is not necessarily about increasing your bottom line," Das said. "We could have easily continued with that, but, of course, as a society, we realize that's not the right thing to do. So, though it was impacting our bottom line, we decided that it's better not to have child labor."