When it comes to establishing trust between a financial advisor and a client, do gender and skin color matter?
That is the question Miranda Reiter set out to answer in a
Reiter,
So Reiter — whose career as a planner and banker started in 2003 — worked with
But beyond the findings, Reiter said the study furthers the ongoing conversation about representation, diversity and cultural competency in the industry. As firms nationwide grapple with these topics, attempts at greater understanding can be a boon to both employees and the clients they hope to serve.
“Race, ethnicity and gender are only a few of the factors that influence clients’ level of trust. At the same time, when clients see themselves reflected in the makeup of office staff, this can be an important signal to say ‘you are accepted here,’” Reiter told Financial Planning. “Industry research has found that it is more important for Black and Latinx clients that firms are hiring advisors from diverse racial and ethnic backgrounds rather than having their own financial planner belong to those groups. Other research shows that millennials believe that diversity makes their work environments better.
“So the bottom line is that people appreciate having diversity, and firms and advisors can earn the trust of underrepresented clients when they put diverse hiring into action.”
Credibility over color
The study, titled “Diversity in financial planning: Race, gender, and the likelihood to trust a financial planner,” was
Research participants were asked to imagine inheriting $250,000 from a life insurance policy and told that they had an opportunity to work with an advisor at a well-known and reputable firm. All of the hypothetical financial planners in the study had CFP designations, high academic achievement, were ethical and had 15 years of industry experience.
Respondents were then provided one of four financial planner profiles: a white man, a Black man, a white woman or Black woman.
After getting some general advice from their hypothetical planner, respondents were asked how likely they were to trust that advice on a scale of 1 to 7. Reiter and her colleagues hypothesized that clients would have a greater trust of advisors of the same race and gender.
But their findings revealed that the race of the respondent did not influence the rating given to any financial planner, and there was no indication that a planner's race was significant in the rating of trust they received.
In other words, consumers did not rate Black and white planners differently on the truest measure, according to the study.
“Such a finding was not anticipated in this study, given its basis in the similarity-attraction paradigm,” the trio of authors wrote. “Yet, these findings could serve as a positive sign, specifically for Black planners who may not be sure of how their racial background impacts consumers' perception. However, the findings should not suggest that racial diversity in financial planning firms does not matter.”
Additionally, the study found that women planners received higher trust ratings than men, aligning with previous research that found women were perceived as more trustworthy salespersons than men. Women also trusted financial planners more than men in general.
“While previous research supports this in other domains, it was interesting to see that the notion of women trusting more and being trusted more held in the context of financial planning,” Reiter said. “Since the respondents in this study trusted women planners more, the findings support a strong case for increasing the representation of women among financial planning professionals.”
Trust granted, or trust earned
Katharine Earhart, partner and co-founder of
“If I were somebody looking at and reading through this report, I would be heartened to see this. It makes me feel like there's hope and there's optimism,” said Earhart who launched her RIA in 2019 with a focus on serving philanthropic organizations and individuals. “I would also hope the people from those underrepresented groups would want to work with an advisor who represents and understands them and someone who, frankly, looks like them or has a similar experience in the world. I think that can be very motivating.”
The study also makes Earhart reflect on the different kinds of trust that come into play when serving clients. She said there's earned trust, which comes with time and action, and granted trust that relies more on expectations or biases.
The latter, she said, can be deepend or lessened based on what kinds of people are presented or propped up as important in the world of wealth management.
“And that's where I think there's an interesting difference. If you're used to seeing somebody in a particular role through television advertisements or when you walk into any kind of financial institution and you see the people in charge, it makes you think those are the dominant people making all the decisions,” she said. “You sort of grant those people trust immediately because you say, those are the kinds of people who have traditionally run money.”
When not part of the dominant group, advisors feel a greater need to earn trust through their actions. And while it sounds simple, things like timeliness, follow-through and transparency can go a long way in letting consumers know you’re the right advisor to meet all of their needs.
That pressure is increased in Earhart’s daily work which often sees her needing to earn the trust of not one, but many.
“With nonprofits, you're dealing with many different people because often boards can be made up of anywhere from three people to 20 people … and if it's a good board, it's a diverse board. And a diverse board means people who don't all think the same way,” she said. “So you're having to move at different angles and you're dealing with different levels of knowledge about how money is invested.”
And while she does see waves of change as the industry pushes for greater inclusion to address years of stagnation, she worries about the authenticity of some efforts.
Studies like this one show that actually embracing women and minority advisors will not hurt a firm’s bottom line, and may only stand to attract new dollars.
“It's like when you see companies put people of different backgrounds on their website. That makes it look diverse, but if you dig further down, you realize that none of those people are really in leadership positions,” she said. “I think we still have a ways to go, but this is continuing to advance the idea that trust is built and your background as a woman or minority shouldn't be a deterrent where people aren't going to have trust in you.”
Finding strength by being different
Marguerita Cheng,
Not only because she is a multiracial, multicultural woman working in the industry, but because she began her career as a CFP after establishing herself in another sector of the financial world.
Before becoming a financial advisor at Ameriprise Financial in 1999, she worked as an analyst and editor at Towa Securities in Tokyo, Japan. She co-founded Blue Ocean in 2013.
“As hard as it was being underrepresented — and I still feel like I'm underrepresented — imagine how it felt when I started. Having a 3-year-old and a 6-month-old. Not only is there no one else who is multiracial like me, there's not anyone else who's a mom and there’s not anyone else who is a career-changer,” Cheng said. “I sometimes would question whether or not I belong. Yes, there were people who questioned whether or not I belonged. There was an element of that, but it was also me questioning myself.”
But Cheng — daughter of a Chinese father and a mother of Eastern European and Irish descent — found ways to deeply bond with clients through the very traits that othered her in certain segments of the profession.
“There were people who would request a female CFP. Then there would be people who say 'I want a female CFP who has kids. Or I want a female CFP who has kids and is also worried about aging parents.' Or 'I want a female CFP who has kids and is worried about aging parents and works with people like me.'
“So even though it was difficult, through my experiences, people were able to relate and connect with me. If I didn't have those experiences, it's not that they wouldn't be able to connect with me … but what it means is that in our profession, there is room for everybody to thrive,” she continued. “And it isn’t zero-sum. Just because I thrive, it doesn’t mean somebody down the street won't. There is room for every client to get the type of help they need and work with every type of advisor they want to. They're out there.”
Cheng is passionate about highlighting the strength that can come from having a different perspective and experience. Growing up in a multicultural household where differences of opinion were common equipped her with skills that allow her to forge deep connections with clients that are more than just transactional.
“I might have been a horrible salesperson. I still think I'm a horrible salesperson. But I'm very technically sharp and detail-oriented and nurturing, so for what I lacked in salesmanship, I more than made up for in attention to detail and follow-up,” Cheng said. “I think because of the fact that I grew up around different types of people, I learned the ability to relate and connect with people … that helped me build trust and connect with others despite our differences.”
She also recalls being criticized early in her career for spending too much time asking questions and building relationships. “I actually had people say to me I was a lousy planner. Too much time on relationship management. I need to spend more time selling,” Cheng said.
What kept her going was what drew her to the profession in the first place. Trust, she said, plays a large role in her motivation.
After moving back to the states, getting married, buying a home, paying off student loans, working to earn additional degrees and getting her CFP, Cheng knew she had the credibility and real-life experience to help others achieve their financial goals.
She knew her clients could trust her advice because she had been in their shoes.
“That's why I became a planner. It was not easy, but I think the reason why I was successful is because I was so determined. I wanted to take the concepts I learned in corporate finance and apply it to individuals and families,” she said. “I wanted to change conversations about wealth and conversations about what wealth managers look like.
“Any time I had a bad day or when people were like, ‘hey you're not cut out for this,’ I always went back to my why. And it's what got me through difficult times.”
The start, but not the finish
Reiter said the ideal scenario for her research would have been a live experiment that allowed researchers to see how people make choices and evaluate preferences in a natural way. But creating and analyzing this kind of type of natural environment is difficult, making a hypothetical scenario using an experimental design was the next best thing.
Reiter said she would seek a greater variety of respondents for future studies.
“Most of the respondents in this study were highly educated, married and white. While the proportion of Black respondents that participated in this study was higher than the national average, future research would include an even higher percentage,” she said. “It would be helpful to have greater diversity amongst respondents in terms of education, marital status and race. It would also be interesting to see how age of the planner and even different credentials would influence consumers’ preferences when considering race and gender.”
While it was not tested in this study, Reiter said the impressive credentials that the planners had may have played a more significant role in how consumers viewed them than gender or race.
“Therefore, financial planning firms should work to capitalize on opportunities to increase and highlight the credentials of their financial planners, especially those who come from underrepresented groups,” she said. “This is important since those from underrepresented groups are less likely to be stereotypically associated with the financial planner role.
“The focus on credentials may help to bolster a client's initial impression of historically underrepresented financial planners and may help to minimize biases.”
She also urges people on both sides of the conversation to break down barriers and establish trust the “old-fashioned way.”
“Talk, mingle and socialize with people,” she said.
