Debt, charity and insurance loom large for affluent Black clients

As large wealth managers aim to reach clients historically excluded from financial services, a financial advisor teamed up with an academic researcher to look into the most common planning questions among affluent Blackhouseholds.

More than 80% of the 115 clients of Keith Beverly’s Washington, D.C.-based RIA, Grid 202 Partners, identify as African American, and the practice finds common planning challenges involving debt, giving back to family members and communities, and life insurance, according to a report released this past summer by Beverly and Fenaba Addo, an associate professor of public policy at the University of North Carolina and a faculty affiliate at the Samuel Dubois Cook Center on Social Equity at Duke University.

The paper includes data applicable to financial advisors of any background seeking to work with Black clients, Beverly said in an interview. The research coincides with a groundswell of interest from large wealth managers such as Morgan Stanley, UBS, Merrill Lynch and LPL Financial, who are seeking to work with more clients who are Black, Latino or from other minority groups alongside changing their recruiting, hiring and retention. FINRA and Morningstar have held panels this year about narrowing the racial wealth gap as well. With Black households’ median and mean net worth less than 15% of those of white families, the Grid 202 data provides insights into wealthier Black clients’ preferences, Addo said.

“Most of the studies that we do on wealth inequality is focused on the people who are on the lower end of the distribution,” Addo said. “It's not something that has gotten a lot of attention within the social sciences in particular or in discussions of wealth inequality. It's something that should get some more attention.”

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The study displays a snapshot of the practice’s Black clients: They have a median income of $258,000, a median net worth of $350,000 and a median age of 41 years old within a range of 27 to 75 years old. The clients are often focused on “avoiding debt at all costs” despite possible savings, have been sold permanent life insurance policies “when term coverage is more suitable” and struggle with how to balance the amount they give to community institutions such as churches or to family members while building their own wealth, the report found.

Each planning challenge relates to past and present circumstances. For example, when it comes to debt, Black and Hispanic borrowers were more likely than white ones to receive subprime loans, Black students more frequently default on student loans to for-profit colleges and Black households get less favorable terms, according to studies cited in the report.

“Negative perceptions about debt stem from institutional racism across sectors: mortgages, student loans and credit cards,” the report said. “Holding debt tends to penalize Black borrowers, for whom it impedes wealth accumulation, and reward White borrowers, who have used it to build wealth.”

Large wealth managers aiming to recruit more Black advisors and clients rarely offer as much transparency or specific detail on an individual practice as the Grid 202 report. They’re also working against the backdrop of many significant racial discrimination cases. Still, they’re opening new doors for prospective clients and professionals.

At Morgan Stanley, the firm has linked the pay of field managers to their recruiting of minority professionals while combining its efforts to boost advisor diversity with programs designed to better engage the client segments, Global Head of Diversity and Inclusion Susan Reid said last month at the annual Association of African American Financial Advisors Vision conference.

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“We have a 12-part inclusion series where we're educating financial advisors on the needs of the different segments — women, women of color, LGBT clients, clients with disabilities or who may have family members or children with disabilities,” Reid said. “Let's make sure we understand what the clients need. So we're doing a big body of work around that. I think if you then marry that back to the conversation we're having around talent — let's make sure we're really doing enough to recruit diverse talent and then properly support them.”

Firms have a long way to go in order to change cultures that haven’t been “supportive of advisors of color” historically, according to Beverly, who said it’s too early to tell whether the programs rolled out in the many press releases of the past year have been successful.

Among many Black clients, the idea of “working with an advisor at all” is often a challenge for their planner to carry them through, sometimes after they have had negative experiences in the past with financial services, the report states. It’s up to advisors to establish that clients can trust them when “engaging us with the goal and objective of building generational wealth,” Beverly said, describing how he reminds them of the possible advantages of debt.

“Here's what the numbers tell us — now we need to reconcile that with your emotions and what's important to you in your values,” Beverly said. “We'll preface everything with the long term goal.”