From a global pandemic to murder hornets to actual UFO images being released, 2020 didn’t just throw curveballs; it kept us dangling at the edge of our seats like a bad infomercial. “But wait, there’s more!”
2020 brought us something else, too: a global spotlight on racial injustice. After the murder of George Floyd, the world, almost unanimously, said, “Enough is enough,” and vowed to demand change for a better future. Companies everywhere released “We Stand with You” statements and made commitments to be the change they wanted to see. The #blacklivesmatter movement became a rallying cry for people of all races. And countless reports were released, spotlighting the infinite layers of racism that are woven into a system that was – in short – not built for people of color.
As financial advisors who want to be good stewards for clients, you’re likely asking yourself, “How can I address some of these challenges with my clients who are people of color? What can I do to be an ally in this situation?”
Be Curious
Everyone’s family structure is different. Some clients may have to shoulder the weight of caring for multiple extended family members or housing several generations under one roof. These circumstances must be taken into account when advisors are building a financial plan because it impacts one’s ability to grow wealth. But it may feel awkward to ask questions that can appear culturally insensitive or presumptuous. This is where the art of being an advisor comes in. Ask open-ended questions rather than yes-or-no questions and make the first meeting conversational, not consultative. Everyone’s situation is unique, and your job in that conversation is to get to the heart of your client’s specific situation.
Use What You Learn
Payscale's 2020 study showed that for every $1.00 a white male makes, a person of color with the same qualifications makes .02 - .03 cents less, depending on race and gender. People of color accrue significantly lower lifetime earnings than white males do, the study found. That means while we are all seemingly running the same race, there are clear disadvantages for people of color looking to build wealth.
- For clients who are executives, dig into their compensation packages with them, so they understand what they are getting and, more importantly, what they are not getting. Provide information on how to best leverage – from a tax perspective – standard executive compensation that can be “phantom income” (income that is not realized). Offer resources that can help clients during compensation negotiations, like benefits or other financial boosts they can ask for beyond salary.
- For clients who are self-employed, talk through different types of accounts that can mitigate taxes owed on non-accrued cash flow. For instance, a Health Savings Account can provide growth like an IRA, but it also offers tax advantages that may prove valuable for 1099 employees.
- Additionally, depending on their family situation and whom they need to support, cash flow and budgeting will be critical. Growing wealth for generations is more difficult when supporting extended family members. Clients may need cash solutions that provide growth but are also accessible if needed, like high-yield savings accounts or money markets.
Communicate Often
Yes, it’s easier to send a quarterly report via email than to have a meeting. But people of color have to navigate a system that was fundamentally built for them to lose every day. That is why it’s even more important to have regular 1:1 communication with them, so they can be armed with the information they need to feel confident in their finances.
Beyond communication about money, building a rapport with clients means looking past their portfolio to understand who they are and what they experience. While 2020 finally placed a much-needed spotlight on racial injustices, people of color have faced the truth of this reality for far longer. Being curious doesn’t just stop at numbers; it’s also about having empathy for your clients’ everyday challenges. I write a little about how one can navigate race conversations as a white ally in
This business is all about helping clients build financial plans that address their unique needs, wants and goals. To do that, truly do that, it is critical to consider every aspect of that person, including race. So get comfortable having race conversations and offering solutions that help clients navigate racial inequity, or your clients will find someone who will.
