Build a more diverse practice now

When it comes time to select an adviser, investors overwhelmingly choose advisers with demographics similar to their own

We have all experienced in some manner the recent worldwide protests calling for racial justice and equity in the wake of the police killings of African Americans here in the U.S. These events remind us all yet again of the importance of equity and inclusion.

Inequity is profound in the financial services industry. Failing to meet the needs of all Americans — and instead continuing to cater primarily to older white men — is no longer an option.

While diversity, equity and inclusion clearly pose a moral issue, it is also a practical one. Racial minorities made up 40% of the U.S. population in 2019, according to U.S. Census estimates. That figure is projected to grow past 50% by 2045.

Financial advisers need to position their practices to serve these future clients — all of them.

We know you want to build successful advisory practices. And we believe most advisers want to contribute to social progress. To you we say: Improving your firm’s diversity is good business. And if you haven’t already, now is the time to start.

ADVISERS MAKE DIVERSITY A LOW PRIORITY

We recently conducted a national study, the FlexShares Advisor Teams and Diversity Study. We asked financial advisers and investors questions related to diversity, with a particular focus on recruiting, retention and firm priorities.

Sadly, the study found that less than half of advisers (45%) consider diversity a strategic priority for their firm.

To get a sense of their relative priorities, we asked advisers to score nine types of initiatives on a scale of 1 (not important) to 5 (extremely important). The most important strategic priority among all advisers, with an average score of 4.1, was “integrate technology at every level of the firm.” “Expanding services beyond investment management” followed. By contrast, “attract and hire more diverse talent” trailed in eighth place out of nine, with an average score of just 2.7.

BUT ADVISER RACE AND GENDER MATTER TO YOUR CLIENTS

Advisers may assume that a firm’s demographics are less important than client service. When asked, clients may reinforce this view. Indeed, 68% of investors told us they wouldn’t have a racial preference if they were looking to hire an adviser, and 76% said they wouldn’t have a gender preference. But investors’ actions speak louder than their words.

We found that when it comes time to select an adviser, investors overwhelmingly choose advisers with demographics similar to their own:

75% of Asian clients work with Asian financial advisers
63% of non-white, non-Asian clients work with non-white, non-Asian advisers
Women are four times more likely than men to work with a female adviser

Investors’ choices show they do care about their advisers’ race and gender. The study doesn’t tell us the reasons for these apparent preferences, but here’s one hypothesis: Investors may select advisers with whom they feel they have shared life experiences, thereby enabling such advisers to better understand their perspectives and values.

THIS IS THE MOMENT TO ACT

As U.S. demographics change and the country engages in the most intense discussion about racial injustice since the civil rights era, it’s more important than ever for firms to engage with diversity-related issues.

The first step for your firm is to set the intention. Make diversity a core principle. Then bring stakeholders together to plan strategies to recruit and retain a more diverse staff.

[More: 3 mistakes advisers make about high-net-worth women]

David Partain is head of marketing at FlexShares and co-host of The Flexible Advisor Podcast. Laura Hanichak Gregg is director of practice management and advisor research at FlexShares and co-host of The Flexible Advisor Podcast.