Strength in Diversity

When hiring a new adviser for the firm, the best strategy is to: a) ask one’s personal and business networks for referrals; b) woo talent from a competitor; c) run an ad; d) contact an historically Black college.

If you chose anything but d, you think like most of your peers. In fact, 61% of advisers recruit through people they know, a May FlexShares survey found. Yet, when firms are typically white and male, with networks of similar makeup, to hire via the tried-and-true may be a strategy for falling behind. The country’s demographics have been changing. The U.S. Census Bureau projects that, by 2045, the country’s non-Hispanic white demographic—which includes tomorrow’s investors and talent—will be less than 50%.

Even today, more than 31% of the population is Black and Latinx, says D.A. Abrams, managing director of the CFP [Certified Financial Professional] Board, in Washington, D.C.; 51% are women. And to work with these groups, just 4% of CFPs are Black and Latinx, and 23% are women.

These trends are far from news. This year, apparently prompted by 2020’s various protests, says Laura Gregg, director of practice adviser research at FlexShares, the exchange-traded fund (ETF) suite of Northern Trust Asset Management in Chicago, more advisers said “staff diversity is a priority.” The number jumped from 45% in 2019 to 52% in May, according to FlexShares’ two latest “Diversity Is Good Business for Adviser Firms” studies. Still, “there’s a disconnect,” Gregg says. In the same survey, “hire and retain more diverse talent” fell from eighth to last place of nine strategic priorities. “I think many advisers see it as a nice-to-have maybe something-they-should-do-when-they-get-around-to-it, but not as a business imperative.”

She says advisers often tell her, when they want to hire they run an ad, but no people of color apply. They do not apply because they lack representation in the field, she observes.

Firms that want to break out of that cycle have various means, but true effort is required. The industry will not get diverse by chance, experts agree. Many firms start with a diversity, equity and inclusion (DE&I) policy. In this document, a practice can outline a strategy for creating an environment more welcoming for Black, other minority and female employees; key may be working to ensure upper management consists of more than white men and implementing mentorship opportunities for workers in those traditionally less-advantaged groups.

Advisers may, in turn, find themselves rewarded financially by taking action with DE&I. Effective DE&I programs may win firms new clients, says the FlexShares report: 51% of high-net-worth respondents to the same survey said that, when interviewing an advisory firm, they specifically ask about its commitment to DE&I.

Women, who statistically outlive men, hold $11 trillion in assets and will likely control $30 trillion by 2030, Gregg says, citing a 2019 McKinsey & Co. study, then points to her own finding that women are five times more likely than men to work with a female adviser.

Greater client satisfaction can also result, Abrams says. ”When people of color see more financial [advisers] who reflect their background, there’s greater opportunity for transparency and trust to be built between the adviser and client.”

So how does a firm recruit for DE&I, and, maybe just as challenging, ensure those new employees stay?

Abandon Tradition

Alternatives that work are reaching out to historically Black colleges and universities (HBCUs), recruiting at job fairs and trade shows and building relationships with professional groups dedicated to industry diversity; two are the Association of African-American Financial Advisors (AAAA) and the NAPFA [National Association of Personal Financial Advisors] Women’s Initiative, FlexShares reports.

Christopher Thompson, head of diverse adviser experience at J.P. Morgan Wealth Management in Columbus, Ohio, also notes the ineffectiveness of firms recruiting within their own network.

Those that are most successful see recruiting as part of a multi-dimensional process. “Diversity is embedded in everything we do as a firm,” Thompson says. Not only contacting HBCUs, the firm’s advisers “are engaged in a five-year partnership with them to sponsor a financial planning curriculum, create a mentorship framework and provide 375 scholarships to students who are interested in financial planning,” Thompson says.

J.P. Morgan takes a long view that has sights on gaining new clients. Through its DE&I efforts, it aims to engage and strengthen underserved communities with financial education and life-enriching products and services, he says.

Charles Schwab, one of six firms profiled in the CFP Board’s Center for Financial Planning whitepaper “Diversity in Action: How to Sustain the Financial Planning Profession,” precedes recruiting with grooming potential candidates. With nonprofit Braven, an organization that empowers promising, underrepresented young people, it created a program to help first-generation students from low-income, minority backgrounds prepare for a Schwab internship, the paper says.

For firms that hire traditionally, another large talent pool has also been overlooked: women who left a career, maybe to raise a family, and want to return to work, says Gregg. “If your [ad] says you require three to five years of financial services or advisory experience, a career-changer will likely not apply.” Instead, lead with the soft skills advisers need for success. “Say you’re open to motivated career-changers with a growth mindset, strong work ethic or the ability to build strong client relationships through excellent listening skills and compassion.”

And do not penalize such candidates for résumé gaps, says Jennifer Norr, president of WIPN [WE Inspire. Promote. Network] and head of enterprise data governance with CUNA, in Madison, Wisconsin. For example, firms should “hire for general skills such as retirement sales but not require DCIO [defined contribution investment only] sales skills.”

Revisiting compensation structures to ensure equity is also vital, Norr says. “People living paycheck to paycheck can’t afford a comp structure that pays out a lot at the end of the year or after sales. It’s right to reward pay for performance—just make sure everyone can afford to do that; you can offer a signing bonus, incentive bridge loans, etc.”

These concessions would apply to hiring for diversity in general, she says. “And hire a few so they are not ‘the one.’”

More Than a Round of Golf

Retaining employees whose background differs from the established staff’s will take work, sources say. Gregg recalls discussing inclusion with a friend who runs a small private equity shop. “He was frustrated that his firm couldn’t retain its diverse talent. ‘I always invite them out, like us directors, for a round of golf,’ he said. While that’s a nice gesture, it isn’t inclusivity. Nobody wants to feel they were hired so the employer could check a diversity box,” she adds.

Leadership would want to “recognize and celebrate the cultural and personal differences among your team, understand that there are different cultural holidays, want to get to know what’s unique and different about each of your team,” Gregg says.

J.P. Morgan has created a leadership forum for each diverse community, says Thompson. These enable “employees to provide feedback on their experience as a diverse employee and also to help us shape our overall strategic initiatives.” 

If inequity is apparent, determine why and act. At Northwestern Mutual (NM), also profiled in “Diversity in Action,” leadership wanted to advance women into adviser and executive roles, but this was happening slowly. So it held a gender caucus, to uncover the cause. It found that women were absent at one level of decisionmaking, so it launched the Women’s Field Association at that level to give women a voice.

The company also incentivizes inclusivity. Offices making a visible difference receive Diversity and Inclusion Champion Awards. These awards include cash, to further the office’s DE&I work.

An additional way to support DE&I is by creating employee resource groups (ERGs). NM and Schwab each pointed to the success of their ERGs—essentially micro cultures, each based on a commonality such as ethnicity, gender, veteran status, etc. Members enjoy mutual support but also job benefits such as leadership development opportunities. At Schwab, around 33% of employees belong to at least one ERG.

Developing a culture without bias is key, Gregg says, summing up what a practice should work for: “Culture is about what makes employees feel good about going to work. It’s being listened to. It’s understanding that you’re appreciated and you have a voice,” she says.

Diversity Makes Sense For Advisory Firms

The financial advisory industry is much whiter and more male than the U.S. population. Research finds that actively pursuing greater inclusiveness may help a practice better position itself for future success.

Diversity Performs

Art by Uijung Kim