This story was updated on August 13, 2022 to correct the number of Black CFP professionals.
Wealth management as an industry has recently made great strides to reach a more diverse set of clients. Demographics are shifting. We’ve come to realize that the traditional cookie cutter service models geared towards older, white men, do not fit the many growing pockets of wealth around the world.
We’re seeing an increased focus on gender, race and sexual orientation in wealth management as firms seek ways to include historically overlooked and ignored segments of the population in the industry. So much more needs to be done.
In the US, there has been a growing focus on Black Americans in the last couple of years. Our society has lacked inclusivity to this part of the population, and in the same way, wealth management has not always served Black investors the way they should have. So how should financial advisors think about Black investors?
Black consumers are, of course, a diverse group in themselves. But there are some key points we can focus on. McKinsey estimates that Black consumers’ collective economic power will hit $1.7 trillion in 2030, up from $910 billion in consumption in 2019. These consumers tend to be heavily weighted in the “trend setter” segment, meaning they are proactive about discovering new products and services and sharing them with their peers. They’re often relatively young as well -the median age of Black Americans is 34 –10 year younger than white Americans.
And they flock toward brands that have a history of supporting Black cultural figures, investing in Black communities and launching diversity and inclusion initiatives in the workplace.
Especially since the murder of George Floyd in May 2020, Americans have looked to corporations to denounce racism and take a more active approach to supporting minorities in the workplace and communities. Many banks were quick to announce new initiatives in the wake of protests that began in 2020 and some continue today. Consumers are looking to make sure their finances are being managed in line with their values, social standards, meaning they are looking for these financial institutions that are taking on racial inequality, but they will also need to see demonstrated actions beyond just lip service.
“There’s an old saying that Wall Street often times uses, which is you don’t want to be on the wrong side of that trade,” CitigroupC
senior banker Harold Butler told Bloomberg last year. “Largely corporations have said, ‘I want to be a part of–and make sure that my customers, and everyone views my corporation as–participating and doing the right thing.’ Because this is what needs to be done.”
Representation also matters. Potential clients will often look for advisors that they believe will understand them and identify with shared experiences. Financial advisor James Brewer wrote that clients may have had frustrating experiences with financial services in the past, such as paying higher interest rates because of the color of their skin, or they may have heard about friends and family that have been victims of predatory lending or other scams.
These experiences as well as numerous institutional and systemic barriers lead Black and other minority investors to be comparatively conservative and mistrusting of the industry. Credit Suisse found in a 2014 report that the top 5% of African Americans keep a high proportion of their wealth in low risk assets, such as savings bonds and insurance, and low proportions in stocks, bonds and mutual funds. There was also proportionally higher investments in real estate and lower in business assets.
But despite many firms putting more emphasis on diversity and inclusion hiring and practices, Black bankers are a rarity. Bloomberg reported earlier this month that Black senior bankers make up less than 10% of overall leadership. Only 1,652, or just 1.8% of all CFP professionals are Black, according to the CFP Board.
As we talk about and work for diversity in our industry it is important to think about all of these aspects, from our client base to our workforce. Inclusion is more than just a marketing campaign or a buzz word. It’s an acknowledgement that we should reflect our diverse customers and serve them in the personal ways.