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The financial advisory industry continues to struggle with efforts to boost diversity, though more firms seem to be emphasizing the issue in their recent recruiting, according to top firms on CNBC’s annual FA 100 ranking.
The profession has long been one dominated by white men.
For example, Black and Hispanic certified financial planners represented just 4% of the 87,784 total CFPs in 2019 — despite being nearly 30% of the U.S. population, according to a CFP Board report published last year. Women have made up about 23% of CFPs for a decade, despite accounting for more than half the U.S. population, according to a 2019 report.
While financial planners are just a subset of the overall spectrum of “financial advice,” their stats are in line with those of the broader industry.
“Our industry has a lot of the same problems our society has,” said Alison Berman, president and CEO of Palisade Capital Management, which ranked No. 88 on CNBC’s FA 100. “These systemic problems are extremely complex.”
The industry has made some recent improvements. For example, the number of Black and Hispanic CFPs grew 12% in 2019, the highest increase on record.
Diversity and inclusion efforts gained more awareness and momentum after the murder of George Floyd by a white police officer in Minneapolis last year, which sparked national and international protests for racial justice and prompted many U.S. companies to publicly commit to diversity initiatives.
Beyond being a moral imperative, there’s also a strong business case for cultivating diversity, whether gender, racial, ethnic, sexual orientation or otherwise.
For one, a diverse workforce can attract new clients, who may prefer to work with advisors who look like and understand them, according to top firms.
It’s becoming an increasingly important issue: People of color are projected to be the majority of the U.S. population in 2045 and will be the “driving demographic engine of the nation’s progress,” according to the CFP Board.
“When a client is working with you, they want to feel comfortable they have someone who can relate to their issues,” said Manal Fouz, chief compliance officer at Azzad Asset Management in Falls Church, Virginia, which ranked No. 39 on CNBC’s FA 100. “The more diversity you have with your employees, the more they’re able to relate to their clients.”
Among other benefits, evidence shows diverse businesses can recruit (and retain) better talent; they’re often more creative and innovative.
The CFP Board assembled a list of recommendations for firms to effectively boost diversity among workers, based on research and case studies.
There seem to be many reasons for the industry’s persistent lack of diversity.
Some is attributable to limited awareness for the profession among young adults and college students, advisors said. Even firms seeking to boost their diversity are having a tough time due to the relatively limited pool of candidates, they said.
“It’s a mandate for us; it’s in our strategic plan to develop diversity and inclusion,” said Kelly Noonan, the chief operating officer at Willow Creek Wealth Management in Sebastopol, California, No. 77 on CNBC’s FA 100. “But we’re just not getting the applicants.”
The firm hopes allowing advisors to work remotely due to the Covid pandemic will make it easier to hire diverse talent from across the country.
Some firms may inadvertently be recruiting from pipelines that are traditionally white or male, Berman said.
However, industry awareness is among the least cited reasons for underrepresentation among people of color, according to a CFP Board survey.
A lack of opportunity and lack of mentors or support were the most frequently cited by Black and Latino CFPs, according to the survey.
Research shows that, on average, mentoring programs can increase the representation of Black, Hispanic, and Asian-American women, and Hispanic and Asian-American men, among managerial ranks by 9% to 24%.
Barriers due to upbringing, background and culture (such as economic inequality) ranked No. 3.
“You have to be wealthy in this country to understand this profession even exists,” Berman said. “You have to have money to know it’s even an option.”
As we look ahead to 2022, CNBC’s Financial Advisor Summit will bring together forward-thinking advisors like the FA 100 firms to hear from industry heavyweights about the state of the markets and share innovative ways to address the needs of their clients. Register to join us on Dec. 8.