This week, I spent four days at XYPN Live, a financial planning conference in St. Louis. It was one of the most energetic conferences I’ve attended (complete with an indoor playground and slides). I went to sessions on managing financial planning practices, roundtable discussions about technology and marketing, and workshops for highly technical topics like stock options.
However, the underlying theme of the conference had little to do with cash flow or balance sheets. Instead, there were recurring conversations around the topic of diversity in financial planning–and for good reason.
One doesn’t have to look very far to notice the glaring lack of diversity in this industry. According to WealthManagement.com, nearly 80% of the 434,000 financial advisors in the U.S. are white. CFP Board reports that only 23% of Certified Financial Planners are female. So it follows that the face of financial planning remains predominantly white male.
As a progressive organization, XYPN sought to draw out explanations for this enduring reality and find solutions to remedy it. And they’re making some progress. Notably, the XYPN conference had the most diverse attendance of any I’ve gone to. The fact that they’re making a deliberate effort to address this deficiency in diverse talent is admirable.
One of the keynote speakers, Audra Bohannon, led discussions around unconscious biases, pointing out how we inadvertently exclude others when we naturally surround ourselves with people who look and sound like us.
She highlighted the fact that a well-managed diverse team will outperform a similarly managed homogenous group.
She also defined inclusion as the conscious appreciation for someone else’s differences, an appreciation that results in engagement, not merely tolerance.
So, the lack of diversity in the field of financial planning (and larger financial services industry) is not necessarily because we’re not making a conscious effort to include. We are.
It’s due to much broader reasons than just inadequate recruiting efforts. It spans beyond lack of mentorship or industry awareness. It’s rooted in a systemic state of socioeconomic inequality.The diversity deficiency in financial planning is much broader than just inadequate recruiting efforts. It spans beyond lack of mentorship or industry awareness. The deficiency is rooted in a systemic state of socioeconomic inequality. Click To Tweet
The fact that 96% of the top 1% wealthiest American households are white indicates a huge disparity in wealth distribution among racial groups. Myriad other statistics support this alarming wealth divide in the U.S.
How does this influence the lack of diversity in financial planning? Here are three ways.
1. Education
Unequal access to education is one of the key drivers in socioeconomic inequality. Higher education is a real challenge for people from poverty-stricken backgrounds. Immediate economic challenges and the need to earn income precedes the desire and ability to invest time and money in an education.
Even when someone sees the value in higher education, it’s hard to defer income earning for years on end. Lack of resources and an inadequate support network exacerbate the ability to attend college and follow through to completion.
Evidently, there has been a steady increase in the number of minorities who’ve been able to attain college education. However, the percentage gap in minority students who went to college compared to their white counterparts is actually widening. According to that US Today article, “This matters because gaps in education attainment lead to socioeconomic inequalities, and the numbers are heading in the wrong direction.”
Since education is a core qualification for being a CFP, unequal access to higher education contributes to unequal representation in the profession. In order to increase diversity in financial planning, we must standardize access to higher education and provide the support necessary for successful completion.
2. Perception
As previously stated, the overall perception of the industry is that it’s led by a certain type of individuals. When you don’t belong to that group, it takes a lot of gumption to attempt breaking into the industry. Given the choice, minority college graduates may prefer to enter other professions that are currently more diverse and inclusive than financial planning.
There is also a misunderstanding of the value proposition of a financial planner. For those who grew up in economically challenged environments, they probably had little to no contact with anyone who had the need for a financial advisor.
Since college students tend to seek out careers that resonate with their personal interests and worldview, it’s understandable that students from economically challenged backgrounds would overlook this profession as a viable career. They’d rather aspire for other professions that they’ve had more exposure to such as health, law, or technology.
Parents also play an important role in defining career paths. Parents who are immigrants or from lower socioeconomic contexts tend to value high profile, meaningful careers. I know mine did. Financial planning was not a career on my parents’ radar as they had no experience working with advisors and also had no direct contact with investing or even retirement planning.
Because the financial advice industry has historically focused on servicing high net worth clients, it left 80% of the population without access to a financial advisor (extrapolated from this chart that shows only 20% of Americans have a net worth of $500K or more).
In order for financial planning as a career to appeal to a broader base of prospective professionals including those from disadvantaged backgrounds, the industry must do a better job of communicating its value and relevance to all Americans. And then it must actually seek to serve all Americans, not just the uber wealthy.
3. Confidence
Lastly, a key factor in attracting women and minorities into the industry is equipping them and empowering them to have not only the competence but also the confidence to serve consumers.
While it’s daunting for most advisors to service high net worth clients, it’s especially intimidating if you come from a vastly different background. Impostor syndrome tends to compound the effects of real racism and sexism.
To begin solving this confidence crisis, there needs to be a shift in how competence is perceived in the industry. In addition to the historically analytical, performance-driven approach to financial advice, interpersonal skills and collaboration with clients should be equally valued and appreciated. Instead of just volume in assets under management, success should also be measured by a broader set of indicators like client retention, satisfaction, and economic mobility.
Inclusion in financial planning needs to include more than just diverse demographics. Inclusion should also encompass a variety of planning approaches and methodologies as well as career trajectory and progression. Only then can advisors of all backgrounds feel more confident about their ability to provide value regardless of their clientele or peer group.
Why this matters
As financial planners, I believe we have an immense opportunity and responsibility to address the wealth divide and economic inequality in America.
This matters because economic inequality contributes to many of the political and social issues of our day. As fiduciaries who want to help our clients live happy, fulfilled lives, we must not look at our clients’ financial situations in a vacuum. We’re part of a greater social context and we’re all constituents of the same economic ecosystem. Our happiness and economic wellbeing is inextricably linked to others’.
When we ignore the wealth divide and the social, political, and economic impact it has on our industry and our clients, we are doing our clients a disservice. Because at the end of the day, we may be able to maximize their personal net worth and investment portfolios but we will have neglected and even undermined the society in which they live and enjoy their hard-earned wealth.
If we’re truly serious about helping all Americans achieve financial independence, then it is upon us to take the torch and find innovative ways to service diverse clients. We can do so by engaging underserved populations as well as welcoming a diversity of talent into our firms and peer groups.
Ultimately, we as financial planners hold the keys to economic mobility. We have the power to change the landscape of inequality and abolish the wealth divide. Click To TweetUltimately, we as financial planners hold the keys to economic mobility. We have the power to change the landscape of inequality and abolish the wealth divide. We can “open up our aperture” as Audra said and lean in. It’s up to us to define and evolve our profession into something powerful beyond what it is today.
In the words of the late Dick Wagner, “Technical expertise is meaningless in the absence of wisdom. Our tools are valuable only when they serve, not when they dazzle. This means understanding, insight and, most of all, integrity and common sense…It also means to humbly study ourselves, what we do, what we should know and what we have and could become.”
