Why Wealth Management’s Diversity Efforts Are Failing
A survey of women and diverse financial advisors spotlights core challenges.
The wealth management industry is making a concerted effort to attract more women and more diverse professionals to its ranks. But the latest demographics report shows it is still falling short and explains why sought-after groups remain elusive and are more likely to leave the industry.
An increasing percentage of financial advisors are women. They represented 18.1% of advisors in 2019, up from 17.2% in 2018, and 16.2% in 2017, according to Cerulli Associates, a Boston-based research and consulting firm. (No data has been published yet for 2020.) That’s important progress but there is still a tremendous gap to close. Parity is not only about fairness and equal treatment, it’s also good business.
If wealth managers say their top business priorities are growing through referrals from clients and other professionals, and they are paying attention to long-term trends, they need to hire more women.
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More than half the U.S. population is women, and they control a third of total U.S household financial assets, or more than $10 trillion. But by 2030, they will also control much of the $30 trillion in financial assets inherited within and beyond the baby boomer generation, according to a 2020 report by McKinsey. Trillions of dollars will be transferring over the coming years and if women are recipients, more of them should be their advisors.
Women are better at serving other women as clients and/or those clients prefer them; 58% of women advisors say at least half of their primary client contacts are women, compared to only one-third of men, according to Cerulli.
A similar circumstance exists with other groups poorly represented in wealth management. Only 2.9% of advisors identify as Black or African American, 5.1% as Hispanic or Latino, and 4.3% as Asian, according to Cerulli’s study. Those groups of clients are also growing and underserved.
Wealth managers are creating and evolving their college internships. More partnerships between universities and financial services companies to create wealth management degrees and programs are drawing students to the profession. And at least one conference focused on attracting a diverse group of young professionals to the industry, Diversitas, had record registrations in 2020, despite the Covid-19 pandemic.
Still, Cerulli’s latest study shows reversing assumptions about wealth management and attracting people to the profession is only one of the industry’s diversity problems.
“Recruitment is only half the equation; retention is the true test. Once women and BIPOC do choose to become financial advisors, barriers to success impact the experiences of established diverse advisors. Work-life imbalance, limited access to prospecting networks, lack of diverse leadership, insufficient mentoring from successful advisors, and implicit bias pose the greatest challenges,” Marina Shtyrkov, a senior analyst at Cerulli, said in the report.
Nearly two-thirds of advisors believe their company’s leadership is working to increase diversity among its advisors but less than half (41%) said the efforts have been impactful so far.
Those groups say they continue to face several daunting challenges.
Seventy-eight percent of women cited limited visibility of women leaders as a top challenge. Among advisors of color 82% view limited visibility of people of color in leadership to be a challenge. Diverse leaders are more likely to create advancement opportunities and career pathways for diverse advisors, given that they can identify with the systemic inequalities facing underrepresented groups, according to Cerulli.
“High failure rate, unstable compensation, pressure to meet revenue or production goals, and lack of familiarity with the profession” were top factors that discouraged diverse advisors from entering the industry.
“The potential pitfalls for new advisors in the preliminary stages of their career can be daunting for promising candidates and ultimately prevents training programs from preparing a more diverse class of new advisors,” Shtyrkov said.
Cerulli’s report also acknowledged that improving wealth management’s diversity will be a long, gradual process as demographics change, as well as the country’s social climate. Success begets success.
“As more diverse candidates enter the industry, firms will also experience an organic shift in culture that results from greater visibility, mentoring, and networking among diverse advisors.”
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.