The financial planning profession provides one example. The demographic makeup of the United States is changing, with Hispanic, Black and Asian populations continuing to grow. Despite persisting wealth gaps that affect many minority communities, median earnings and purchasing power among these populations are also growing.
Although these groups are accumulating wealth, they are less likely than white families to work with a financial planner. About 28% of Black households and 17% of Hispanic households use a financial planner to help them reach their financial goals, compared to 31% of white households. According to the RAND Corporation, Hispanics and Blacks are also less confident in their ability to meet unexpected short-term expenses or long-term financial goals.
The RAND research suggests a large population of these individuals could benefit from financial planning advice. One challenge is that the current financial planner demographic makeup of the financial planning profession does not reflect the demographic makeup of the U.S. population: At the end of 2019, only about 4% of more than 87,000 CERTIFIED FINANCIAL PLANNERTM professionals are Black or Hispanic.
Additional studies and interviews with current and aspiring financial advisors indicate that a more diverse workforce could better reach and assist diverse communities. In research conducted by the CFP Board Center for Financial Planning, CFP® professionals cite the opportunity to expand access to financial services in underserved communities and to help improve their understanding of personal finances as key benefits of being a financial planner. Nearly 60% of those surveyed agree that Black financial planners and Hispanic financial planners, respectively, would have an advantage in attracting new clients of similar racial or ethnic backgrounds to their advisory firms.
“Diversifying the talent pipeline is an opportunity and a prudent approach for financial planning businesses,” said Center Managing Director D.A. Abrams, CAE. “We are successfully working with many firms who want the industry to reflect our nation’s shifting demographics and respond to the increasing purchasing power of people of color.”
Abrams sees potential value of like-to-like messages in reaching people in diverse communities. Different groups have different ways of thinking and communicating about money. Some prospective financial planners of color interviewed by the Center explained their families emphasized just getting by versus saving or investing, while in other families, talking about money was taboo. Shared backgrounds and mutual understanding can help financial advisors overcome these cultural challenges and encourage potential clients to shift their thinking.
Diverse financial planners also help raise awareness of financial planning — both as a service and a career opportunity — within their own communities. Many play an active role in promoting the financial planning profession by participating in community events, visiting parent meetings at local schools, or leading workshops or other educational programming at community centers. They also serve as mentors and role models to younger students who may wish to study and join the financial planning profession.
Recognizing these challenges and opportunities, the Center hosts an annual Diversity Summit to provide a platform for discussing initiatives that can advance diversity in the financial planning profession. The Center’s third Diversity Summit will take place virtually November 18-20, 2020 and will focus on sustainable diversity and inclusion initiatives within the profession. Visit https://2020diversitysummit.cfp.net to learn more and register.
A focus on hiring financial advisors from and working with diverse communities has the potential to positively impact their financial wellness and social mobility.