Thu, 25 June 2020 | advice
A new survey from Northern Trust Asset Management’s FlexShares® Exchange Traded Funds finds that consumers increasingly prefer having a financial advisor of the same racial, gender and age profile as their own. This trend reinforces the need for financial advisory firms to address the disconnect between what the industry currently looks like and changing U.S. demographics. The survey was conducted earlier this year, just less than two years after the initial one in 2019.
The joint survey of financial advisors and consumers found that among individuals who work with an advisor, clients are significantly more likely than those in 2019 to have a preference on their advisor’s age (61% vs 31%), gender (38% vs 12%) and race (34% vs 8%). This is largely due to wanting an advisor of the same demographic. For example, among consumers that indicated an advisor’s gender is important – 72% attribute it to wanting an advisor of their own gender. Women today are five times more likely than men to use a female advisor, up from four times in 2019.
Diversity Programs Support Hiring Success
As consumers increasingly prefer to work with an advisor of a similar profile, many advisory firms are making a concerted effort to diversify their talent pool. Firms are primarily looking to better connect with diverse clients, widen the pool of potential financial advisor candidates, and add unique perspectives to the thinking of the firm. Today, more firms consider “increasing the diversity of staff” a strategic priority than in 2019 (52% vs 45%). Furthermore, among the 66% of firms surveyed that are actively recruiting, a majority (55%) are looking for diverse talent across all seniority levels.
Efforts to make recruiting more inclusive have led to hiring success – a key strategic priority for firms preparing talent needs for the next generation. More than three-quarters (77%) of firms taking action on diversity, equity and inclusion (DE&I) report success in hiring new professional talent, versus 56% of those firms that do not have initiatives in place. Moreover, more than half of respondents (58%) say that their DE&I program has been a selling point in attracting new hires.
“Advisory firms of all types need to match their workforces to better reflect the current and future client universe, which is becoming younger, more female and more racially diverse,” said Laura Hanichak Gregg, Director of Practice Management and Advisor Research at FlexShares. “While the industry is working toward change, more needs to be done. Our research aims to educate firms about the business imperatives of diversity efforts to support the industry’s push in this direction.”
Meeting the Needs of Diverse Clients
As the face of wealth changes in the U.S. with a growing portion of racially diverse and female investors, a majority of advisors (63%) indicate that attracting a diverse client base should be a strategic priority for financial advisory firms. Advisors are harnessing this opportunity to increase the size of their eligible market and to educate a wider group of people about the benefits of planning and investing.
While attracting diverse clients can be done in a variety of ways, many firms are focusing their efforts on engaging with specific groups. Of those firms taking DE&I actions, 73% have efforts aimed at attracting women clients, 47% at attracting race and ethnic-based groups and 46% at attracting the LGBTQ community. Advisors indicate a client’s age and physical or mental ability require the most tailored planning experience, outside of specific programs.
Specialized marketing programs and diverse advisor teams have proven effective to an extent, though firms report remaining difficulties in engaging diverse clients. The greatest barriers for creating a more diverse client base include the homogeneity of their geographic locale (17%), client bias or the client’s preference (15%), a lack of understanding of what to do (14%) and the unavailability of qualified diverse staff (13%).
Larger Firms Lead the Way
Likely due to their size, resources, staffing depth and, often, a prominent public image, larger advisory firms have been leaders in DE&I efforts. Typically, larger firms in all channels are more likely to view diversity as a strategic priority and to incorporate DE&I efforts within recruitment and retention policies.
There is a marked difference between these larger firms and solo practitioners when it comes to DE&I programs. Only 39% of solo advisors feel DE&I efforts should be prioritized, compared with 61% of advisors who work as part of a duo and 59% who are part of a larger team. Expanding diversity within the solo segment may require increasing the overall number of diverse solo advisors through active recruitment and training.
"When it comes to implementing DE&I programs, one size does not fit all firms,” said Darek Wojnar, Head of Funds and Managed Accounts at Northern Trust Asset Management. “We recognize that larger firms may have comparatively more resources and staff to support these initiatives. However, we believe firms of all types can play a role in expanding diversity in the industry through activities that are tailored and scaled to each practice.”
Source: FlexShares