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Growth Initiatives for Firms: The Disconnect

By: Laura Hanichak Gregg
Director of Practice Management and Advisor Research

The number of high net worth investors among women, people of color, LGTBQ people and other historically marginalized identities is growing, along with the economic power of these groups to shape the landscape of financial advising.  

Companies are restructuring compensation and benefits packages to attract the historic rise of qualified women in the labor force. And as they ascend, women--and other people with historically marginalized identities--may tend to pursue more advanced education and credentials in attempts to close the wage gap for themselves. This news contrasts with pervasive myths about lack of qualified prospects as an obstacle to diversity. 

Despite progress in areas such as marriage equality, financial planning for LGBTQ investors still has its hurdles. You can still be fired in more than two dozen states just for having this identity. Advisory firms may want to know how this and other societal biases may affect the risk appetite and portfolio management goals of these clients. Hiring more clients personally familiar with these challenges could be a viable solution. Many firms, however, may need to work much harder on making their workplace culture to be more welcoming and inclusive.

We understand the power of diversity to drive growth and help a broader array of clients achieve generational wealth. We wanted to know more about how the advising sector might be handling this opportunity. So we launched a survey to speak with 529 financial advisors. We asked about priorities, initiatives, and strategies.

Diversity and Marketing: What Competitive Firms Know

Our research found that diversity initiatives may contribute to effective teams. Nearly three-quarters (72%) of investors want their advisor to be supported by a team. Many investors under 50 say that diversity of an advisor’s financial team is important to them. Findings like these offer marketing insights, such as the suggestion that a diverse team may help advisors retain the children of their Baby Boomer clients.  

When it comes to diversity, advisors rank attracting and hiring more diverse talent low among strategic initiatives and the majority (55%) don’t believe increasing diversity should be a priority. At the same time, diversity initiatives are correlated with larger firms, team-based practices and higher AUM advisors. Staff diversity was more often a priority for firms describing themselves as providing financial planning or wealth management.

Data from our survey indicates that firms with diversity initiatives may be more keen on using change to their advantage. They are more likely to offer specialized services and value special initiatives more overall. When recruiting, they are more likely to report greater use of various recruiting methods across the board. And they are more likely to go after often overlooked talent, hiring professionals coming from outside the industry or re-entering the workforce. 

While correlation does not prove causation, we noticed some other trends among companies committed to diversity. They report greater success hiring new talent and greater retention of diverse groups. Firms with active diversity initiatives are more likely to see racial diversity as important and less likely to see age diversity as important. And, they are more likely to target and maintain niche markets within larger groups of women, LGBTQ, Race/Ethnicity, Gen X /Gen Z. Yet these same firms are more likely to believe diversity is a strategy to better reflect their clients, and not a marketing tool. 

Investors Have the Real Power

While most investors told us in our survey they don’t have race or gender preferences, these same investors typically work with advisors who tend to be similar in age, gender and racial profile. Despite these investor preferences, the advisory industry on the whole considers diversity only modestly important. Less than half—45%—call diversity a high priority. And when asked to score nine types of firm initiatives, “Attract and hire more diverse talent” came in second-to-last.

As it turns out, diversity may be linked to growth and better performance. Investors have many myriad of choices for advising and wealth management help. If they choose to go with a firm, then likely it is because there is something there that is meeting their needs. Diverse firms give investors more options to find someone who can understand their personal goals in the context of their experiences.

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Solutions That Work

Involving current team members in the design and assessment of programs can help. Leadership may learn a lot of new things about the corporate culture within the ranks and be positioned to counteract pushback. Look for actions and initiatives that members of a targeted group say are effective in engaging people like them. Some of these efforts may be undervalued or even unknown to company leaders, so keep an open mind and a ready ear.

Diversity, equity and Inclusion is a long game. Firms often cannot expect to launch new programs and immediately see results. Patience and focus on strategic implementation, just as with any other business strategy, is needed to reap the rewards. 

We invite advisors to use our research to better understand how and why to build a more diverse business. FlexShares believes that diversity of thought, age, gender, race, sexual orientation and disability will give advisors a competitive edge in the coming decade and beyond. To hear lively conversations on this topic with industry experts, subscribe to The Flexible Advisor Podcast. You may also subscribe to receive alerts when new briefs are posted or download our latest research on this topic now.

Created in conjunction with Tasha Williams of TTW Consulting

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