Financial advising may have a diversity problem. In fact, with reportedly 81% of the financial advisors being white, advising may be one of the least diverse professions in the United States. It should be no surprise then that, according to the Knight Foundation research, only 1.3% of assets are managed by women or minority-owned firms as of 2019. The study was sparked by Knight Foundation's attempt to diversify its endowment holdings.
We got the same sense from talking with advisors one-on-one in the field. I hear with regularity that finding and retaining fresh and diverse talent has been a challenge. FlexShares launched a study to shed light on the progress and hurdles that financial advisors are navigating on the journey towards building teams and implementing diversity. We discovered that while diverse representation in financial advising is yet an unfulfilled reality, diversity as a strategic business goal is not new to the industry.
Investing in Diversity
Of advisors surveyed, 34% say their firms have been invested in tackling this challenge for more than a decade. It appears that diversity has become a strategic imperative for many firms, with 59% of respondents saying that their company’s leadership drives this challenge and 31% indicating the organization as a whole takes the lead. Over half of responding advisors either agree or strongly agree that their firms are taking action to include diversity in strategy and culture.
We asked also asked about the types of diverse talent they have hired and retained for professional roles during the past five years. Age and gender emerged as standouts, with (respectively) 79% and 78% of firms saying that took action in those areas of diversity and retained the hires for at least five years. Five year retention rates were significantly lower in terms of diversity of race (42%), LGBTQ (25%), and Disability (17%).
Making it Happen
Usually, when hiring, we tend to prioritize “good fit”. If your solution tends to be hiring candidates who are just like all the rest, you are defeating the core principle of diversity. For example, do you tend to eliminate candidates who might be much younger or older than the rest of the team for fear of fit? Or, do you tend to prefer the candidates who come from elite private colleges over those that come from regional public universities?
Innovation is not served when teams come from the very similar backgrounds, or those that tend to think alike, and seek to follow in lockstep with everyone else. Of course, hiring people with the emotional intelligence to get along with a team remains important. But diverse team brainstorming to solve challenges and build an innovative firm requires diverse perspectives.
When teams are empowered to see things in a variety of ways, they can better recognize new and different market opportunities and anticipate unmet market needs. Diversity can bring expanded awareness of the market and its opportunities, producing better outcomes with clients and the bottom line. Consider, despite the challenges, making the pursuit of diversity a core principle for your firm.
Keep abreast of the competition by implementing diversity, equity and inclusion in your firm’s strategic goals and planning. Establish measurable metrics behind your plans. For example, mandate that for each open position at least one diverse candidate is put forward. Also, consider conducting unconscious bias training for the firm. This education and development effort can help teams accept that everyone may have a bias about groups of people but everyone can also find ways to move beyond society ingrained biases.
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