To say progress on industry diversity continues to be slow might be an understatement, even when it comes to gender, one of the most popular areas targeted by diversity programs.
Financial firms are not only hiring more men than women, but female executives in financial services are leaving the industry at a rate of 15.8% compared to 7.7% for executive men. Looking at the financial advising sector, women represent at least 50.8% of the U.S. and all but ten states are majority female. However, only 33% of all financial advisors and only 23.2% of all CFP certificate holders are women.
The data on diversity concerning race and ethnicity can be even more sobering. African Americans account for 13.8% of the population but only 1.5% of all CFP certificate holders.
Sometimes the first step towards diversity, equity and inclusion is simply acknowledging that the odds of underrepresentation being random do not fit the data. In addition to personal, sometimes unconscious, biases of firms and their hiring managers, there may be inherent structural obstacles, too.
Insights for Growth?
FlexShares embarked on research to study how advising and wealth management firms--large and small--were doing to create an environment that is more diverse and inclusive. From our engagement of 529 advisors, we observed several correlations and outcomes that could provide insight.
We asked about diversity as a strategic priority, among other questions. We discovered that AUM, firm size, age of advising staff, and workplace culture/style may play a key role in the likelihood of a firm committing to staff diversity as a strategic priority.
As much as 81% of the firms with more than $2B in assets versus as little as 36% for firms managing only $76 to $150 million prioritized diversity. Diversity was strategically important to only a third of firms with 2-5 employees yet as much as 60% of firms with at least 50 employees to view increasing staff diversity as a strategic priority.
Having a higher percentage of millennials on staff also correlated. Diversity was important to only 16.1% of firms where millennials made up less than a fifth of the staff and as much as 66.7% firms where millennials made up a high majority. Team-based firms are most likely and dual- practitioner firms are least likely to see staff diversity as a strategic priority.
Unpacking the Knowledge
Smaller less diverse firms might be able to sustain themselves for a while, catering to a niche market of the investors who sees their values and perspectives reflected in the advisors. When market dynamics compel a change in business strategy, lack of diversity could make expansion beyond the existing base difficult. Are most of your current advisors men over 50? You just might find engaging investors under 35 to be a rather uphill battle.
Bigger firms may be better positioned to see how diversity can help create long-term shareholder value. Size can offer the benefit of economies of scale, rendering investment for resources in recruiting and retaining diverse staff not only an imperative but actually more feasible. Clients might seek out larger firms at least in part due to this expected variety in advisor options so diversity might be a part of brand positioning. Some larger RIA firms we talked to in the field are targeting diversity, equity and inclusion by cultivating focused internal roles-- Captain of Culture, Experience Concierge, etc.
Preparing for the Journey
Regardless of size, homogenous staff can become too comfortable with thinking and operating the same way and be unwilling to challenge the market status quo. In the larger society, demographics are shifting. So are investor preferences and demands. Getting stuck in one small niche market dictated by the makeup of your staff may impede growth and survival in the long run. Constant and concerted attention to diversity, equity and inclusion has emerged a business imperative.
It’s not enough to say “we want diversity”. Bring key firm stakeholders together to design a clear and measurable plan. Avoid setup for a costly failure by empowering diversity initiatives with both the funding and organization backing needed to be a success. A 2019 report stated that “more than half of diversity professionals do not have the resources or support needed to execute programs and strategies. Measuring is a critical part of diversity planning but “only 35% had access to company demographic metrics, and a survey of 1,800-plus company executives found that diversity ranked last on a list of eight potential business priorities.”
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