We’ve all seen the headlines around an uncertain economy and layoffs across numerous industries with roles in diversity, equity and inclusion taking a hit. Recent data from workforce data company Revelio found a 33% churn rate for DEI-focused roles at more than 600 companies across industries engaged in layoffs, compared with 21% for non-DEI roles. Considering the size of typical DEI teams, the loss could mean entire departments.
An antiquated view on DEI has been that it’s a nice-to-do, a great social program where we can celebrate during certain months and corporate leaders can make employees feel good about culture, but not something that is critical to a company’s bottom line, recruitment or employees’ sense of belonging. While that view is still held by some, there has been increased understanding of why DEI is germane to business success, and that revelation is one that should be underscored for the wealth management industry. This is especially critical as we see increased consolidation may lead to a shift in priorities that could potentially be detrimental to progress made on DEI initiatives.
While wealth management isn’t necessarily experiencing huge waves of layoffs like the tech industry, there are financial advisor succession issues and concerns over the generational wealth transfer. What’s more, there is a desire from diverse clients—whether they be younger, women, ethnic minorities or LGBTQ—to have their money management and estate planning handled by an advisor with the cultural competency to understand their needs and challenges. Coupled together, these factors play a part in why the industry should not take its foot off the gas when it comes to attracting diverse talent and catering to an increasingly diverse client base.
Making the Case for Diversity
Making the business case for diversity has been a priority for companies to justify focus and, more topically, the financial investment needed to make change. That said, the business case is well proven. Data from McKinsey’s “Diversity Wins” report shows where there is a greater representation of gender diversity, the likelihood for outperformance is stronger. For example, companies with more than 30% of female executives are more likely to outperform companies where the percentage ranged from 10% to 30%. Similarly, companies with strong ethnic and cultural diversity perform better. Those in the top quartile had 36% higher profitability than companies in the fourth quartile. And interestingly, outperformance is higher when looking at ethnicity over gender.
We don’t need to overexplain why we value innovation, resilience or integrity in business, so why treat DEI any differently? The data shows it’s worth the investment, so even in a downturn, remaining committed to diversity can positively impact the bottom line.
Industry Focus and Progress
With an increased focus on DEI, the industry has started seeing some incremental progress. In January of this year, the CFP Board, which has said its top focus is to increase the number and diversity of financial professionals, boasted that in 2022 it produced its most diverse class of new certificants. Fifty-five percent of the over 5,000 new professionals are age 35 or under, nearly 30% are women, and 15% are ethically and racially diverse professionals.
Wealth management firms are also ramping up outreach to, and the cultivation of, diverse talent, whether that be exploring partnerships with HBCUs, creating tailored professional development programs for women and ethnically diverse advisors or simply creating safe spaces for conversations among all employees that foster an environment of inclusion.
Diversity Doesn’t Have to Break the Bank
While an uncertain economy is a valid reason for taking a close look at expenditures, diversity efforts don’t have to break the bank. In fact, firms that remain committed to investing in diversity efforts despite economic concerns may find that they can better weather the storm of a downturn. Diverse financial advisors lead to a more diversified client base, which gives firms the tools needed to provide holistic financial planning efforts to any type of client. A few ways firms can prioritize diversity even amid these downturns include:
- Listen to the needs of your existing diverse advisors and get their input on the strategies they think are most impactful in helping them build their books. For example, younger advisors may have creative marketing ideas for getting in front of their demographic group that may seem unorthodox but could be beneficial to client attraction efforts.
- Create an ecosystem of mentorship and sponsorship for women and ethnically diverse talent. With an established ecosystem comes a more regular and authentic way to identify opportunities for advancement at the advisor level as well as among firm leadership, where there also needs to be a commitment to, and examples of, diversity.
- Implement robust diversity/bias training for current advisors and employees across the firm. This is both to facilitate a more inclusive culture and to ensure they’re being aware of any bias that’s impacting their counsel and treatment of all clients.
- Build community connections. Understanding the needs of a more diverse client base to adequately serve them is key. Encourage advisors to spend time in the community, listening and building relationships.
- Continue to develop a robust talent pipeline. Explore partnerships that can help serve as a conduit to talent either at the university level or with more seasoned talent, exploring professional organizations like the National Black MBA Association, the Association of Latino Professionals for America (ALPFA) and others.
Ultimately, economic concerns or not, holistic financial planning isn’t possible without having a full picture of members of your client base and the presence of diverse advisors who reflect them. When it comes to ensuring your diversity strategy is working, the best place to start is to look inward. Do your clients see themselves in their financial advisors? And is there an opportunity to further reach new populations by empowering diverse individuals into the financial advisor role?
Josette Thompson is a managing director and diversity lead at Prosek Partners, a New York–based strategic communications firm.