This year, Black History Month arrives at a time of historic social justice movements. Black Lives Matter protests have swept through 60 countries, according to The World Economic Forum, and by October of last year nearly one-third of Fortune 1000 companies had released public statements or pledged their commitment to racial equality.
The financial industry has a clear call to action to raise the bar on diversity and inclusion—now is the time to take meaningful steps to develop a forward-looking diversity, equity and inclusion (DE&I) strategy at your firm.
Beyond rising to meet the moment, adopting a DE&I policy is simply good business—and that’s been the case for a while.
Moving the Needle
Even in the years before the pandemic, data consistently showed that diverse teams outperformed their less-diverse competitors. For example, research from the CFP Board Center for Financial Planning in 2018 confirmed that diversity could improve a firm’s financial performance as well as its culture by encouraging greater innovation, creativity and problem-solving approaches.
Deloitte research confirms this finding, noting that organizations with above-average diversity produced a greater proportion of revenue from innovation (45%) than those with below-average diversity (26%). In other words, the data consistently shows that diversity in the workplace is a recipe for creative thinking and improved performance.
Although our industry is helping to move the diversity needle, we still have a long way to go. For example, research from The CFP Board found that while Blacks and Latinos represented nearly 30% of the U.S. population in 2020, they made up just 4% of certified financial planners. And that’s despite the fact that the number of Black and Latino CFP professionals grew 12% last year—the highest rate ever.
How can firms turn the tide?
Building for Tomorrow, Today
The good news is that there are many ways firms can incorporate stronger DE&I values.
A CFP Board survey identified three top strategies financial professionals endorsed to foster racial and ethnic diversity: mentoring programs, reaching students earlier in their education and boosting awareness of the field. These are steps any firm can take.
Consider becoming a mentor, encourage your employees to volunteer in local communities, or support scholarship and education programs that promote financial services careers in underrepresented populations. You might also think about launching outreach programs in your area or focusing on building relationships with local minority-owned businesses and professionals.
Keep an open mind and maintain an open dialogue. Setting concrete DE&I goals that complement and enhance your current practices—and being transparent with your employees and clients about where you want to go—goes a long way toward fostering a culture of inclusion. Also, take a look at your hiring and promotion practices to identify unexplored opportunities to recruit or promote talent from underrepresented groups.
For example, as baby boomer advisors near retirement and older clients enter the drawdown phase, firms will need to reach out to new talent for succession and new clients for accumulation. This presents a golden opportunity to consider how you’re hiring and build relationships with the next generation and the emerging affluent in diverse communities.
Smaller firms can make large DE&I strides with just one new hire, according to fund manager FlexShares. And aside from building a positive rapport with more diverse and younger clients, FlexShares also found that 59% of firms with diversity initiatives say these efforts improve their internal culture.
Hiring and mentoring diverse employees can also raise the profile of the profession among historically underserved communities, like women and people of color—whose wealth is growing. FlexShares has found that clients tend to prefer working with advisors who are from similar demographic backgrounds: Women are four times more likely than men to work with a female advisor, and 63% of non-white, non-Asian clients work with non-white, non-Asian advisors.
By nurturing a more diverse team, you’ll be better positioned to serve a more diverse—and larger—client base.
Leading the Charge
According to the U.S. Census Bureau, people of color will represent more than half the total population by 2045. Next-gen clients and diverse communities increasingly prioritize DE&I not only in terms of personal values but also as stakeholder capitalists. This means businesses are being scrutinized for how they navigate these issues.
An article from The Davos Agenda 2021 says that in all 62 years of the Fortune 500, there have been just 15 Black CEOs—and only three women of color. And as of January, just 1% of Fortune 500 CEOs were Black. The financial services industry can play a leading role in changing the status quo for the better.
The fact that there is more work to be done also means there are many opportunities to make meaningful strides in your diversity, equity and inclusion initiatives—steps that could play a crucial role in creating lasting, meaningful growth not just for your business but also for your wider community and our society as a whole.
Gabriel Garcia serves as the managing director, advisor client experience for E*TRADE Advisor Services.