Like many industries across the United States, the financial planning industry is lacking in diversity. Diversity encompasses many facets. For a long time, we have emphasized the importance of equal opportunities for female financial advisors, and the many benefits of women in leadership. Today, we will be specifically talking about ethnic and racial diversity and the lack thereof in financial services.
The deaths of George Floyd and Breonna Taylor sparked nationwide BLM protests, bringing our race relations and unsustainable trajectory into the limelight. As a result, many industries and firms are forced to look inward and re-evaluate their current diversity, equity, and inclusion efforts because needless to say, it is not enough as it currently stands. Despite the 12% increase in Black or Latino CFPs in 2019, these two groups only make up 3.8% of total CFPs in the United States. Considering the fact that Black and Latinos make up roughly 30% of the U.S. population, our industry is significantly not representative.
Why It Matters
We are now living in an age where corporate responsibility and accountability are expected and demanded by our stakeholders and clients –– and rightfully so. With social media and technology, firms have direct lines of communication with clients, leaving nowhere to hide. In addition to our corporate responsibility to recruit diverse talent, diversity is linked to improved financial performance. In 2015, McKinsey & Company reported a positive correlation between diversity and better financial performance, finding that “for every 10 percent increase in racial and ethnic diversity on the senior executive team, earnings before interest and taxes (EBIT) rise 0.8 percent.” This is supported by a recent Harvard Business Review survey, which found that “having a diverse workforce helps companies acquire and retain the best talent, build employee engagement, increase innovation, and improve business performance.” In order to satisfy clients and do right by society, as well as improve financial performance, here are a few first steps for how to create a more representative firm and better engage with diversity-related issues:
Leadership: Set the Intention
A FlexShares study found that 45% of advisers consider diversity as a strategy priority for their firm. This statistic speaks volumes: if less than half of advisers view diversity as a priority, how are we expected to evolve? Start by redefining your firm’s values and prioritize diversity and intersectionality. Setting the intention from a leadership standpoint is important because it shows leadership’s commitment: it sets the tone for the firm’s expectations and leads the rest of the firm by example. It also implicitly holds leadership accountable for the promises they make. Bottom line: if leaders do not understand or make clear the problem at hand, they cannot develop a strategy to tackle said problem.
Measurable Change
Create specific metrics to measure your firm’s diversity goals, with a focus on recruiting and retention. It is important to set benchmarks for your goals in order to hold your firm accountable. This is often where firms fall short––back up your words and intentions with action. Establishing clear metrics guides results, as seen with the Canada Pension Plan Investment Board (CPPIB). The CPPIB has a portfolio of more than $260 billion and they committed to a 50/50 hiring ratio of female talent to enhance performance and increase gender diversity in an industry that is lacking in that field. Impressively, the organization not only achieved their goal but also reported strong financial returns. They are now “working toward more equal representation across leadership ranks in investment departments, already experiencing an 8% increase since 2016.” Despite being an example of gender diversity, CPPIB is proof that defining diversity metrics is effective in transforming company culture and yielding sustainable returns.
Make D&I Initiatives a Priority
If you have not already done so, create a D&I council. Hold a D&I training series for how to overcome and avoid microaggressions and bias in the workplace. Develop formal mentorship and sponsorship programs to further support the advancement and retainment of diverse colleagues. Recruit at historically-black colleges and universities. Create scholarship opportunities for students and aspiring CFPs to attend training and educational requirements for certification. These initiatives, along with others, promote a healthier work environment and target the barriers to entry to your firm. By actively dismantling these barriers, you in turn improve accessibility to your firm and increase awareness of your firms’ opportunities. Again, a welcoming and diverse workplace improves performance firm-wide, due in part to the advantages associated with having diverse perspectives. All these ideas are very achievable for most firms, all they take is effort and thought.
As an industry, we can do better. Get onboard with the change and adapt your firm to be more reflective of our society, and you will see results.