The Advisory Career

Advancing Racial Equity and Diversity in Wealth Management

It’s no surprise that clients gravitate toward advisors who are like themselves

by Connie Lindsey & Laura Hanichak Gregg

Ms. Lindsey is Head of Corporate Social Responsibility and Diversity, Equity and Inclusion at Northern Trust. Visit https://www.northerntrust.com/
Ms. Hanichak Gregg is Director of Practice Management and Advisor Research at FlexShares, Northern Trust’s ETFs, and Co-Host of The Flexible Advisor Podcast.

The recent worldwide protests for racial justice have encouraged many of us to consider what role we can play in breaking the cycle of systemic racism. As professionals in the financial services industry, we recognize the unique biases and opportunity gaps in our own field and offer advice to our clients and colleagues looking to be positive forces of change. What can financial advisors do to promote diversity, equity and inclusion (DEI) within their firms and in their daily lives?

The “Why” Behind Advisor Diversity

The lack of diversity in the wealth management industry is no surprise, as it’s been noted for years. FlexShares’ recent Advisor Teams and Diversity Research revealed that most advisory firms ranked diversity programs eighth on a list of nine strategic priorities. But while DEI is clearly a moral issue, it’s also a practical one. Advisors may not realize the client demand for an advisor matching their demographic, as indicated by the following survey data:

  • Women investors were found to be four times more likely than men to work with a female advisor
  • 75% of the Asian investors worked with Asian advisors
  • 63% of nonwhite and non-Asian investors worked with nonwhite and non-Asian advisors

We believe that clients gravitate toward advisors who are like themselves due to the perceived notion that they have shared experiences. As such, recruiting diverse talent is critically important to growing and sustaining an advisory business, to attract a diverse array of clients. Advisory firms who turn a blind eye to client demand for diversity will run the risk of losing business and becoming irrelevant.

Supporting DEI Among Colleagues and Clients

Beyond recruiting, we also see DEI play an active role in advisor and client retention. When engaging with colleagues or clients, leaders can help foster change through three steps: 1) Showing Empathy; 2) Active Listening; and 3) Identifying a Call to Action.

Showing Empathy: While you might not have the same lived experience as your coworkers or clients, by showing empathy, you’re demonstrating that you at least understand their situation; this is particularly important in cases where individuals are going through difficult times.

Active Listening: Listening is an aerobic activity that shows you’re hearing what colleagues/clients are saying without judgment, and you’re allowing them to talk about the things they need to express.

We believe that clients gravitate toward advisors who are like themselves due to the perceived notion that they have shared experiences. As such, recruiting diverse talent is critically important to growing and sustaining an advisory business, to attract a diverse array of clients...

Identifying a Call to Action: To identify a call to action, you need to ask yourself: What can I do as an individual and as a leader that will have a demonstrated impact on the problem that I’m trying to solve? What are the next steps and what are the systems that I can help put into play?

And for those who don’t know what your call to action may be, or where to even begin, it’s important for you to seek that knowledge. A great place to start is by learning the difference between equality and equity.

The Critical Difference Between Equality and Equity

To support and drive change within the wealth management industry and in society as a whole, one of the most important concepts to understand is the difference between equality and equity.

Equality is defined as treating everyone the same and giving everyone access to the same opportunities. Equity is giving everyone what they need to be successful in these opportunities. While equality aims to promote fairness, it can only work if we all start from the same place and have access to the same help. Here’s one way to think about it:

Say there’s a fence that’s six feet tall. There are three people who are trying to look over it, and each one is a different height. Person A is 5 feet tall; Person B is 5’5”; and Person C is 6 feet tall. Each of them is given a 6-inch stepstool to see over the fence. Persons B and C can see over the fence, but Person A still can’t. This represents equality, as all 3 individuals were given the same tool or resource. However, they all didn’t start from the same place. To achieve equity, Person A is given another stepstool for the remaining boost needed to see over the fence.

This concept may have important implications for advisory firms, whether it’s in the way they evaluate candidates or review advisor success metrics. The lack of diversity in the wealth management industry isn’t new, nor will it change overnight. However, we can drive change by recognizing the facts, actively listening, educating ourselves and committing to action.

 

 

 

Before investing, carefully consider the FlexShares investment objectives, risks, charges and expenses. This and other information is in the prospectus and a summary prospectus, copies of which may be obtained by visiting www.flexshares.com. Read the prospectus carefully before you invest.
Managed by Northern Trust. Foreside Fund Services, LLC distributor.
Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
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