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Following the social unrest of 2020, the conversation around the importance of diversity, equity and inclusion (DE&I) in the workplace has become more prominent than ever. Advisory firms have recognized their role in advancing DE&I, including diversifying their team and looking to serve a more diverse client base. However, there’s more work to be done.
FlexShares recently released its second DE&I survey of both advisors and high-net-worth individuals. It aimed to understand if building out DE&I initiatives is a strategic priority for advisory firms, and if so, what is being actively done to achieve these goals. It also explored whether diversity of advisory teams mattered to individuals when seeking an advisor. The results showed that DE&I isn’t just nice to have; it is a critical component of preparing advisory firms for changing wealth ownership in the U.S.
People want to work with advisors like them
Results from the 2020 census demonstrated that U.S. demographics are changing. The percentage of the white population fell, while that of Latinos and Asians increased. Women and people of color now control a greater share of wealth than in the past. What does that mean for financial advisors? To appropriately serve the changing composition of clients, firms need to broaden their bench.
Hiring more diverse professionals is an important imperative based on a key finding from FlexShares’ DE&I survey: individuals prefer to work with an advisor like them, particularly when it comes to gender and race. In fact, 34% of respondents stated a preference on their advisor’s race (up from 8% in 2019), and 38% had a gender preference. Specific to gender, women were five times as likely as men to work with a female advisor in 2021, up from four times as likely in 2019.
A majority of advisors (56%) reported that their firms are taking action toward building a culture of diversity. Such firms were revealed to be more active in engaging with diverse clients and prospects compared to other firms. For example, 73% of advisory firms have implemented efforts aimed at attracting women clients versus just 47% of firms not focused on diversity. The divide was also evident regarding race, with 47% of firms with diversity initiatives having worked to attract race and ethnic-based groups versus 19% of other firms. A similar trend (46% versus 18%) was also seen in regard to attracting LGBTQ clients.
Expanding the hiring pool
In addition to DE&I leading to external client success, these programs are proven to have significant positive impacts on company hiring, retention and culture. Although the survey showed that diversity is still not a top priority in terms of recruitment efforts, 77% of advisory firms focused on DE&I reported success in hiring new professional talent as compared to the 56% success rate of those who do not. These firms also reported high five-year-retention rates of diverse talent.
A diverse firm offers other benefits. A majority of advisors (55%) at firms that have taken on DE&I initiatives reported that their culture has improved as a direct result. A strong workplace culture can improve teamwork, raise morale and impact how employees serve clients.
Representation leads to success
Data from the survey draws a clear picture of how DE&I will help grow your client base. Not only do 58% of high-net-worth individuals prefer diverse advisory teams, more than half (51%) asked about a firm’s commitment to DE&I when seeking to hire an advisor. Representation is a key theme for consumers when choosing an advisory firm. This, in conjunction with the changing wealth ownership and overall demographics in the U.S., makes it clear that more diversity among financial advisory firms is needed to deliver what consumers are seeking. As client expectations continue to shift, the most successful financial advisory firms will be those who prioritize DE&I programs and build a talented workforce that mirrors the demographics of their clients and prospects.
Laura Hanichak Gregg is director of practice management and advisor research and co-host of The Flexible Advisor podcast, FlexShares Exchange Traded Funds.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
