Despite heightened attention on diversity, equity and inclusion (DEI), a new report reveals that women and those from various minority groups remain vastly underrepresented among financial advisors.
Women, black, indigenous and people of color (“BIPOC”) often face an unwelcoming environment, rife with pervasive biases, discrimination and unjust treatment, according to The Cerulli Report—U.S. Advisor Metrics 2020: Dimensions of Diversity.
And while some organizations have been vocal in calling attention to this issue, these efforts have so far failed to meaningfully move the needle, the report notes.
While they represent nearly 51% of the U.S. population, the research finds that women represent just 18% of total financial advisor headcount, which equates to a 2.4-percentage-point increase from 15.7% in 2015. Additionally, only 2.9% of advisors identify as Black or African American, 5.1% as Hispanic or Latino, and 4.3% as Asian.
According to the study, limited familiarity with the financial advice industry, coupled with misconceptions and wariness of the initial instability, deters diverse candidates from becoming advisors. The top factors discouraging women and BIPOC advisor candidates include:
- a high failure rate when starting out (58%);
- lack of stable compensation when starting out (56%);
- pressure to meet revenue or production goals (55%); and
- lack of familiarity with the financial advisor profession (50%).
And while advisor trainee failure rates remain high regardless of gender or race, the barriers to entry and success are higher for women and BIPOC advisors, who face challenges that disproportionately or uniquely impact their interest and opportunities in the industry, the study notes. Among the greatest challenges, according to the report, are work-life imbalance, limited access to prospecting networks, lack of diverse leadership, insufficient mentoring from successful advisors and implicit bias. “The potential pitfalls for new advisors in the preliminary stages of their career can be daunting for promising candidates and ultimately prevents training programs from preparing a more diverse class of new advisors,” says Marina Shtyrkov, senior analyst.
In fact, among all advisors of color, 82% view limited visibility of people of color in leadership to be a challenge, while 78% of women cite limited visibility of women leaders as a top challenge. Diverse leaders are more likely to create advancement opportunities and career pathways for diverse advisors—given that they can identify with the systemic inequalities facing underrepresented groups, the study emphasizes. “It’s critical that women and advisors of color have leaders who can not only relate to their circumstances, but more importantly, use their influence and authority to champion their needs,” adds Shtyrkov.
Nearly two-thirds (63%) of advisors “agree or strongly agree” that their firm’s leadership is working to increase diversity among its advisors. Yet, only 41% of advisors agree that their firm’s diversity efforts have been impactful so far. To make progress toward parity, the study suggests that firms will need to create programs, events and partnerships that begin to build inroads with diverse advisor communities. Further, it notes that, while engaging in discourse on diversity is important, it is not enough. “Through continued investment in diversity, equity, and inclusion (DEI) initiatives, firms can demonstrate their commitment to creating a more welcoming and supportive environment for all advisors,” the study emphasizes.
The first step for broker/dealers and independent firms is to honestly assess their own gender and racial diversity, evaluate blind spots, solicit input from diverse advisors, and then build an action plan to address those gaps to initiate change, the study suggests. That action plan should be shared across the firm to ensure accountability and promote participation.
Cerulli acknowledges that change will inevitably take time, occurring gradually over the next decade alongside demographics and the social climate. “As more diverse candidates enter the industry, firms will also experience an organic shift in culture that results from greater visibility, mentoring, and networking among diverse advisors. Firms can better serve clients if their advisor force more accurately reflects the diversity in end-investor markets,” Shtyrkov further underscores.