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Why Financial Advice Risks Increasing Irrelevance to More and More Prospective Clients

By Rita Raagas De Ramos November 2, 2018

The financial planning profession risks becoming irrelevant in the face of changing demographics, and even today, many firms simply aren’t meeting all their customer’s needs, according to a new study. Broker-dealers and RIAs alike must diversify their financial planning professional staff to meet the needs of an increasingly diverse set of customers, according to the 62-page thought paper from the CFP Board released late last month.

The paper, “Racial Diversity in Financial Planning: Where We Are and Where We Must Go,” is based largely on research conducted in 2017 and released in May this year. Black and Latinx CFPs make up less than 3.5% of the roughly 82,000 CFPs as of 2017, according to Kevin Keller, Washington, D.C.-based CEO of the CFP Board. That’s significantly less than the 13% African-American and 17.8% Latinx population in the U.S., Keller said at the CFP Board’s 2018 Diversity Summit in New York last month – the first meeting of its kind for the group.

New census projections estimate that people of color will become the majority population in the U.S. in 2045 with the white population slipping to 49.9% by then, according to the paper.

“These projections demonstrate that the driving demographic engine of the nation’s progress will be communities of color,” the paper noted. “The financial planning profession, which does not reflect the diversity of the public it must serve in the future, risks being irrelevant in the face of these changing demographics and increasing wealth among consumers of color."

“The financial planning profession, which does not reflect the diversity of the public it must serve in the future, risks being irrelevant in the face of these changing demographics and increasing wealth among consumers of color.”
CFP Board thought paper

In 2017, the CFP Board’s Center for Financial Planning directed Fondulas Strategic Research to conduct research on three critical questions: What is the full range of factors that account for the lack of racial and ethnic diversity in the financial planner profession? Which barriers to entry into the profession are most critical and which are the most important to be addressed? What approaches to addressing those barriers will be most effective?

FSR conducted qualitative and quantitative research on the topics, starting with a literature review on diversity in the financial planning profession. That was followed by nearly 20 telephone interviews with blacks and Latinx enrolled in CFP Board registered programs, former financial planners, and educators who manage CFP-Board registered programs.

Then FSR conducted eight focus groups in New York, Atlanta and Los Angeles with financial firm executives responsible for hiring and recruitment; current black and Latinx CFP professionals; high-net-worth consumers; and black and Latinx financial planning prospects.

“A lot of people were not willing” to engage in “an open discussion about these topics. I was disheartened,” said Peter Fondulas, East Sandwich, Mass.-based president of FSR.

That reluctance helped with the research, however. “I realized that [reluctance] in itself was feedback.”

With the preliminary research as its foundation, FSR conducted a broader online survey from September 2017 to March 2018 of 2,182 key constituents that fit the description of those they previously reached out to plus white CFP professionals. The high-net-worth consumers surveyed had at least $150,000 in annual income and $100,000 in investable assets.

The research showed the perception of an average financial planner.

How Would You Describe the Average Financial Planner?

Source: CFP Board Racial and Ethnic Diversity Research

Here are the six key findings that came out of the research:

  • Due to economic inequality and cultural norms, blacks and Latinx lack awareness of financial planning and the CFP certification process.
  • The hiring and onboarding practices of firms – including the focus on immediate return, commission structure, like-to-like mindset and subjective hiring criteria – are seen as a major barrier to diversity and inclusion throughout the financial services industry.
  • Client bias – both implicit and explicit – in choosing a financial planner also functions as a broad barrier to racial diversity in the profession.
  • Various constituents differ dramatically on the root causes of underrepresentation of black and Latinx financial planners.
  • Despite the fact that black and Latinx CFP professionals and prospects are more likely to distrust the profession, black and Latinx CFP professionals say they are as highly satisfied in their careers as other CFP professionals and are more likely to recommend the profession than other CFP professionals.
  • Most segments of constituents agree on initiatives for boosting diversity, as well as messaging strategies to communicate the importance of diversity to firms to attract more black and Latinx prospects to the profession.

In Their Own Words

Here's What the Racial and Ethnic Diversity Research Unearthed

The thought paper identified what the CFP Board and The Center for Financial Planning plan to do to further promote diversity:

  • Maintain a Diversity Advisory Group
  • Continue to convene Diversity Summits to increase diversity in the financial planning profession for the benefit of the American public
  • Expand the “I am a CFP Pro” education campaign, which showcases diverse young CFP professionals
  • Establish a CFP Board Mentorship Program
  • Develop a toolkit to assist black and Latinx candidates in the CFP® certification pipeline
  • Establish scholarship programs for underrepresented individuals in the financial planning profession
  • Raise the visibility of black and Latinx leaders in the profession through more recommendations found in the full report

And here’s what firms can do to promote diversity, according to the thought paper:

  • Educate firm owners, senior leaders and managers about the value of a diverse workforce beyond working with clients of color
  • Embed diversity, equity and inclusion into the firm’s growth strategy
  • Increase the involvement of black and Latinx financial planners in recruiting diverse talent, while being careful not to tokenize current employees
  • Recognize that black and Latinx prospects pursuing CFP certification may be deterred by the costs and time commitments required to pursue CFP certification and develop policies to support their employees in pursuing certification
  • Encourage top management and owners of financial firms to make transparent commitments to racial diversity by specifying measurable diversity, equity and inclusion goals for the firm and monitoring progress toward those goals.