Diversity, equity, and inclusion (DEI) are initiatives commonly used in the workplace and across various professional communities to help better hear the many voices that make up our diverse world and build a more equitable and inclusive community. At Abacus, we understand that diversity and inclusion are essential to the success of any organization or industry. We also acknowledge that the financial services industry, in many ways, has often fallen short in both its awareness and its ability to evolve.
As we continue our commitment to running an inclusive financial planning firm and building a more diverse and equitable profession, we wanted to outline the current state of the financial planning profession, what we’re doing to build a more inclusive future for the industry, and how you can keep diversity in mind when making decisions about your wealth.
The State of Diversity in Finance Today
Though an emphasis on diversity and inclusion has certainly become a focus for many financial firms today, recent data indicates that the industry still has far to go.
While there are numerous positions within the financial services space, here is the current demographic of financial advisors by race in the United States:
- White: 72.1%
- Hispanic or Latinx: 9.5%
- Asian: 8.3%
- Black or African American: 5.6%
- American Indian: 0.1%
In addition, around 72.3% of financial advisors are men, compared to 27.7% women. Considering that only around 30% of the U.S. population are white males, diverse voices are underrepresented within the financial services industry.
While we as an industry have certainly made strides in recent years – the number of Black and LatinX CFP® professionals rose 13% from 2019 to 2020, for example – this is an ongoing challenge that must be continually addressed.
Diversity Is Good for Business
Diversity and inclusion matter for many reasons, but it’s worth pointing out that including diverse voices in positions of power and leadership directly equates to more positive performance. The CFP® Board recently conducted a review that found companies with a greater racial diversity earned nearly 15% more in revenue than those with lower levels of diversity.
Gender diversity has also proven profitable for companies, both in the financial world and beyond. Currently, around 35% of senior leadership positions are held by women. For Fortune 500 companies, that drops to just 10% of women-held leadership positions. Yet, companies with women executives are 30% more likely to outperform their competitors.
The Benefits of a Diverse Finance Workforce
By emphasizing diversity and inclusion in financial institutions, advisors and clients can benefit from more creativity, innovation, and voices with varying perspectives. Including more people in the conversation expands the decision-making process – which ultimately can help improve the firm’s risk management efforts.
Not to mention, a diverse team is better equipped to serve a diverse customer base. Seventy percent of women investors, for example, prefer to work with a female advisor. Considering money is one of the most intimate aspects of a person’s life, it makes sense why people want to work with someone they trust, feel comfortable opening up to, and can connect with on a deeper level.
How Firms Are Working to Overcome Diversity Barriers
The big question is, what can advisory firms do to address issues with diversity and inclusion?
As has been shown, diversity ensures greater access to talented professionals, and the business case for a diverse workforce is strong. But firms still need to make a conscious effort to attract diverse candidates, nurture future leaders, and instill a culture of inclusivity.
A few common ways to promote diversity and inclusion include:
- Implementing inclusive hiring practices
- Promoting mentorship or sponsorship programs for underrepresented individuals
- Setting measurable diversity goals (and tracking progress)
- Fostering a culture of care
How You Can Help Promote Diversity and Inclusion
Maybe you’re in a leadership position in your career, which means you can be an advocate for greater DEI practices at your workplace. Or, maybe you’d like to be more conscious about using your money to make a difference.
Here are four ways to promote diversity and inclusion.
1. Incorporate SRI Into Your Portfolio
Socially responsible investing, or SRI, is investing your money into companies that you consider socially conscious or are actively working to make a difference. You may buy stock in socially conscious companies or invest in SRI-focused mutual funds.
While SRI can refer to many areas – climate change, geopolitical conflict, food scarcity, clean energy initiatives, etc. – it can also refer to investing in companies that make a real effort to embrace and celebrate diversity.
Most large corporations should be able to provide information on their DEI initiatives, though it’s essential to do your research. With the rise in popularity of SRI, some companies have been found guilty of “greenwashing,” which refers to making their company look more socially responsible than they are. They may make false claims about their eco-friendly practices or allege their workforce is more diverse than it is.
The encouraging news? This is an issue many investors are aware of and have raised public concern over. You should be able to research any company you want to invest in to learn more about their SRI practices and previous claims. The non-profit group As You Sow, for example, provides a database where investors can identify funds based on a particular issue (such as gender equality).
2. Advocate for Financial Education
Financial literacy in American adults has been an ongoing concern for decades. A 2021 study found that over the last decade, financial literacy has declined among adults. What’s more concerning is these assessments also found an apparent discrepancy between financial literacy in white adults and BIPOC (Black, Indigenous, people of color) adults.
While Asian and White Americans answered, on average, 3.2 out of six questions correctly on a basic financial literacy test, Latinx and Black Americans answered 2.6 and 2.3 questions correctly, respectively.
Having a basic understanding of financial concepts is something that sets people up for a more prosperous and confident financial future. Lacking an understanding leads to poor money management and financial stress (especially under extraordinary circumstances like COVID-19).
As a concerned investor, what can you do to help improve financial literacy, especially within the BIPOC community? Advocate for greater access to financial education – and more specifically, financial education that includes diverse perspectives and addresses cultural differences. You can also make an impact by volunteering with or donating to local organizations with education-focused missions that work with underserved communities.
3. Support Diverse Businesses
Did you know that minority-owned businesses generate over $2 trillion in revenue annually? They play an integral role in our economy, yet they face systematic challenges in receiving funding for those businesses.
According to the Federal Reserve, White business owners applying for loans are approved at a higher rate than any other demographic:
- White: 35%
- Hispanic: 19%
- Black: 16%
- Asian: 15%
With all else being equal, diverse business owners have a harder time obtaining funding. This, of course, makes it harder for these businesses to expand and thrive.
As a consumer, you have the power to make a difference with every dollar you spend. Your city or state likely offers a directory for women-owned or BIPOC-owned small businesses in your area. Or search a national database such as Support Black Owned.
As an investor, you can also check out different options for investing in minority-owned businesses. These include peer-to-peer lending, angel investing, buying stock in specific companies, or participating in crowdfunding opportunities.
Small businesses are the backbone of America, and making a conscious effort to uplift diverse owners is incredibly important and impactful.
4. Hold Institutions Accountable
When you invest with or otherwise interact with large institutions (especially financial ones), don’t hesitate to request information about their DEI policy, inclusion efforts, or staff demographics. At Abacus, we’re proud to be transparent about our employee makeup and of the progress we’ve made. As of 2023:
- 50% of our CFPs are women (vs. 23% of the industry)
- 55% of our owners are women
- 34% of our employees are people of color
- 23% of our advisors are people of color
- 18% of our owners are people of color
- 15% of our advisors are LGBTQ+
- 14% of our C-suite are LGBTQ+ identified
By requesting this information, it’s an easy way to keep larger corporations and institutions accountable, and it lets them know that people do care about the steps companies are taking to create a more inclusive work environment.
You can also look to incorporate shareholder advocacy into your investing strategy. This might look like participating in proxy voting, direct outreach, and creating proposals for change within the organization.
5. Commit to Due Diligence 2.0
Abacus committed to Due Diligence 2.0 in 2021; many investors don’t know this commitment is available to vet businesses and investment managers for diversity and inclusion.
The Due Diligence 2.0 Commitment focuses on broadening capital availability by using non-discriminatory screening, and focuses on other key metrics for businesses seeking capital.
Traditional due diligence methods often focus on total assets and other potential markets that can exclude BIPOC companies (who often have a lower asset threshold but are still doing phenomenal work). The Due Diligence 2.0 Commitment opens up questions for investment committees to use, including items such as:
- What are your current and future plans for diversity?
- What type of focus is there on products and services of underlying investments?
- What groups do you support, and do those products/services do any harm?
Investors can seek out companies and investment opportunities that have been vetted using the Due Diligence 2.0 standard to increase their commitment to diversity in finance and their portfolios.
Promoting Diversity in Finance
While we’ve certainly made strides as an industry in recent years, much work remains. Diversity in finance (and across any business sector) is vital as it provides more opportunities to traditionally underrepresented people, helping to amplify voices with differing perspectives.
We have a collective responsibility to achieve a more diverse and empowered finance sector, and Abacus continues doing our part to support these initiatives. If you’re curious about reviewing your portfolio and want to make adjustments based on your values and beliefs, schedule a call with an Abacus advisor today to learn more how we can help.
