Sirianni: A Reckoning on Race and Gender
As our industry works to meet the challenge of the national debate on issues of race and gender, firms are scrambling to recommit themselves to notions of fairness and equity by bolstering diversity budgets, dusting off old HR manuals, and sincerely intoning that this time it will be different. Maybe.
I’m not seeing a lot of practical steps being taken to make the business itself much more accessible to minority groups and women. Platitudes have limited utility.
Hiring diverse candidates in management is a necessary first step, but a top-down approach does not make the pool of experienced candidates any larger. What we need is a bottom-up approach.
It is important to note that in our business the “bottom” employees are advisors who are uniquely situated, in most cases, to make more money, and build more long-term wealth for themselves, than are firm managers. A top producer is really the plum job in our industry, and as such, the one that we should focus on as we make changes.
The challenge is how do we get more diverse candidates to succeed as advisors in a business with an 80% failure rate for all new hires, and without destroying the entrepreneurial unlimited upside that makes our business so appealing? If we do it correctly, we can solve for the core national problem of inequality while addressing longstanding demographic issues for a business that is in desperate need of new blood.
How do we do it?
It will require changing the processes and pathways to building a business. The key to making our business sustainable for the long term begins with allowing people of all backgrounds to succeed.
None of the solutions I will offer should take away from the serious accomplishments that women and minorities have already achieved in this business today. They have traveled tough roads that point the way for others to follow. I want to suggest more paths to meaningfully build on that progress.
This requires acknowledging the need for change, not only because of systemic injustice but because the old paths to success as advisors are built for a different age. The challenge of developing prospects today, of starting from zero without the wealthy social network of prospects that firms desire, is more difficult than ever.
Bottom line: We are capitalists. Capitalism requires fairness and a level playing field. It can’t thrive without people believing that it is fair at its core, and blind to color and gender. Its success as a system lies in tapping and applying the talents and potential of ALL people.
What can our business ACTUALLY DO to address fairness? Here are a few ideas our industry can use to establish inclusiveness where it matters most, at the start of an advisor’s career.
Change the business-building process.
I acknowledge that it is much harder to build a business today than it was when I started 30 years ago. I could cold-call. I could open $5,000 accounts.
How in the world is a first-generation college grad supposed to find the $100,000 to $250,000 minimum accounts many firms are requiring, and do so by the dozens?
I harassed all of my parents’ friends to hand over 10 or 20 grand each, and small-brick by small-brick I built my book. That can’t be done at most firms today, where high-touch advisors are steered from day one to focus on the very wealthy.
Some may call this progress, but it fences out the mass of society that has just a little to invest and who our industry increasingly throws to the robots, or worse. It also ignores what all older advisors know — –that small accounts can grow into large accounts.
By allowing new advisors to work with smaller accounts we can help them while helping society create a culture of investing among those who feel disenfranchised. Certainly new advisors’ books will grow in assets naturally, and the accounts will become more complex and larger over time.
Again, the challenge is finding a way to get a diverse group of newcomers started in this business, paid, and encouraged to succeed, without a traditional wealthy social network. That will entail reworking commission schedules and rewarding activities that focus on repeatable book-building actions, such as opening accounts of many sizes, as much as on assets.
Everyone from every background starting out today deserves the chance we all got to create real wealth for their families and a business that they can own. Whether first-generation college grads or the first in their families to seek financial industry careers, candidates from diverse backgrounds need support to build their networks. Not handouts, just access.
We must ensure that these diverse newcomers have equal access to the keys for building their business, including receiving inherited accounts and gleaning the benefits of teaming. Too often, valuable clients or leads still go to friends of local management when a broker retires or leaves the firm (despite legal settlements requiring firms to randomly distribute accounts). And despite firms’ new embrace of teams, they don’t work if older advisors insist on partnering with others who look like them and have the same cultural backgrounds.
There are no easy paths to change.
Firms must re-allocate support resources in creative new ways to sustain diversity candidates and help build their networks. For example, senior managers and executives should encourage their friends and colleagues outside of our business to be mentors, should help establish new advisors on charity boards and sponsor them for memberships in sports and country clubs, and adopt broad incentives to encourage all advisors to do pro bono work in their communities. Reforms, such as allowing hourly billing on sub-$250,000 accounts, or making sure everyone is getting their share of firm driven mass marketing leads, can go a long way.
If firms are serious about diversity they will have to figure out how to open the pathways to success for all. Investing in developing new talent that we have long overlooked will bring future rewards, both in ensuring a new source of talent and helping firms ultimately make more money as investments in their people pay off.
Improve the Indie Experience.
I started out this piece proposing an entire restructuring of the independent space, and then I made it much shorter when I realized that the same criteria I used for large firms above must somehow be applied to the independent world.
Independence would be a wonderful option to relieve systemic corporate racism/sexism in our country and our industry, because of its “be your own boss” ethos, but the pathways to direct entry into the RIA world are currently blocked. If you don’t have a successful practice to start with, you can’t have an RIA of your own. If you go to an indie firm as a newcomer you risk all the systemic race and gender issues of the big firms like management that blocks advancement for cloudy reasons, crass innuendo from peers, etc. We need to develop a better way forward.
Bottom line: Custodians are now the fastest growing segment of our business and they share a responsibility for developing access for women and minorities as RIAs. If they can succeed at creating the training, coaching, forgivable loan models, and mentorship necessary to successfully bring diverse newcomers into the RIA world, they would open perhaps the best and clearest pathway in the industry for diverse newcomer success.
What can you do?
We have a responsibility to make our world a better place. I’ve always been struck by how empathetic and kind advisors are, how devoted they are to clients, and how small the world of financial services is. Kindness and devotion — good. Small world — bad.
If you care about your own future and our business, you need to find ways to speak out against racism and sexism. Certainly, if you see something that’s not quite right don’t ignore it. Big firms have to listen, especially now. Speak out to H.R. or your managers (and of course, we at AdvisorHub are always happy to listen). And do your part to make sure you personally are helping make your team or office welcoming. It’s our responsibility to make the small world of retail advice bigger.
For executives, this may be a generational process. While progress may be slow, transparency will be key. I applaud firms like Edward Jones, which has been one of the few willing to disclose diversity statistics among its advisor force. The disclosure comes with a caveat that the numbers aren’t where they want them to be, but in my view, their openness is key to showing their good-faith effort to improve and help the industry track where we stand.
We also need to break down social and business silos among ourselves and act as a single community. We will have to be forgiving of occasional awkwardness. Maybe even take an older colleague aside and explain why something or some comment they said is inappropriate.
Familiarity will allow us all to talk about what we have in common. The first thing we have is this business. We cannot collectively afford to lose sight of what this business is in its purest form—a true meritocracy. But make no mistake, a meritocracy is only successful when people of all backgrounds have the same chance to succeed.
We must also keep in mind that we are an aging business in desperate need of new blood in the form of clients and advisors. Diversity is the key to expanding our reach with both. Today, there are fewer of us managing larger accounts, helping fewer people, narrowing our focus and effect each day. If we don’t do something to fix that, we will follow our own trends off a cliff.