Why RIAs Need to Get Serious About Diversity & Inclusion

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While news channels and protests have reminded us all of the systemic injustices in our country, we have witnessed organizations of all kinds offering public support for diversity and inclusion. Some have donated money to nonprofits, increased diversity budgets and written declarations of support for black communities. But will this actually change the financial services industry? Many don’t think so. RIAs are not moving quickly enough, some flat out refusing to change as they look to sell the business in the very near future and others just happy with the annual 0.1% improvement in minority recruitment. Compare these paltry efforts to the actual numbers: African-Americans and Latinx represent about 31.7% of the US population while they represent a mere 3.8% of all CFPs. More decisive action is required of these leaders.

Over the last few months I’ve spoken with many Black Financial Advisors and other diversity leaders as a part of our #fintechforblackfinance initiative. They have shared painful experiences with us of deep rooted bias and racism (and sexism) at both wirehouses and indie firms. Yet every single advisor we spoke with felt hopeful that RIAs could rise above the bureaucracy, and make significant and lasting changes to help minorities feel supported and included.

In light of these conversations, I want to explore the potential negative impact of one-size-fits-all recruiting efforts in indie firms. RIAs need to consider that poor commitment and execution regarding D&I initiatives will diminish their ability to find the best employees, retain those employees, find new clients and later on — to sell the business should they decide to do so.

Finding the Best Employees

We all know the best financial advisors are multi-talented individuals. Not only are they entrepreneurial in nature but the best advisors have that rare blend of empathy and intellect, assisting clients in making lasting behavioral changes in their personal lives. We have often heard advisors are part-time CFOs, part-time coaches and part-time psychologists. Truly, it takes a special kind of advisor to build a brand and a business.

But if we want the kind of advisors who build successful businesses, who can communicate the value of human financial advice, who value different cultural perspectives, we all have to ask — have we created an organization that also values different perspectives? When an A+ future advisor comes into our offices or looks at our website what do they see? Sadly, in many cases a homogenous group of mostly white people over the age of 40.

We live in the year 2020 people: the best employees value diversity.

Maybe more importantly, potential millennial advisors expect companies to embody diversity. This is due to a number of factors. First, large waves of immigration during the 80s and 90s and the aging white population have brought to America an increasing share of large minority groups. Today, 44% of millennials identify as a minority which is more than any other prior generation. They value diversity not just because the value is important in itself but also because diversity is what they have seen in their peers.

Additionally, Millennials want the organizations to represent ideals they believe in. Twenty-one percent of millennials changed jobs within the last year. Nearly half (47%) of the millennials surveyed in a study by the Institute for Public Relations believe that diversity and inclusion are important criteria when looking for a potential employer. So, half of job hunters are looking specifically for signs of a diverse and inclusive workplace.

If millennials compose the largest part of the modern workforce, it becomes clear that top brass needs to rethink what values are circulated, promoted and discussed at all levels of leadership in order to ensure independent firms become an employer of choice. Successful RIAs must embody true diversity moving forward —  a value which, to date, has not been fully embraced in financial services. Very few women, people of color, and minority groups have joined the profession. And without a serious focus on finding & hiring minorities, the industry risks disappointing the very people they need they recruit.

Build A Career Here

Poor D&I leadership has another negative effect for RIAs — there are fewer minority employees staying on to build long term advisory careers. To understand what is happening, it is vital to understand the difference between diversity and inclusion. Diversity is making sure you are hiring a variety of people whereas inclusion is about ensuring the business environment is one where everyone feels safe, valued and has influence on business decisions. A good analogy I’ve heard is that diversity is being invited to the party and inclusion is being asked to dance while you are there. Thus truly inclusive cultures encourage everyone to dance like there’s no tomorrow.

Many times leaders will promote diversity without a focus on inclusion. Often they do this with good-hearted initiatives like unconscious bias training or setting minority hiring quotas. The problem though is that these types of activities alone, without specific inclusion initiatives, can become an excuse when minority employees express dissatisfaction in the workplace. In this way diversity efforts can actually become a justification for a culture that does not make minorities feel safe, valued or influential.

Leaders must understand the difference between equal and equitable. Equal is everyone has to do the same work to get the same results. Advisors often tout how hard they had to work to create their book of business (and rightfully so). Accordingly, the logic then is that everyone needs to build their business the same way they did. But this logic assumes everyone starts from the same point, at the same time with the same access to resources which we know is untrue. Many of the leaders of today’s firms built their business by asking friends and family to hand over their assets. But do minorities have that same luxury? In some cases yes but for others no. That doesn’t make the advisor any less qualified just because they need different starting blocks. Leaders must focus on building an equitable business culture meaning everyone has a fair shot at success. Sometimes that means giving more assistance, more mentorship or perhaps stringent minimum account rules to get people started.

Diversification of Client Base

Since the industry’s diversity efforts have been dismal at best, it makes sense that minority communities have a negative perception of financial services. Think about it this way, if you were going to talk to someone about your goals, dreams and finances you probably would want an advisor with whom you can identify. And since so few minority advisors exist,  there is distrust from people in communities of color and from women who distrust the financial sector.

It doesn’t have to be this way though.

Here at Portformer we speak with many newly independent advisors. For context, Portformer is an investment analysis platform using machine learning to deliver portfolio insights to independent financial advisors. We’ve developed an unbiased, yet rigorous platform that identifies statistically superior funds, scores those funds and then explains why specific mutual funds or ETFs are a cut above those currently held in a client portfolio.

Some of our conversations have been with very successful independent advisors who serve only African American professionals. In fact many of them say the industry has not served this segment of the market very well. They’ve structured their business in a different way, not just charging 1% AUM but charging fee-for-service to most of their clients. Some are marching their way past $100M in AUM. But why did they go independent? Because the big firms had stringent limitations on account minimums, inflexible restrictions and little to no mentorship.

As a general rule, entrepreneurs have to work hard to successfully diversify their revenue stream over time otherwise they expose themselves to significant risk. Over the next 20 years, the Great Wealth Transfer will take trillions of dollars of wealth from baby boomers and deliver it into the hands of diversity-conscious millennials. And as we’ve discussed earlier, we see a growing empowerment trend in millennials as well as younger generations. These are clients who communicate what they stand for with how they spend their money (ie the vendors they choose). Are you setting up your firm to align with these future clients?

For some time, the lifeblood of the financial advice industry has been the baby boomers. Not only do they constitute a large number of actual financial advisors, they also constitute a majority of advisory clients. While it is understandable, leaders need to think about how they can diversify their client base to appeal to the next generation and diversity is a key part of that strategy. Studies show over 80% of millennials will look for a new financial advisor once they have inherited that wealth.

Selling the Business

Even for those actively looking to sell their firm, diversity will play a role. At present, firm valuations are high, depending upon account diversification, recurring revenue streams, depth of advisor relationships, technology etc. Increasingly, buyers want to know if a firm will keep the wealth and the number of clients that the firm has currently. After the Great Wealth Transfer, will this firm be positioned to win some business from those that inherit the wealth?

Statistics have shown that diverse firms consistently perform better than peers. There’s a reason universities benefit from a variety of perspectives on campus. Unique viewpoints force us all to think from various vantage points which is what you want to outmaneuver competitors.. Any company with a variety of unique people who feel included — that firm has a strategic asset on their hands they can use to win the next generation. As time progresses, it is those firms that have done the hard work to prepare for the future that reap the rewards of higher valuations.


Like climate change, it is very easy to ignore the long-term ramifications and instead focus on short-term revenue strategies. Similarly, independent leaders can ignore the public outrage at racial injustices or they can find a way to execute on diversity and inclusion efforts. We must all realize change requires a long term commitment to support and empower minorities. For years, the industry has not been held accountable to modern D&I standards. Like many of you, we believe this can and must change.

5 Tips to Show You’re Serious About D&I:

  • Make specific D&I goals and display those on a dashboard to leaders in the organization daily or weekly
  • Create meaningful financial incentives for meeting minority recruiting and retention targets
  • Share progress publicly every quarter toward high-level D&I goals
  • Reconsider the process around building a book of business for minorities ( IE account minimums & numbers of accounts)
  • Leaders need to take personal responsibility for D&I initiatives and mentor minority advisors
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