Financial Services Industry Still Has Work to do on Diversity, Inclusion

Diversity and inclusion are not just buzzwords. In the non-financial world, diversity, equity and inclusion (DEI) are being worked into the everyday lexicon and that's a trend advisors can't afford to sleep on.

The reasoning is simple. Data and studies confirm clients are prioritizing diversity and inclusion and that extends to what they want to see in an advisory practice. New research from FlexShares confirms as much. FlexShares commenced a DEI survey in 2019 and inspired by the events of summer 2020, the fund issuer returned with a deeper dive this year.

Our first study focused on the motivations and mechanics of hiring for diversity as well as the demand for it among consumers,” according to FlexShares. “Building on that, our 2021 study explores whether attracting a diverse client base is perceived to be a strategic priority and what, if anything, advisors are doing to make that happen. We also wanted evaluate how recent events have affected advisors’ perceptions of DE&I.”

The latest survey contains some details that aren't surprising and some that advisors need to be keenly aware. For example, 82% of clients prefer advisors that have the support of a team, up from 72% two years ago. However, those clients prefer a diverse team to the tune of 58% – nearly double the 30% clip seen in 2019.

When it Comes to Diversity, Details Matter

Additional studies and data points confirm the need for advisors to prioritize diversity and inclusion. A recent study by Discovery Data polled management-level financial professionals, including advisors, on a wide array of diversity and inclusion issues. Put bluntly, the Discovery Data survey indicates the advisory business has a long way to get on par with U.S. demographic trends.

“Our Diversity & Inclusion dataset shows an industry that does not reflect general demographic trends in the United States. By comparing national averages to our database averages, we find women are underrepresented by 28 percentage points (relative to the overall U.S. population). Black and Hispanic/Latino people are underrepresented relative to the general population by 10 and 12 percentage points respectively,” according to Discovery Data.

Those data points are concerning when combined with the aforementioned research from FlexShares, which indicates more clients want to see diverse advisory practices. One way of looking at that scenario is that advisors with more diverse teams can potentially appeal to a broader client base – something all advisors should be aiming for.

Another consideration for advisors is the looming, often discussed wealth transfer, or the movement of money from older generations to Gen X and millennials. While older generations may not have prioritized diverse in advisory practices, it's reasonable to surmise their offspring are, particularly millennials and Gen Z.

Advisors that want to retain heirs inheriting baby boomers' wealth or land new clients risk missing out on that lucrative business if their practices strike existing and potential clients as lacking diversity and inclusiveness.

Math Is on the Side of D&I

As noted earlier, diversity and inclusion aren't just buzzwords drummed up by some consulting firm. Tangible data confirm it's wise for advisors to embrace these concepts. Take a look at some of the nuggets from McKinsey & Company.

“Gender-diverse firms are 15% more likely to outperform, whereas racially/ethnically diverse firms are 35% more likely to outperform (2015),” according to Morningstar, citing McKinsey. “In the past five years, the impact of gender-diversity success increased to a 25% greater likelihood of outperformance (2020).”

The firm notes enhanced diversity and inclusion leads to more innovation, better decision making, happier staffers and more satisfied clients. Those all qualify as excellent reasons for advisors to bolster their D&I games.

Related: Inclusion: What Will You Do to Make a Difference?