Insights | 12.13.18
Fidelity Study Shows Economic Upside of Committing to Diversity
Wealth advisory firms that prioritize diversity are growing faster and paying better than firms that are not, according to recently released research from Fidelity Clearing & Custody Solutions.
Results from a survey of about 450 advisors produced “empirical evidence that firms actually focusing on diversity have some really strong business metrics,” said Sarita Bhagwat, vice president of market intelligence and thought leadership at Fidelity’s custody arm. She touted the study, “The Impending Advisor Talent Crisis: How Diversity Can Create Opportunities for Growth Within Your Firm,” during an industry roundtable earlier this year.
The respondents could be described as an even mix of “haves” and “have nots” in terms of having a focus on diversity. That is, only a little more than half (51 percent) of wealth management firms were deemed by Fidelity as “diversity-focused.” This assessment was based on advisors’ responses to questions scrutinizing companies on their diversity beliefs and also on concrete actions taken to incorporate these beliefs into their culture and business strategy.
In general, those 51 percent firms seen as focused diversity are doing better on several counts, relative to those firms (49 percent) that lacked a focus on diversity. The most diversity-focused firms paid gross yearly compensation of $383,000, compared to $335,000 at firms seen to be lacking diversity. Some 86 percent of the diversity-focused firms reported having more clients in 2018 compared to 2017; meanwhile, looking at the less diversity-focused firms, just 74 percent had upped their clients this year.
Advisors at the diversity-focused firms also reported higher overall job satisfaction (49 percent versus 32 percent).
The Key Questions
Some firms were singled out for best practices by way of deeper-dive case studies also part of the research. Sandy Cove, for example, sought to accommodate parents and others needing a more flexible work schedule with prior experience in wealth management and financial services. These staffers could work as few as two days a week and serviced clients with less complex needs. To build a community that better supported women in financial services, J.W. Cole created an online network for its female advisors to more easily compare notes. “Firms are doing creative things to bring diverse talent into the firm,” Bhagwat said.
The diversity-focused firms were identified using statistical clustering analysis based on advisors’ responses to five-point scale “agreement” questions, evaluating their firms’ belief in a diverse workforce. Here are the key questions:
- My firm goes beyond what is expected in the industry to promote and support diversity among its staff.
- My firm believes diversity is integral and foundational to our strategy and culture.
- My firm believes its advisor base should reflect a more diverse client base.
Respondents were also asked how well they felt they were positioned to recruit and connect with the next generation of clients. Nearly two-thirds of the diversity-focused firms said that their firms had the right people in place to connect with the next generation of clients. At firms that were less focused on diversity, fewer than half said that the right staff was on board to make these connections.
Treasure Trove of Talent
LeCount R. Davis, the first African American to earn a certified financial planner (CFP) designation and the founder of the Association of African American Financial Advisors, recently urged industry executives to look for new talent at the historically black colleges.
"In them, you'll see there's a treasure trove of brains, capabilities and passion for our mission," Smith said, accepting a lifetime achievement award at InvestmentNews' inaugural Excellence in Diversity & Inclusion awards, held last month in New York.
Firms seem to realize there is a pressing need to put more of an emphasis on diversity and inclusion. Some 70 percent of advisors believe there is a talent shortage in the industry, according to research co-conducted by InvestmentNews and Fidelity.
Fidelity’s Bhagwat said she believes dedicated diversity and inclusion recruiting programs can be the solution.
"You shouldn't have to provide business proof for diversity, but what I was grateful to see in our data was we were actually able to show that business imperative," Bhagwat said in an InvestmentNews article. This data can show reluctant executives that diversity isn't just about feeling good or being politically correct, she said, but that it has a tangible positive impact on the company.
Diversity and inclusion within the professional ranks of the financial planning industry lags behind the U.S. minority population, according to a new white paper from the Certified Financial Planner Board of Standards' Center for Financial Planning. Fewer than 3.5 percent of the 80,000 CFPs in the United States in 2017 were black or Latinx. Across the nation, black people represented 13.3 percent of the population, while Latinxs accounted for 17.8 percent.
Rich Blake A veteran journalist based in New York City, Blake has covered the financial world for numerous publications, including Institutional Investor, ABCNews.com and Reuters. Blake was a co-founder and executive editor of Trader Monthly magazine. The Buffalo native is the author of three nonfiction books, including “The Day Donny Herbert Woke Up,” which is currently being adapted into a motion picture. In 2004, Blake was nominated for a National Magazine Award in the Reporting category for Institutional Investor.