4 Reasons Why Inclusion in Investment Management Is So Important

June 9, 2020 - Stephen Van de Wetering

Inclusiveness among the workforce and clientele is not only the right thing to do in itself; it’s good for individuals, business, and society.

Conference room table

Recent demonstrations have shown the issues that still exist in society. We’ve also seen that when people come together to stand up against these societal problems, positive changes can be made.

Solving these issues is a long-term and multi-approach process, and like many other industries, the investment management community can play a role in bringing about that positive change.

Inclusive practices in hiring, prospecting, and educating of new entrants into the industry is a step in the right direction, and the investment industry benefits from a growing number of participants across the board.

Firms that engage in inclusive practices see positive results. According to research from McKinsey, racially diverse companies are 35% more likely to have financial returns above national industry medians.

Many investment firms are already actively engaged in such inclusive practices, and others that increase their efforts will too see a positive effect. Below are a few benefits of inclusion in investment management and how firms can contribute.

4 Reasons Why Inclusion Investment Management

Increased and Diverse Talent

As the world is increasingly connected, and as a population like the US becomes more diverse, future success requires new faces and ideas into the existing mix.

An inclusive workforce can help investment companies build on their success by offering unique perspectives in investment strategies, client servicing, and marketing, all of which help attract and retain investors in a changing marketplace.

Multi-lingual team members and/or those of immigrant background with the right skill sets can help an organization expand into new markets both at home and abroad.

An organization that values its employees’ diverse backgrounds and talents will attract more applicants, and with greater numbers of qualified candidates to choose from, the company becomes that much stronger and competitive.

Attracting New Markets

With new talent comes new ideas and approaches to attracting new market segments.

Serving previously underserved market segments can be a source of growth for RIAs, and by hiring talent that best understands how to serve said markets, investment firms can do just that: grow.

Financial advisors know that each client’s circumstances are unique, and in order to build the relationship, those needs must be catered to. (You can read more about how to improve the financial advisor-client relationship in one of our previous blog posts.)

There will be those who are first-time entrants in the investment space, and of those, many will be looking to set up their own retirement account as well as think about leaving assets behind for their children and grandchildren

Based on clients’ circumstances, values, and investment goals, advisors can set up a financial plan and investment strategy accordingly.

Clients value their financial advisor’s track record, and they value honesty, empathy, and transparency. Additional trust-building elements include a shared experience, knowing the advisor has been in the same shoes as the clients they serve.

Building a rapport with the client based on understanding and shared experiences are actions that ultimately contribute positively to the bottom line.

Replenishing Industry Talent

Inclusion in investment management means having a team with diverse talent sets, and such inclusion and outreach is all the more necessary considering the looming shortage of financial talent on the horizon.

According to CNBC:

To replenish the thinning ranks, the industry must attract and cultivate talent from all sources. While over 82% of personal financial advisor talent is white, relying on this segment to replace the looming losses will not be enough. Furthermore, there will be a growing demand for talent of additional backgrounds as the demographics change.

Despite collectively accounting for more than 30% of the American population, less than 3.5% of the 80,000 Certified Financial Planners in the US are of black or Latino background, according to the CFP Board Center for Financial Planning.

While the finance and investment industry in general needs to attract people of all backgrounds, emphasis on African-American and Latino participants is needed not only to promote career prospects, but also to play a role in serving a sizable segment of the market.

Ready to go talent does not show up overnight, and the talent must be cultivated in the student-age population.

Here are some ideas on how financial advisors can create new talent:

Policies of the past had limited the educational and career opportunities for segments of the population.

Even if such laws are no longer on the books today, and in spite of any progress that has been made, the ramifications can still be felt, leading to a lack of exposure to the finance and investments profession (among others fields), and therefore a lack of opportunity.

Investment firms can turn the tide by attracting and cultivating new talent among underrepresented groups. Even if the developing talent ends up working for another firm, creating new talent still strengthens one’s brand image, and it is a net positive for the individual, the industry, and society.

Narrowing Wealth Gap

Arguably the most important reason for inclusion in investment management, particularly at the client level, is to narrow large disparities in wealth.

According to the Tax Policy Center, the median value of family net worth among whites is $171,000, roughly 8 to 10 times more than that of African-American ($17,150) or Latino ($20,720) families.

One of the reasons for these disparities can be explained by previous policies that prevented groups from attaining further educational and economic opportunities.

While there are those who had a chance to acquire assets, watch those assets appreciate, and then pass on to children or grandchildren, others have only been able to participate fully in these wealth-building activities until fairly recently.

Despite accounting for over 30% of the American population, African-Americans and Latinos represent only 15% of Certified Financial Planner clients.

The key to wealth building lies in multiple streams of income; salaries and wages alone rarely ever allow anyone to achieve their financial goals.

Investment firms should encourage more participation among underrepresented groups, as increasing the number of participants in investing is one step in the right direction towards building wealth and closing the gaps.

The goal should be focused on making the economic pie bigger, so a growing number of people can enjoy financial comfort and multi-generational prosperity alongside those already in that position.

The Investment Management Community Can Make a Difference

Inclusion in investment management, both at the workforce and clientele levels, can have a positive effect on individuals, industries, and society at large.

The recent demonstrations have shown that issues still persist, and it would be naïve to suggest any one person, thing, or idea can fix everything quickly.

Still, every bit of effort counts. The investment community is in a unique position to where it can take concrete steps in helping alleviate issues related to wealth disparity by encouraging more participants as both clients and members of the profession.

It’s the right to do, and the economics back it up.