(Dow Jones) Even as their numbers continue to grow, African-Americans conceivably constitute one of the great untapped markets when it comes to financial services.
Among those with household incomes of $250,000 or more, 58% have yet to establish an estate or a wealth-transfer plan, according to a new survey by Northern Trust. "It's a very underserved segment," says Darrell Jackson, an executive vice president of Northern Trust and an African-American who's worked with his company to target this market.
It also is a population that is growing and becoming more affluent. African-Americans are expected to constitute 15% of the country (a total of 66 million individuals) by 2050, according to the U.S. Census Bureau. And over the next three years, the buying power of African-Americans is expected to grow 28.4%-to $1.1 trillion from $870 billion, according to a 2010 Packaged Facts study, with the title "Black Is the New Green."
Any advisor who wants to tap into this wealth will need to recognize some distinct challenges. Retirement savings lag in this group, with a median figure of $53,000 per household compared with $114,000 per white households, according to a 2008 Charles Schwab report. And there is a general wariness of some financial products-and of financial advisors, say many within the advisory world.
A soon-to-be-published report from the MassMutual Financial Group shows just how deep that distrust is. Even among those who "do use [financial] planners, many wanted to validate or double-check the information/advice given to them," says the report. At the same time, there's a clear demand for that advice: "Many [African-Africans] openly wished they had been given more direction early on by their parents, or that certain financial behaviors were instilled in them earlier in life," the report adds.
The result, say advisors, is a seemingly contradictory pattern among African-American investors: Many characterize themselves as conservative in their financial approach and they thus avoid investing in stocks. But they often put money into riskier areas such as real estate and private equity.
"Many of the affluent African-Americans are first-generation wealth. Their parents taught them to get a good job, start a business and also build up tangible assets," says Jackson of Northern Trust.
Jude Wilson, an African-American advisor with his own firm, Wilson Group Financial Management, in Orlando, Fla., echoes that point. "African-Americans tend to want to invest in things they understand."
Many African-Americans of means put a premium on educating their children, reflecting a belief that the path to success begins with a college degree. But that's "almost at the expense of their retirement" planning, says Antwone Harris, an African-American advisor with Schwab who's based in Washington, D.C.
African-Americans also are supportive charitywise of educational institutions: The Northern Trust study showed that 52% of affluent African-Americans give to educational institutions compared with 39% of the affluent non-African-American population.
In the end, advisors who know this market caution colleagues to be neither opportunistic nor to cast it in too standard a mold. While many African-American investors may be risk-adverse, there also are risk-takers. And as African-American wealth spreads and is passed on to new generations, attitudes about money and investing are certain to change and grow more diverse.
Says Harris: "I think the mistake a lot of [financial] companies make is trying to group all African-Americans together."
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