Women and minorities remain significantly underrepresented in both management and advisor roles in the investment advisory industry in the U.S., according to a new report from Cerulli Associates and the Investment Adviser Association.
Only 18% of advisors are women, while 3.8% identify as Hispanic, 2.6% identify as Black or African American, and 2.1% identify as Asian, according to "Driving Diversity: Opportunities for Action in the MIA Marketplace," which found that gender, racial and ethnic disparities at both Independent and hybrid RIAs remain pervasive.
While a slim majority (52%) of respondents believed their firm is working to increase diversity equity and inclusion (DEI), only 35% think those efforts have been successful, according to 2,000 surveys of advisors fielded throughout 2020.
“Our profession has a long way to go in matters of diversity, equity and inclusion,” IAA President and CEO Karen Barr said in a statement. “It is imperative that we step up and confront these issues. Gathering relevant data is a crucial foundational step in addressing diversity in the wealth management industry, because it gives us an important tool to measure progress. This study not only tells us what the statistics are, it identifies where the pain points are and provides a starting point for minimizing or eliminating them.”
Diversity in management ranks and ownership is also sorely lacking, the report said. “Women and racial minorities are rarely at the helm of independent firms, the majority of which report that they are not owned by diverse leaders,” the study said. For instance, 14% of independent firms are majority-owned by women or racial minorities.
Only 17% of respondents strongly agree that their firm’s senior management team is diverse, while 37% of advisors reported that their firm values diversity, equity, and inclusion, the study found.
The study found minority advisors consider the high failure rate of new advisors, unstable compensation, pressure to meet revenue or production goals, and lack of familiarity with the profession to be the top factors that discourage minorities from entering the industry, the study found.
According to Cerulli and IAA findings, these are the top factors discouraging diverse candidates from entering the investment advisor industry:
• Revenue or production goals pressures (61%)
• High risk of failing when starting out (61%)
• Dearth of familiarity with the advisor profession (59%)
• Lack of stable compensation when starting out (56%)
• Aversion to aggressive sales culture (45%)
• Lack of formal training programs (40%)
• Work-life imbalance when starting out (39%)
• Reticence about joining the industry as an underrepresented minority (38%)
• Reticence about entering a male-oriented industry (32%)
• Biased hiring practices (26%)
These “key factors discourage diverse candidates from entering and building successful careers in the industry,” according to the report.
Firms that want to accelerate change should consider building and tasking a DEI team that includes diversified staff and management to develop and implement an action plan, offer “unconscious bias training” to staff, create affinity groups that recruit and work with diverse advisers, fund scholarships for underrepresented candidates and forge partnerships with community organizations, universities and professional trade groups to create a pipeline of interested, qualified and diversified candidates, the study said.
“Parity remains an uphill climb for women and Black, indigenous and people of color (BIPOC) financial advisors,” Marina Shtyrkov, a senior analyst at Cerulli, said.
Despite heightened DEI attention at some firms, “these groups remain vastly underrepresented among financial advisors. By understanding and addressing the barriers to entry and success, the investment advisory industry will be able to better serve clients with an advisor force that more accurately reflects the diversity in end-investor markets,” Shtyrkov added.
RIA staff can also drive change. “There are numerous opportunities for individuals to contribute to their firms’ and the industry’s DEI efforts, including acting as a mentor or sponsor to diverse advisers and volunteering for community activities that build awareness of the profession,” the study said.
The study found that 45% of RIAs reported they are very interested in acting as a mentor or sponsor to a minority advisor or manager. Another 39% said they would volunteer for community networking and outreach to improve diversity recruiting at their firms.
But “successfully recruiting diversified candidates “s only half the equation,” the study said. “Retention is the true test. Once women and BIPOC do choose to become financial advisors, firms struggle to retain them because barriers to success impact the experiences of established diverse advisors.”