The financial advice industry has been paying attention to diversity, equity and inclusion, a concept known as DEI, but more still needs to be done to achieve parity, according to a Cerulli Associates report.
In its "U.S. Advisor Metrics 2020" report, Cerulli found that nearly two-thirds (63%) of advisors agree or strongly agree their firm’s leadership is working to increase diversity among its advisors. However, only 41% of advisors agree their firm’s diversity efforts have so far been impactful.
Cerulli said it is not enough for firms just to engage in discourse on diversity. They also need to create programs, events and partnerships that begin building inroads with diverse advisor communities. Furthermore, firms can demonstrate their commitment to creating a more equitable and inclusive environment for advisors through continued investment in DEI initiatives.
According to the research, women represent 18.1% of total financial advisor headcount, up from 15.7% in 2015. Advisors who identify as Black or African American represent only 2.9% of advisors; Hispanic or Latinx comprise 5.1% and Asians total 4.3%.
The top reasons diverse candidates cite as deterrents to the industry include a high failure rate (58%), unstable compensation (56%), pressure to meet revenue or production goals (55%), and lack of familiarity with the profession (50%).
The report noted that advisor trainee failure rates remain high regardless of gender or race, but barriers to entry are higher for women and Black, Indigenous and People of Color (BIPOC). “The potential pitfalls for new advisors in the preliminary stages of their career can be daunting for promising candidates and ultimately prevents training programs from preparing a more diverse class of new advisors,” senior analyst Marina Shtyrkov said in a statement.
Cerulli said retaining women and BIPOC candidates who choose to become financial advisors is the true test, and that barriers to success impact the experiences of established diverse advisors. “Work-life imbalance, limited access to prospecting networks, lack of diverse leadership, insufficient mentoring from successful advisors, and implicit bias pose the greatest challenges,” the report said.
Four in five (82%) of all advisors of color view limited visibility of people of color in leadership to be a challenge, while 78% of women cite limited visibility of women leaders as a top challenge, the report said. It noted that diverse leaders are more likely to create advancement opportunities and career pathways for diverse advisors because they are aware of the systemic inequalities facing underrepresented groups.
“It’s critical that women and advisors of color have leaders who can not only relate to their circumstances, but more importantly, use their influence and authority to champion their needs,” Shtyrkov said.
Broker-dealers and independent firms, the report suggests, should honestly assess their own gender and racial diversity, evaluate blind spots, solicit input from diverse advisors, build an action plan to address those gaps to initiate change, and share it across the firm to ensure accountability and promote participation.
Changes in the advisor profession, Cerulli pointed out, will inevitably occur over the next decade as the country's demographics and social climate evolve.
“As more diverse candidates enter the industry, firms will also experience an organic shift in culture that results from greater visibility, mentoring, and networking among diverse advisors,” Shtyrkov said.