Parity Is an Uphill Climb for Women and BIPOC Financial Advisors
January 14, 2021 — Boston
Barriers to entry and success for diverse advisors impede DEI efforts among broker/dealers and independent advisory firms
Despite heightened attention on diversity, equity, and inclusion (DEI), women and Black, Indigenous, and People of Color (BIPOC) remain vastly underrepresented among financial advisors, according to The Cerulli Report—U.S. Advisor Metrics 2020.
The research finds that women represent 18.1% of total financial advisor headcount, which equates to a 2.4-percentage-point increase from 15.7% in 2015. Additionally, only 2.9% of advisors identify as Black or African American, 5.1% as Hispanic or Latino, and 4.3% as Asian.
Limited familiarity with the financial advice industry, coupled with misconceptions and wariness of the initial instability, deters diverse candidates from becoming advisors. A high failure rate (58%), unstable compensation (56%), pressure to meet revenue or production goals (55%), and lack of familiarity with the profession (50%) are the top factors discouraging women and BIPOC advisor candidates from entering the industry. Although advisor trainee failure rates remain high regardless of gender or race, the barriers to entry are higher for women and BIPOC advisors, who face challenges that disproportionately or uniquely impact their interest and opportunities in the industry. “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,” says Marina Shtyrkov, senior analyst.
Recruitment is only half the equation; retention is the true test. Once women and BIPOC do choose to become financial advisors, 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. Among all advisors of color, 82% 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. Diverse leaders are more likely to create advancement opportunities and career pathways for diverse advisors, given that they can identify with 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,” says Shtyrkov.
Nearly two-thirds (63%) of advisors agree or strongly agree that their firm’s leadership is working to increase diversity among its advisors. However, only 41% of advisors agree that their firm’s diversity efforts have been impactful so far. To make progress toward parity, firms will need to create programs, events, and partnerships that begin to build inroads with diverse advisor communities. Engaging in discourse on diversity, while important, is not enough. Through continued investment in DEI initiatives, firms can demonstrate their commitment to creating a more equitable and inclusive environment for advisors.
The research suggests that broker/dealers (B/Ds) and independent firms honestly assess their own gender and racial diversity, evaluate blind spots, solicit input from diverse advisors, and then build an action plan to address those gaps to initiate change. That action plan should be shared across the firm to ensure accountability and promote participation. Cerulli acknowledges that change will inevitably take time, occurring gradually over the next decade alongside demographics and the social climate. “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. Firms can better serve clients if their advisorforce more accurately reflects the diversity in end-investor markets,” concludes Shtyrkov.
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