As we mark the one-year anniversary of the global protests for racial and social equity, we’ve seen an increasing number of financial advisory firms prioritize diversity, equity and inclusion (DE&I) efforts. Whether it’s committing to a more inclusive hiring process or ramping up capabilities to serve specific types of investors, firms have doubled down on their efforts to engage diverse groups. While there’s no question this benefits society in general, how is this playing out from a business perspective?
In spring of 2021 FlexShares conducted its second study of advisors and consumers to understand their views on DE&I, encompassing questions of race, age, gender and sexual orientation. We sought to find out the types of diversity measures firms are putting in place and what the business impact has been to-date. The bottom line? Diversity is a key component of any sustainable long-term growth strategy.
As advisory firms look to create or enhance their DE&I programs, they’re first evaluating their hiring practices and internal culture. Recruitment is a leading strategic priority at advisory firms, and for most, diverse recruiting plays an important role. Three-quarters of advisors indicate their firm is seeking to build a more robust advisory team and 66% are actively recruiting new professional talent.
Within this hiring push, a majority of firms (55%) are looking for diverse talent across all professional levels. Firms are increasingly recognizing the benefits of prioritizing diversity within the recruitment process, including widening the pool of candidates, better connecting with diverse clients or adding unique perspectives to the thinking of the firm.
“Firms are increasingly recognizing the benefits of prioritizing diversity within the recruitment process, including widening the pool of candidates, better connecting with diverse clients or adding unique perspectives to the thinking of the firm.”
Beyond hiring, firms have also put in place specific measures to retain diverse talent, with the most common initiatives including offering more flexibility in work hours and location, changing the firm’s marketing to highlight diversity, and adapting the recruiting process.
In addition to attracting diverse hires, many advisory firms are making a concerted effort to diversify their client bases. As the face of wealth changes in the U.S., advisors are harnessing the opportunity to increase the size of their eligible market and to educate a wider group of people about the benefits of planning and investing.
While this can be done in a variety of ways, many are focusing their efforts on engaging specific groups. Of those firms taking DE&I actions, 73% have efforts aimed at attracting women clients, 47% at attracting race and ethnic-based groups and 46% at the LGBTQ community.
To engage these groups, it’s ideal to have representation from diverse advisors. Among investors working with an advisor, women are almost five times as likely as men to use a female advisor. This concept of wanting an advisor like yourself is generally true across the board, and particularly when it comes to white consumers. White consumers are much more likely than others to indicate that race, gender, and sexual orientation are important characteristics of the advisor they work with. Of consumers with financial advisors, 43% of white customers indicate their advisor’s race is important to them.
How have these efforts to recruit diverse talent and clients fared? Both types of initiatives led to positive impacts across the firm. For example, 77% of firms with a DE&I program report success in hiring new professional talent, versus 56% of those firms that did not take action. More than half of respondents (58%) say that their DE&I program has been a selling point used to attract new hires, and almost half (46%) say it has been used to attract new clients.
It’s clear that diversity is no longer a nice to have, but a true business imperative for advisory firms looking for sustainable long-term growth. Among the many benefits, diversity programs lead to more successful recruiting, improved company culture and expanded new business opportunities. While one size doesn’t fit all firms, consider steps your firm can take to begin a DE&I program today.