How advisors can tap into the $113T Hispanic wealth opportunity

October 12, 2023 7:10 PM

Miguel Ramos remembers when a woman from the Hispanic community finally got comfortable talking with him about her finances, after previously feeling closed off to other advisors.

"She never felt comfortable with another advisor, and it was partly because of the language barriers," he said. Ramos, a Minneapolis-based advisor with wealth management firm Thrivent, said he spoke with the woman in both English and Spanish. Ramos himself had immigrated to the U.S. from Venezuela as a young adult, and he had worked closely with the local Spanish-speaking community in his practice, he said.

"It was huge for her," he said. "She finally started opening up and exploring new opportunities like investing."

The woman was like many clients Ramos has met — she had familiarity with the basics of personal finance, and had saved and budgeted well, but needed help with thinking about the bigger financial picture of her life goals, in areas like retirement and legacy planning. Often Hispanic communities avoid investing, he said, due to "the lack of understanding."

Hispanic Americans currently make up nearly one-fifth of the American population, according to 2022 Census data, and they are the largest racial or ethnic minority group in the country. They have also become a powerful force in the economy, having contributed an estimated $3.2 trillion of economic output in 2021, according to a report last month by the Latino Donor Collaborative — which would give them the fifth-largest GDP in the world if they were grouped as an individual nation.

Hispanics' collective wealth is projected to grow to $113 trillion by 2050, according to a recent report by Finhabits (a fintech "created by Latinos for Latinos"). Many will be new to wealth, making them prime targets for a relationship with a financial advisor — if an advisor understands how to engage with them.

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This Hispanic Heritage Month (Sept. 15-Oct. 15), FP spoke with several experts on how advisors and wealth firms can better serve the growing wealth management needs of Hispanics and Latinos. Below are four tips they shared.

Show authenticity

Vanessa N. Martinez.jpg — Vanessa N. Martinez is a financial advisor and the CEO and co-founder of the Em-Powered Network.

Vanessa Martinez, a Latina financial advisor who is the CEO and co-founder of the Em-Powered Network, said that identity doesn't have to be the only selling point for a firm or advisor to engage with Hispanic clients.

"What people are attracted to is someone who they can connect with. That connection could be heritage, community, or it could be just thought process," she said.

Given the vast diversity of Hispanic Americans — ancestral, cultural, economic, political — it's best not to assume they are a monolith, Ramos said. In addition, some may have lived in the U.S. already for many generations.

"Not all Latinos want Latinos as their advisors. Not all women want women to be their advisors. They want someone that they can trust," Martinez said. "So I think putting yourself out there, showing that you are trustworthy, that these are your values — if our values align, then I will be your client." In parallel with that, she said, firms shouldn't hire "just to tokenize." Just because an advisor is Latina, for example, doesn't mean that she would want to focus on serving that population or have the best connection to local Hispanic individuals and families.

Partner with local community groups

Miguel Ramos.png — Miguel Angel Ramos Guerrero, a financial advisor at Thrivent.

Ramos said Thrivent has maintained strong relationships with local groups serving the Hispanic population, making it easier for advisors like himself to go out and connect with them — laying the groundwork for future potential client relationships, "building that trust," he said.

He will often deliver workshops on financial literacy to Hispanic women, for example, from the community. Given the strong family orientation of many Hispanic cultures, putting a face to an advisor and showing one's accessibility is key. "Sometimes one misconception that people have working with other financial advisors is, you have to be rich," and that's not always the case, Ramos said.

Be more accessible

In addition, firms can make bilingual materials available, Ramos said, to help advisors provide financial literacy and services more easily to clients in their native tongue. Thrivent, for example, offers a free Money Canvas program with a virtual coach in Spanish to help the community create healthy spending and saving habits.

Coaching in general is important to provide accountability as clients build new habits and try out new strategies, Ramos said, adding that he tends to check in several times a year with them.

Teach clients about financial opportunities

Lorenzo Esparza, the CEO and founding principal at Manhattan West.

Manhattan West

Hispanic Americans may know about saving and budgeting but lack familiarity with the financial system in America. Financial advisors can help them expand their financial horizons.

Lorenzo Esparza, the CEO and founding principal at Los Angeles-based wealth management firm Manhattan West, said he knows from personal experience what it feels like to scale the wall of ignorance around investing and wealth building.

The son of Mexican immigrants, Esparza grew up in a low-income area of Los Angeles. Yet he didn't recall facing overt barriers when he entered the financial services industry, possibly in part because strangers frequently mistook him for Italian.

A bigger hurdle, he said, was that because he came from modest means he didn't "have a pedigree of understanding what the opportunities are," and had to learn about finances on his own.

Michael J. Martinez, CFP, CRPC — Michael J. Martinez, the founder of Live, Learn, Grow Wealth Management (LLG Wealth Management).

Michael Martinez, the founder and certified financial planner at Live, Learn, Grow Wealth Management, an RIA in Diamond Bar, California, said he commonly sees Hispanic clients struggling to go beyond buying real estate as an investment.

The first generation thinks about it from an "assimilation standpoint," he said: "Buy up property, work hard, right? Send their kids to school. … The tradition's saying, we are supposed to take care of the family, keep cash, just buy real estate. We don't invest in the market because we don't understand it." But the second generation then feels caught in a "cultural tug of war," he said, because they start to recognize investing and estate planning as important areas to discuss — though those can be tough conversations.

Many Hispanic Americans lag their white counterparts in estate planning, research has shown — even when controlling for wealth levels. The reasons can include aversion to talking about death, Martinez said, or not understanding the costs for heirs of having to go through probate to claim a parent's assets — which can significantly reduce the worth of their parent's inheritance, if there is no estate plan. "COVID didn't care who anybody was, what their status or stature or anything else…its just breaking perceptions and saying, Look, understand that it's more than just money." Here, as well as in retirement planning, advisors can provide extra value by walking clients through how to create meaningful balance in their financial goals and leave the right legacy for their children.

Ramos said his female client ended up opening IRA accounts for her children and bringing them to the table to meet with him, which also gave him the chance to educate the next generation on wealth building. "They now know what she's doing, and that she's doing it for them."