How next gen advisors are poised to solve financial planning's diversity deficit

An overwhelming lack of gender, race, and cultural diversity has remained a sore point for the investment and financial advice industry for decades.

Roughly 79% of America's 434,000 financial advisors are white (Caucasian). And only 31% of financial advisors are women. Minority groups are significantly underrepresented. Only 8.1% of advisors are Black (compared to 12.2% of total population). And only 7.1% of advisors are Latinx (compared to 36% of the population).

Meanwhile, women make up more than half of the U.S. population and are estimated to control more than 60% of all personal wealth in the U.S. People of color will collectively become the majority of the American population by 2045, based on census projections. And while data from the Federal Reserve show that white families currently hold the majority of the wealth in the United States, wealth for Black and Latinx families is growing at a faster rate, though it may not help bridge the wide wealth disparities that exist. 

Representation matters to investors from diverse backgrounds because there are often issues of empathy and trust when it comes to working with a financial advisor. In a recent study of 3,500 middle-income Black women, 60% of respondents cited difficulty in finding financial professionals or advisors whom they "trust" as a barrier to seeking financial help. It's hard to ignore what's at stake: The industry needs to bring in new talent to stay relevant. And powerful tailwinds are driving the financial services to step up the pace of change.

Supply of advisors threatened 
According to a 2019 J.D. Power study, the average age of a financial advisor is about 55 years old, and about one-fifth of industry professionals are 65 or older. It's estimated that approximately 103,000 financial advisors will retire by 2030, nearly 40% of the 260,000 advisors in the United States.  

Demand for financial advice growing
At the same time, demand for personal financial advisors is expected to grow 5% through 2030, according to the Bureau of Labor Statistics. Millennials make up the largest U.S. population, and more than 75% say they want to work with an advisor to help them mitigate risk and plan for retirement. 

Wealth ownership shifting
Meanwhile, over the next 25 years, roughly $68 trillion is expected to change hands, with much of that money ending up in accounts belonging to younger generations. These investors have developed their own priorities when it comes to investing — driven by both money goals and values. They are also champions of diversity when it comes to supporting brands, including financial services providers.

Next gen investors
The next generation of financial advisors brings fresh perspectives on serving clients and attracting new ones. They understand younger investor behaviors and their different views of wealth compared to those of prior generations. These newer advisors have already adapted their approach when engaging with clients and prospects to resonate with younger investors and investors from different cultural backgrounds. 

More deeply assess clients
Next gen advisors understand that to attract and retain investors, they need to go beyond understanding their risk tolerance and time horizons. They need to understand investors in a multi-dimensional way and engage with them in a fashion that resonates and connects.

Incorporate values-aligned investing
Prior generations believed in active management, and so do newer generations, who want a more involved role with their investments. Many are aligning their financial decisions with their values as a way to influence how companies and brands behave around social and environmental issues. 

Create an engaging experience
Finally, next gen advisors understand the value technology plays in delivering best-in-class experiences to investors. For them, technology is critical to meet client demands and capture new business opportunities. They use it to create deeper connections with current clients and to reach new prospects by personalizing all aspects of wealth management. 

How to foster and attract next gen advisors?
Advisors are already starting to see how meeting the needs of the evolving investor requires deeper gender, generational, racial and cultural diversity along with the different and fresh perspectives they expect. But achieving diversity in hiring means breaking with old patterns. Here's what firms need to be doing to attract and retain next gen advisors:

1. Cater to their values / promote purpose: Next gen advisors are socially conscious and expect the organizations they work for to reflect their values. Firms need to emphasize how they make an impact on peoples' lives and build meaningful relationships. The shift in messaging means setting aside the "you can make a ton of money working here" idea for "you can help your clients achieve their dreams."
2. Give them the necessary tools:  Next gen advisors are digital natives and expect a tech-savvy work environment where innovation is encouraged. More than that, they want to provide the superior, highly personalized service that they know investors seek. This is an opportunity to leverage their innate digital prowess to help shape the future of financial planning. Firms that encourage the adoption of new but underutilized technology are at an advantage in attracting new talent.
3. Set them up for success: Next gen advisors take an entrepreneurial approach to their careers. They will likely not stay long if they can't continue to learn, grow and progress. A true commitment to diversity and nurturing the next generation means providing training and mentorship to ensure that they feel supported and on track to helping their clients achieve their financial goals while they achieve their own career goals. 

Realizing the value of a diverse workforce is one thing. Building a firm where diverse talent is represented and well integrated throughout all levels of the organization is another. It starts with making a commitment to creating an inclusive culture that empowers everyone to reach their full potential.