Before I’d learned how to tap out the most basic time-value-of-money calculation on my shiny new Texas Instruments calculator, I’d already learned the unsettling statistics.
As a young woman preparing to enter the financial planning profession, those stats were impossible to avoid. So before I understood what the term “probate” meant, before I could decipher the dizzying list of permanent life insurance products in existence, you can bet that I knew about the diversity crisis within financial planning.
The Cold, Hard Facts
The CFP Board—the organization that grants CERTIFIED FINANCIAL PLANNER™ (CFP®) certification, and sets and enforces professional standards—reports that women have languished at 23% of CFP® professionals for more than a decade, despite steady growth of the profession (and despite women being more than half of the population). The CFP Board also notes that a mere 3.5% of CFP® professionals self-report as Black or Latinx. Since the U.S. Census Bureau estimates that Black Americans make up 13.4% of the population, and Hispanic and Latinx Americans make up 18.1%, this is a shocking degree of underrepresentation.
The CFP Board’s Center for Financial Planning created the Women’s Initiative (WIN) to, among other things, “identify why relatively few women choose to become part” of the profession. They also created a diversity initiative that, among other things, commissioned research “to identify the barriers to racial and ethnic diversity” in financial planning.
I, for one, am incredibly encouraged to see my profession’s most important institution devote time, energy, and resources to this cause. But it also strikes me that we can’t address the issues within the profession without addressing the issues that are equally pervasive in our society writ large.
To put it plainly: if we’re going to have a conversation about why certain groups of people aren’t clamoring to enter the financial planning profession, we need to talk about income and wealth disparities in America. Who has money, who doesn’t, and why? We need to acknowledge these systemic problems, commit to becoming part of the solution—and address how these disparities have already become entrenched within the profession, inadvertently or not.
Systemic Problems: Wage and Wealth Gaps
Many of us have heard of the wage gap. This gap is all about the size of our paychecks, and more specifically, the difference in income that the median person in a more privileged demographic group—in these statistics, a white man—makes in comparison to the median person in a less-privileged demographic group. Current gender pay gap data show that, for full-time American workers, the median white woman makes 77.4 cents for every dollar that a white man earns. This gap is much more pronounced for women of color: Black women make 63.7 cents, and Latina women make 56.5 cents, on that same dollar. (The gender pay gap varies even more considerably when broken down by profession, and is ultimately driven by a number of complex factors.) Current racial pay gap data show that median weekly earnings for Black men are 75.5% of the median for white men, and the same earnings figures for Latino men are 71.9% of the median for white men.
These disparities are infuriating, though most Americans are at least aware of this particular injustice. Another gap that’s been less widely-discussed, however, is the wealth gap.
Wealth, or net worth, is defined as assets minus liabilities; what you own minus what you owe. Wealth matters because it represents the amount of money that families have been able to keep in their possession, and therefore have available to pass down from parent to child to grandchild, enabling subsequent generations to improve their socioeconomic status over time.
According to recent research, the average white family added $301,000 to their net worth over thirty years, bringing them from $355,000 in average household wealth in 1983 to $656,000 in 2013. The average Latinx family added just $40,000, bringing them from $58,000 to $98,000 in the same time period; the average Black family added a mere $18,000, bringing them from $67,000 to $85,000. (There’s also, as you may imagine, a pronounced wealth gap between women and men. LGBTQ+ Americans also face serious financial challenges, as do transgender people in particular.)
These numbers are staggering—but, of course, they aren’t mere happenstance. A very long list of institutionalized discriminatory policies and practices created the racial wealth gap: slavery and Jim Crow; redlining by the Federal Housing Administration; the exclusion of certain professions dominated by people of color from Social Security and minimum wage protections; and the myriad failings of our criminal justice system. Other policies and practices, from the Homestead Act to the GI Bill to certain features of our tax code, have helped white families disproportionately. These factors ensure that the racial wealth gap remains wide—and largely impervious to individual efforts to overcome it.
What Does This Mean For the Profession?
Put simply, these disparities matter in conversations about diversity in financial planning, because we can’t separate individuals’ choices to pursue the financial planning profession from the society in which they operate. Income and wealth gaps—along with the discriminatory policies and practices that keep them in place—separate haves and have-nots along lines of gender, sexuality, race, ability, and class. It strains credulity to imagine a world in which financial planning’s diversity crisis isn’t meaningfully impacted by systemic factors.
It’s equally important to talk about what this means for the general public: who can afford to become a financial planning client? Because research from the CFP Board’s Center for Financial Planning found that ethnic distribution of financial planning clientele isn’t fully representative of America, either: an estimated 76% of clients are white, 9% are Black, 6% are Latinx, and 4% are Asian-American.
Many financial planners work for registered investment advisers (RIAs), whose fee structures tend to be based on assets under management (AUM). In many cases, these AUM fees begin at 1% for asset minimums of $1 million or more. And who has a million dollars to invest? Affluent people, of course, and older Americans who’ve spent a lifetime investing for retirement—and, because of the racial wealth gap, these people are disproportionately white.
(A bit of additional background there: RIAs meet the fiduciary standard and don’t charge commissions for investment advice—as opposed to brokers, who meet a lower standard of care, earn product-based commissions for their advice, and therefore have worrisome conflicts of interest. As you can imagine, this creates a catch-22 for consumers: it’s crucial to seek financial advice from a fiduciary, but their services are largely out of reach for younger or less affluent folks.)
And who’s making the financial decisions in these high-net-worth families? LIMRA’s research indicates that only 30% of women are the primary financial decision-makers in households with more than $1 million of net worth. Even in heterosexual partnerships, where women ostensibly have the same access to financial planning services as their husbands, there are disparities when it comes to controlling conversations—and assets.
The industry is changing, with organizations like the XY Planning Network and the Garrett Planning Network offering platforms for fee-only, fiduciary financial planners sans asset minimums. But we have a long way to go before their business models are widely adopted.
Other Professional Barriers
There are two other issues that strike me as important to the diversity conversation: the prevalence of #MeToo in wealth management, and the curriculum for CFP® professionals’ education requirement.
In a SourceMedia survey on workplace sexual harassment, wealth management fared the worst of all professions surveyed. Fully one-third of respondents in this sector described a “high prevalence” of workplace misconduct. I hope it goes without saying that this type of environment is likely a strong deterrent to gender parity, right? Yes? Phew.
As for the CFP Board’s education requirement: this is a fantastic and foundational component of CFP® certification. Candidates complete education, ethics, examination, and experience requirements before becoming certified, and the education requirement involves in-depth coursework to provide baseline understanding of complex financial planning concerns. However, that curriculum—which is reasonably comprehensive in many respects—is still decidedly skewed to the concerns of the “typical” wealth management client, who just so happens to fit a particular demographic profile.
On one hand, this makes complete sense. If your future clients will be dealing with issues surrounding investment management and estate planning, then your education should be tailored accordingly. But in a country where outstanding student loan debt has crossed the $1.5 trillion mark, it’s a deeply problematic oversight that student loans (and other pressing concerns for most Americans, like cash flow management, navigating health insurance options, and planning for a first home purchase) haven’t been incorporated into the CFP Board’s curriculum for planners. If you’re not being represented in these educational materials, how can you picture yourself fitting into the professional milieu?
Despite these critiques, it’s heartening to see that the CFP Board has publicly committed to exploring and making headway on the disparities within its ranks.
In addition to the research described above, the CFP Board’s Center for Financial Planning also hosted a diversity summit and is backing the Financial Planner Re-entry Initiative. The latter is a targeted internship program tailored to planners returning to work after a career break, which will likely provide disproportionate benefits for women. The CFP Board has also lobbied the Securities and Exchange Commission to adopt the fiduciary standard described above, which would benefit the general public—and more vulnerable consumers in particular. With their I Am a CFP® Pro campaign, the Center for Financial Planning has also broadened their depiction of financial planners in order to attract a wider spectrum of CFP® candidates.
Some of the most important voices on this issue, though, lie outside the CFP Board. There’s the Association of African American Financial Advisors (AAAA), whose advocacy includes, among many other efforts, working with historically Black colleges and universities (HBCUs) on their financial planning degree programs. Rianka Dorsainvil, CFP® has been a singular champion of diversity, equity and inclusion in financial planning via her excellent podcast 2050 Trailblazers.
There are many other untapped areas of opportunity, of course. What are individual firms doing to change their own cultures and hiring practices from within? Who is working to provide diversity scholarships for the CFP® certification process, and paid internships for underserved populations who’ve attained or are pursuing certification? Who is surveying planners to determine LGBTQ+ representation within our ranks? Who is undertaking research on planning clientele to determine whether the people we’re helping are reflective of the American public? These are all questions we can, and should, be working to answer.
Ultimately, here’s our biggest opportunity of all: the financial planning profession was created specifically to help people. If we commit to understanding where our collective blind spots are, I have no doubt that we’ll be able to hone in on solutions that allow us to do more good for a more diverse group of people—and in the process, welcome a more diverse group of planners into our ranks.
Want to Learn More?
If you’re interested in more diverse perspectives on this topic, you’re in luck! There are a wealth (pun, unfortunately, intended) of resources that are written and recorded by people with different outlooks on personal finance and public policy.
In addition to the profession-centric resources noted above, like the 2050 Trailblazers podcast, my favorite listens in the personal finance space are The Fairer Cents and Queer Money (plus the superb Queer Money Matters series from WNYC’s Nancy podcast). This episode of The Ezra Klein Show is a fantastic interview with Sandy Darity, Ph.D., who studies stratification economics and discusses the prospect of closing the racial wealth gap through a very interesting policy proposal (which a certain 2020 candidate has also put forth): baby bonds.
Looking for a good read? Here are a few ideas—some of which I’ve already devoured, and some of which are sitting in my nightstand queue: The Color of Wealth: The Story Behind the U.S. Racial Wealth Divide (which also contains detailed explanations of how wealth has been systematically taken and kept from indigenous people in America); Shortchanged: Why Women Have Less Wealth and What Can Be Done About It; The Feminist Financial Handbook; and both titles by Mehrsa Baradaran—The Color of Money: Black Banks and the Racial Wealth Gap, and How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy.
If you think there’s another great resource I should check out (and share!), don’t hesitate to let me know!
Editor’s Note: After I posted this essay, Eugenié George, MBA published a wonderful piece titled “Navigating the Financial Planning World as a Person of Color” on Kitces.com, which dives into these topics—and many more!—in greater detail.