Why Financial Advisors of Color Matter

Financial advisors of color can help diverse clients gain trust in the financial industry, and ultimately help shrink the wealth gap.
Tiffany Lam-Balfour
By Tiffany Lam-Balfour 
Edited by Pamela de la Fuente

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During my seven years as a financial advisor, I often had two-hour phone calls with clients. Armed with my cheat sheet of English-to-Mandarin financial terms and Google Translate, I would explain the basics of investing in my second language. It got easier each time, but it was still hard. It was also really worthwhile to me.

The relationship between a client and a financial advisor ultimately boils down to trust. When you feel that your advisor can understand where you’re coming from and what you hope to achieve, and has the knowledge to guide you in getting there, it's easier to trust them, hire them and start growing wealth.

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I had a growing group of clients and prospects who were willing to work only with an advisor who could communicate in Mandarin Chinese. Although I was born and raised in the U.S. and speak Mandarin with an accent, my Chinese heritage made a difference. And having lived overseas in Shanghai for a few years, where I completed my MBA and worked in investment banking, also helped build my credibility.

'Representation matters' to investors

Finding the right advisor to put you at ease isn’t always easy when you’re a person of color.

In 2021, there were 92,055 certified financial planner professionals in the U.S., according to the Certified Financial Planning Board. Although the number of Black and Latino CFPs rose 13.8% last year, still only 1.8% of CFPs are Black and 2.7% of CFPs are Latino. By contrast, the U.S. population is 13.6% Black and 18.9% Latino.

“We need advisors of color to meet the burgeoning wealth in communities of color, who are underserved and underrepresented,” said David Dawkins, managing director of the diverse client segments group at Wells Fargo Advisors. “By 2045, the U.S. will be majority minority, and wealth in diverse markets will continue to grow rapidly. As this trend continues, advisors of color will only be in greater demand, and diverse clients will expect to see greater representation in the advisor population,” he said.

The wealth management industry recognizes the need to build a pipeline of diverse advisors. The CFP Board hosts annual diversity summits to promote best practices for advancing racial diversity in the profession, and also has a Diversity Advisory Group to provide guidance on diversity and inclusion initiatives.

“African Americans are vastly underrepresented in the financial world,” said Wilbert Hamilton, founder and owner of Hamilton Wealth Advisors, the only Black-owned registered investment firm in Alabama. "Representation matters in the Black community. We don't see people who [look] like me who own investment firms. There is still a major trust issue in my community, and the impression exists that other races are more knowledgeable."

“We aim to break this mold and prove we can meet the needs of our community through education, experience and expertise,” he said.

Communication + relatability = trust

For a financial advisor to truly give customized guidance, knowing all of the ins and outs of a client’s financial situation is crucial.

“Having people of color as financial advisors is very important because talking about money, insurance, savings, investments and estate planning is very personal,” said Mayra Rodriguez Valladares, managing principal of MRV Associates, a financial consultancy firm in New York City.

“People need to be with people whom they feel can understand them, can empathize with them and are not judging them,” she said.

People of color, especially immigrants, might not only be taking care of their immediate family but also other relatives as well, which may impact their ability to save and plan for retirement, she said.

“If they are speaking to a financial advisor of their own culture, they may find it easier to share that information and give the advisor the full picture of their assets and liabilities,” she said.

For my Chinese clients, eliminating the language barrier was a big deal, but knowing the culture was important, too. Some immigrants may have left everything behind to start a new life. In those cases, their accumulated assets usually were all that they had, so I understood their reluctance to take on any risk.

My great-grandmother lived through World War II, and her family was hastily uprooted during the Second Sino-Japanese War. She didn’t invest in the stock market or have a retirement account; she kept a wad of cash pinned inside her sweater.

When she died at age 97, my family figured out that she had carried over $3,000 around every day.

Hamilton said he also had family that didn’t invest. His goal is to educate the Black community about building generational wealth.

“There is a major void to fill when it comes to growing nest eggs,” he said. “I saw it with my own parents. They both have degrees and great paying jobs, but no one ever talked to them about investing their money and growing their wealth.”

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Shrinking the wealth gap

Financial advisors of color also matter because financial advisors can play a part in reducing the racial wealth gap, said Olamide Ajibesin, partner at KPMG Deal Advisory and Strategy in New York City.

“There should be more people of color (Black, Hispanic, Asian, etc.) in financial services because this industry in particular has a significant influence on our socioeconomic progress, from macro-level principles like GDP to individual- and corporate-level decisions, such as businesses, entrepreneurship and overall wealth creation,” Ajibesin said.

“The racial wealth gap is arguably the greatest site of racial inequality in America. For every $1 that a white American has, a Black American has around 10 cents,” said Jacob Faber, associate professor at New York University, who researches how the distribution of people by race and class creates and sustains economic disparities.

Faber said that often people in communities of color are excluded from the primary financial tools used for wealth accumulation, such as affordable mortgage financing, credit and access to financial services and institutions.

“In terms of growing and inheriting wealth, people of color are far less likely to inherit wealth from their parents and when they do, it’s on average in far smaller amounts. And, at the same time, people of color are far more likely to have to financially support aging parents — so they are squeezed from both of those dynamics,” he said.

Lack of access to wealth accumulation tools, less inheritance of generational wealth and investment knowledge, and increased family caretaking responsibilities all impact the economic mobility of people of color.

“Inequality is really hard to break,” Faber said. “We know that these institutional actors, whether they be financial advisors, real estate brokers or mortgage lenders, really have tremendously important roles in shaping the market and distributing opportunity within that market.”

» Want to know more? Learn how to choose a financial advisor

Neither the author nor editor held positions in the aforementioned investments at the time of publication.
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