By Laura Hanichak Gregg, Director of Practice Management and Advisor Research

THE BUSINESS CASE FOR DIVERSITY

Analysts have been investigating the business case for diversity across industries for years and it has grown stronger. The Wall Street Journal’s research suggests that diverse and inclusive cultures may provide “companies with a competitive edge over their peers.” Companies participating in the study credited maintaining diversity with a range of benefits, including talent retention and better innovation and product development.  

However, the link between diversity and company performance may be more context-dependent on industry and sector norms around types of diversity and inclusion. For companies, especially financial advising firms, the key question remains: What do clients want? FlexShares embarked on a study to gain insight. We reached out to 200 high net worth investors and asked about their preferences for advisors as well as how they viewed diversity.

A LOOK AT HOW INVESTORS VALUE DIVERSITY IN ADVISORY FIRMS

We found that while most investors say they don’t have race or gender preferences, these same investors work with advisors who tend to be similar in age, gender, and racial profile.

Racial preference was not high among participating investors as 68% said they did not have one. We noted a strong preference for age diversity, with 61% of respondents ranking age diversity as “most important” and 25% ranking gender at the same level.

One of the key delineating factors seemed to be whether the investor currently had an advisor. Only 5% of investors working with an advisor ranked race/ethnicity as important overall. In contrast, 32% of those who were not currently in an advisor relationship saw the race and ethnicity of an advisor as an important characteristic of an advisor. Also, 24% of investors working without an advisor saw gender as important while only 7% working with advisors felt the same way.

Another factor was the age of the investor. Older investors were more likely to not question the status quo – the all or mostly all-white male advising team. Our results suggest that older investors:

  • prefer male advisors
  • say that technology is less important
  • say that financial team diversity is unimportant

While older investors overall tended to say that advisor age is unimportant, our findings suggest that clients 40 and over tend to prefer advisors in their 40s and 50s.

But advisors will have to work harder on team diversity to lure younger investors. The under 40 crowds tend to prefer advisors, on average, in their 30s and 40s. Team diversity, in general, was also more important to them, along with the use of technology.

Geography may also play a role in investor needs and preferences as it seems team diversity is important for staying competitive in Urban Markets. Urban dwellers were most likely to want to see gender diversity, for example, with 25% city dwellers versus 13% of rural investors and a mere 5% of suburbanites saying a financial advisor’s gender is important. Overall, 44% of Urban investors, 21% of suburban, and 35% of rural investors indicated that diversity was important to them.

We invite advisors to use our research to better understand how and why to build a more diverse business. FlexShares believes that diversity of thought, age, gender, race, and sexual orientation, and disability will give advisors a competitive edge in the coming decade and beyond. To hear lively conversations on this topic with industry experts, subscribe to The Flexible Advisor Podcast. You may also subscribe to receive alerts when new briefs are posted or download our latest research on this topic now.