The Financial Advisor Industry Still Lacks Diversity

Fact checked by Yarilet PerezReviewed by Pamela RodriguezFact checked by Yarilet PerezReviewed by Pamela Rodriguez

In a nation at times grappling with, at others neglecting, persistent income disparities across gender, ethnic, and racial lines, the demographics of financial advisors starkly reflect these broader economic inequalities.

The financial planning industry has always been overwhelmingly white and male, and for some time industry leaders have known that a more inclusive approach to hiring could gain them more clients among women and minorities. Yet, industry data still raises important questions about representation, access, and trust in financial services. Below, we’ll dig into the implications for clients and the industry.

Key Takeaways

• Despite increased awareness and efforts, women and people of color remain significantly underrepresented in the financial advisory industry.
• Recent data shows only slight improvements, with women making up 24% of certified financial planners (CFPs) and Black and Hispanic or Latino professionals accounting for just one in 20 CFPs.
• The lack of diversity in financial advising has broad implications, including missed opportunities for tailored advice to clients and perpetuating the wealth gap.
• Settlements in the industry have cost firms hundreds of millions in recent years.

A Long-Term, Stubborn Problem in Financial Advising

The disparities among financial advisors, still about 80% white, may be unsurprising given the well-documented income gaps and low representation of women and minorities in fields related to economics and mathematics. Careers that blend “wealth management” with a quantitative background, such as financial advising, perhaps inevitably mirror these broader societal disparities.

However, that could lead some to shrug their shoulders, point to structural factors, and dismiss the need to address long-term problems in a profession that was 95% white into the early 2000s. Linda Friedman, a civil rights attorney at Stowell and Friedman Ltd., who has handled cases resulting in hundreds of millions in settlements in the industry, parroted what she said is a standard industry response to questions about industry demographics: “It’s not our fault. It’s society’s fault,” she told NPR’s “Planet Money” in 2023. “We’re in the business of making money. And so we look for customers who have money, and it’s not our fault if there’s a wealth disparity in this country.”

That response would fail to explain why other financial service professions are more diverse, even as those have been under investigation by Congress and the Equal Employment Opportunity Commission for a lack of diversity for years—a telling sign if the numbers for financial advising are worse.

Worse than offering the view that nothing is to be done because the issues are societal would be to perpetuate these inequalities. Taking women as an example, a quick review of not-long-ago industry articles would reveal a 2006 Journal of Financial Planning piece titled “How to Help Older Divorcing Women Avoid the Bag Lady Blues,” which has a first sentence that improbably claims millions of women were yelling, “I don’t want to be a bag lady!” across the U.S.—an image that at once makes a cartoon of homelessness and the plight of gender inequality. Other problematic articles of the period depicted “the dynamics of women” (as if they were a monolith) as “frozen in headlights,” with the male authors downplaying the extensive social scientific literature on gender-based income inequality as merely an outcome of time off from work “due to pregnancy, child care, and caregiving.”

It was thus no surprise that news articles more than two decades ago were premised on an “urgent need for greater diversity” among financial advisors. “Our profession is very late in coming to grips with the need to increase diversity,” said Connie Chen, a certified financial planner (CFP) and former president of the International Association for Financial Planning, in a 2002 article. Given the current demographic data, we hear similar refrains in recent years. This distressing historical echo suggests a stubborn lack of progress despite a long-standing awareness of the problem.

Performative Diversity

The phrases “diversity theater” and “performative diversity” have been used to critique companies for implementing only superficial diversity and inclusion programs without offering meaningful change. Critics could hardly find a better and more unfortunate symbol than the claims made in a 2022 suit against Wells Fargo alleging the company created “fake interviews” with diverse candidates for positions already promised to others, effectively turning the diversity initiative into a charade wasting the time of many candidates rather than a genuine effort at inclusion.

Advisor Demographics

As of 2024, Hispanic or Latino CFPs accounted for only 3.1% of the industry total, with Asian or Pacific Islanders and Black planners at 4.2% and 2.0%, respectively. The chart below tabulates the data for CFPs, as well as personal financial advisors overall, who show slightly more diversity, though the numbers still fall well short of representative of the U.S. population.

Kimberly Foss, founder and president of Empyrion Wealth Management in Roseville, California, told Investopedia that the lack of diversity in the financial services industry is a central issue for the sector to face because it skews practices and norms away from the realities of the larger society.

“If we want a body of professionals who can understand and empathize with a changing American society and culture,” Foss said, recruiting underrepresented groups in far greater numbers is critical.

There are other changes afoot in the financial industry, suggesting a time of job growth when such changes are more workable given the hiring slots available:

• The sector has seen steady growth in recent years. For example, the number of SEC registered independent advisers increased about 14% from 2019 to 15,396 RIAs as of 2023. The industry employs a significant workforce, growing from 871,971 employees in 2019 to over one million in 2023, an 11.5% increase.
• The number of clients these advisers serve has grown by almost a quarter in the last few years. The number has risen from 51.9 million in 2019 to 64.1 million in 2023, with average annual growth of about 8.5% in the previous six years. Assets under management have also grown similarly, from $97.2 trillion in 2019 to $128.4 trillion in 2023.
• Most advisory firms are small. Over 90% employ 100 or fewer individuals.
• The sector is aging—fast. J.D. Power estimates an average age for financial advisors of 56 years, with 20% of the workforce looking to retire in the next five years.
• Financial advising is expected to grow even more. The Bureau of Labor Statistics estimates the sector’s expected growth over the decade up to 2032 to be 13%, much faster than most other industries.

A Legacy of Distrust

Kyle Winkfield, president of Finley Alexander Wealth Management, told Investopedia the financial industry’s failure to make significant efforts to encourage diversification and increase the number of women and racial and ethnic minorities in its professions can be attributed to its perception of those groups, pointing the numerous recent settlements in the industry as potential evidence of racial bias in the sector.

Clients Left Unserved

There’s been a significant rise in non-retirement investing among nonwhite adults, according to a 2024 Financial Industry Regulatory Authority (FINRA) report, “Investors of Color in the United States.” Since 2015, there has been a 9% increase in the number of Black investors, a 6% increase among Hispanic or Latino investors, and a 7% point increase among Asian or Pacific Islander investors. By contrast, the percentage of white investors remained relatively stable during this period.

These new investors of color tend to be younger, with almost half of Black (49%) and Hispanic/Latino (45%) investors under 35 years old, compared with only 28% of white investors. The FINRA study shows that Black and Hispanic or Latino investors generally have smaller non-retirement portfolios, with the majority (59% for both groups) holding less than $50,000 in investments, compared with only about a third of white investors. In addition, about half of Black and 38% of Hispanic or Latino investors have less than two years of investing experience, while almost six in 10 white investors have been investing for 10 years or more.

In short, there is a greater need among these demographics for financial advisors.

Chloe McKenzie, founder and CEO of BlackFem, Inc., a nonprofit focused on creating opportunities for women and girls of color, told Investopedia that the industry has a problem that feeds on itself. Women and underrepresented groups are more reluctant to seek professional financial advice because they can’t readily find advisors they identify with. Meanwhile, a mistrust of the industry keeps women and racial minorities from entering the field to serve the groups who could directly benefit from their advice.

“The lack of diversity is hugely problematic for women and minorities seeking financial advice for a multitude of reasons, the two most prominent being comfort and respect,” Winkfield said. “Because of the boys’ club, a members-only power structure, and the inherent issues that come with it, those who do not belong in looks or gender are often intimidated or uncomfortable with their advisor options when seeking advice.”

A Legacy of Broken Promises

FINRA’s 2024 report and similar studies find a longstanding distrust among women and people of color toward financial professionals. “First, they’re not in our neighborhoods, with the perception that we don’t have the capital, we don’t have the money to invest,” a Black male focus group participant told FINRA researchers. “And there’s also the perception from us that you need thousands of dollars to even do business with them,”

This has led to frustration within different communities about a lack of representation in the financial advisory industry. Janna Hurd, a market developer at Thrivent, pointed out the meager percentage of Black financial planners and advisors. “That means Black Americans are having some of their most important conversations with professionals who don’t share a similar background,” she wrote in a 2024 Financial Planning piece.

This can stifle their ability to grow wealth, potentially widening the wealth gap. “Advisors are … there for some of life’s milestones, such as buying a home, having a baby, or entering retirement,” Hurd wrote. “Because this client-financial advisor relationship is so much more than a series of professional transactions, the right fit has to be there as well—and for many in the Black community, that fit can be hard to see across the table.”

The disparities are also detrimental to the advisory industry itself.

“When people aren’t able to find an advisor they connect with, they get discouraged and procrastinate or start looking elsewhere for guidance,” Ande Frazier, former vice president of distribution at Penn Mutual, told Investopedia. “They’re turning to robo-advisors, the internet, or their family members and friends for advice, therefore discounting the important role of the advisor.”

The Importance of Trust

The scarcity of financial advisors from diverse backgrounds has far-reaching consequences for people of color and women, researchers argue. First, trust and empathy are key to working with financial advisors. “If clients don’t believe they can trust you to be transparent or keep their conversations and financial details confidential, they will never do business with you. It’s really that simple,” Valerie R. Leonard, one of Investopedia’s top 100 financial advisors and CEO of EverThrive Financial Group in Birmingham, Alabama, told Investopedia about the need for trust in financial advising relationships.

A recent study of 3,500 middle-income Black women found 60% had difficulty in finding financial professionals or advisors they believed they could trust. In addition, underrepresentation contributes to a cycle of financial disparity and missed opportunities for wealth building.

“I didn’t grow up with somebody teaching me how to save, teaching me how to invest,” a Hispanic female told FINRA. “So, to have somebody to teach me—who understands that I have zero experience with where to begin—would be helpful because it’s less stigmatized, I guess, and I don’t have to feel stupid asking questions.”

A Problem That Feeds On Itself

McKenzie, the founder of BlackFem, said these perceptions of the industry are impacting recruiting within financial advising. “I think a lot of women, people of color, and women of color are not going into the industry because there’s such a large amount of distrust of the financial sector from communities of color and from women,” she said.

Addressing this underrepresentation is crucial not just for equity but for the financial health of entire communities. As the financial landscape becomes increasingly complex, it’s perhaps natural that many discussions in the industry circle around AI, cryptocurrencies, and other leading-edge issues in advising. However, the number interested in such investments is actually relatively small—about only 2% of Americans in 2023 used crypto to send money or buy something—especially when compared with those underserved by the financial advising community.

29.2%

The financial planner industry has an age gap as well. In 2024, only 29.2% of financial planners were under the 40.

Recent Discrimination-Related Settlements

The financial advisory industry has faced many discrimination lawsuits in recent years, highlighting ongoing issues of racial and gender inequality. These cases have not only resulted in substantial settlements but have also shed light on the personal experiences of advisors in such circumstances.

Felicia Slaton-Young, a former Edward Jones advisor, participated in a case that resulted in a $34 million settlement in 2021. “I didn’t walk into this thinking I would walk away rich; I walked in wanting to prove that my experience wasn’t a fallacy or dream,” Slaton-Young told NPR. “I needed to fight for my dignity back.”

Slaton-Young underscored the emotional toll of workplace discrimination beyond the financial implications. Other notable high-profile cases include the following:

1. Edward Jones ($34 million, 2024): The firm settled after a lawsuit claiming that its training and account distribution practices systematically disadvantaged Black advisors, limiting their opportunities and compensation. The settlement includes financial compensation for affected advisors and the establishment of initiatives to promote diversity and inclusion within the company.
2. Merrill Lynch ($20 million, 2024): Merrill settled a lawsuit for racial discrimination against Black financial advisors.
3. Goldman Sachs ($215 million, 2023): The firm completed one of the largest settlements ever in a gender bias lawsuit. Covering about 2,800 female associates and vice presidents, the settlement also required Goldman to hire an independent expert to analyze its promotion and performance evaluation processes for the next three years.
4. Wells Fargo ($8 million, 2020, 2022): Following new CEO Charles Scharf’s diversity pledge and an $8 million settlement over discrimination claims involving 30,000 Black job applicants in 2020, the company adopted a policy requiring diverse candidate interviews for all jobs paying over $100,000 annually. However, the 2022 lawsuit alleged that employees were instructed to conduct “fake interviews” with diverse candidates for positions already promised to others.
5. JPMorgan Chase ($24 million, 2018): The company settled a suit over racial discrimination against Black financial advisors.
6. MetLife ($32.5 million, 2017): MetLife settled over allegations of discrimination against its Black financial services representatives. The lawsuit claimed that Black employees were denied proper training, support, and access to more lucrative opportunities, which adversely affected their career progression and compensation.
7. Wells Fargo (2017): The firm agreed to pay $35 million to more than 500 financial advisors and trainees. It also agreed to add recruiters for black brokers and set up a related $500,000 business development fund.

While these and many other settlements in recent years have resulted in payouts in the hundreds of millions, the companies typically admit no wrongdoing as part of these agreements. This pattern of large settlements without formal admissions of guilt leaves an ambiguous message for the industry, as if discrimination lawsuits are among the costs of doing business.

The Gender Gap

Recent trends show a shift in women’s engagement with investing and financial planning. Despite many positive economy-wide changes, significant challenges remain, particularly in the representation of women as financial advisors.

75%

A remarkable finding of the 2024 Her Money Mindset Survey from Investopedia and REAL SIMPLE was how many women report being equal or more responsible than their partners for regular household spending (83%), long-term planning (82%), and investing (75%), when such categories applied to their situation.

According to the 2024 Her Money Mindset Survey from Investopedia and REAL SIMPLE, women are increasingly taking charge of their finances. The survey found that 58% of women feel somewhat or very confident in their ability to make sound financial decisions, with this confidence increasing with age and income. In addition, 60% of women make financial decisions independently, while 40% share decision-making with someone else.

However, the survey also revealed that only 39% of women hold investments. This figure varies significantly based on age, income, and financial literacy. Women who make more than $75,000 annually are more likely to invest (58%) and hold multiple investments.

The challenges women face in the industry are not just about representation but also the workplace culture. While women have advanced in financial advising, it’s been slower in some parts of the sector than in others. Personal financial advisors are about 31% women, while CFPs are still less than a quarter female. Other estimates put the total of all financial advisors at only about one in five.

“I have been discriminated against not only for being a woman but also for being a mother in this industry,” Kassi M. Fetters, a CFP at Artica Financial Services in Anchorage, Alaska, told Investopedia. “I have been the only person at a firm who had a child. No other employee had any children. I have been accused of having ‘mommy brain’ [and] have been humiliated when walked in on while breast pumping in my closed office.”

Fetters suggested this lack of representation could be creating a disconnect between advisors and female clients, potentially impacting women’s—especially mothers’—comfort levels with investing and financial planning. Here are other likely outcomes of the gender imbalance in financial advising:

1. Missed opportunities: Women may miss out on tailored financial advice that addresses their specific challenges, including their generally longer lives and caregiving expectations for females.
2. Confidence gap: The lack of female role models in the industry may contribute to less confidence among female investors.
3. Wealth gap: With women less likely to invest or seek professional financial advice, the gender wealth gap may persist or widen.
4. Misconceptions: Male advisors may not grasp the social factors influencing women’s financial decisions.

Despite these challenges, there are positive signs. The survey found that women are actively seeking financial knowledge, with 39% looking for financial information at least monthly. This rate is even higher (48%) for millennials and younger women.

“As women, it is crucial for us to talk more about money and investing,” Leonard said. “We must have empowering conversations with one another that will help bridge the gender gap and encourage our friends and the next generation to get smarter with money.”

As the industry evolves, it’s clear that increasing the representation of women in financial advising isn’t just about equality but simply about providing better, more comprehensive financial services that cater to the needs of each investor.

 Stephanie McCullough among the top 10 of the Investopedia 100 Top Financial Advisors, is the founder of Sofia Financial in Berwyn, Pennsylvania, which focuses on women 45 and over. She notes that this demographic controls a growing amount of wealth in the country. Nevertheless, the women she serves “are overlooked and devalued in many areas of society and culture, and yet we are the ones who will continue to control a growing amount of the wealth in this country,” McCullough said. “To serve women well, we have to have a wider conversation that encompasses all the things in our lives that are touched by money. So we have to talk with our clients about their careers and what in life brings them fulfillment, about their families and relationships, about what makes them feel happy and secure.”

For her part, Fetters said, “I still truly believe it is possible to have a career in the financial industry and raise a family as a female, but there is still a lot to overcome.”

Improving Diversity Among Financial Advisors

Industry leaders and organizations have put in place many different strategies to attract and retain diverse talent, focusing on education, mentorship, and inclusive recruiting practices. Despite those efforts, recent legal and political developments have created significant new challenges.

Backlash Against Inclusion Programs

In recent years, the financial services industry has seen a notable shift in its approach to diversity, equity, and inclusion (DEI) initiatives, largely in response to a changing political climate and high-profile court cases. This includes the Supreme Court’s decision to ban race-based affirmative action in college admissions, which has had a ripple effect across various sectors, including major financial institutions like Goldman Sachs and JPMorgan Chase curtailing or retooling their diversity programs.

In addition, suits are becoming common that target programs specifically for raising up women and minorities as a form of “reverse discrimination.” In May 2024, Citigroup was sued for alleged racial discrimination because of its policy of waiving ATM fees for customers of minority-owned banks. Meanwhile, the SEC, Nasdaq, and other major industry players are under significant scrutiny in the courts for their inclusion programs, including rules requiring board diversity disclosures.

Note

In light of recent legal scrutiny of mandatory diversity disclosures, the SEC’s Office of Minority and Women Inclusion’s biennial diversity disclosures are unlikely to help. Its voluntary surveys back to 2018 have only had a 5%-to-7% response rate. As the SEC 2022 report put it, this “creates a substantial knowledge gap” over the diversity practices of the industry, with the statistics too limited to prove usable for making general claims about RIAs.

A Shift to Grass Roots Efforts

These legal challenges and setbacks are forcing the financial industry to reassess its approach to diversity and inclusion. While some companies are scaling back their initiatives in response to legal pressures, others are seeking to promote diversity in ways that can withstand legal scrutiny.

Meanwhile, there’s been a transition toward focusing on grassroots efforts and long-term strategies to build a more diverse talent pipeline and financial advising clientele from the ground up rather than relying solely on top-down diversity programs. Previous strategies have been too often up to the whims of changing corporate boards, trends, and U.S. court decisions.

Foss, the founder of Empyrion Wealth Management, said there’s still a need for better and more effective mentorship programs and recruiting practices. These should target the interests and cultures of racial minorities and women. She said that an early emphasis on financial education can also boost a career in the financial services industry, so it’s on the radar for women and people of color.

“We should be developing outreach programs targeting high school students, who need to know that ours is not only a viable industry but crucial for the long-term well-being of the general population,” Foss said. At the college level, expanded internship opportunities may prove critical in attracting more women and underrepresented people to the industry.

Winkfield said the challenge with these programs is ensuring they create a comfortable environment for the people they’re trying to recruit.

Starting Early

This is something McKenzie’s organization has focused on. Education initiatives are the focal point of BlackFem, which advances financial literacy through programs offered in elementary, middle, and high schools, as well as online workshops for parents. “We’re culturally responsive and infuse the experiences of those that we serve into our curriculum, and to top it off, we look like the constituency we serve,” McKenzie said.

These efforts can attract the interest of women and underrepresented people to advisory careers, but the financial industry must also play a part in attracting the groups that it wants to hire. Retaining diverse talent is as crucial as recruiting it. This means implementing flexible work policies, providing diversity and inclusion training, and establishing employee resource groups.

Winkfield said that encouraging diversity hinges on more than just rules and programs. Financial advising firms need to adopt a more inclusive mindset: “It’s human to gravitate toward like-looking and like-minded people, and it takes a conscious effort to seek out diversity when it’s not your normal.”

Why Is Diversity Important in the Financial Advisory Industry?

A financial advisory firm that has a diverse slate of professionals on its staff can attract a larger and more diverse client list. It will be a list that reflects the diversity of the U.S. Businesses with high levels of gender and racial diversity report higher than average market share and higher than average profitability in comparison with firms that are not diverse.

What Role Do Regulators Have in Promoting Diversity in Financial Advising?

Regulators like the U.S. Securities and Exchange Commission need to begin with their own staff, promoting diversity within. They can also promote diversity in financial advising by enforcing anti-discrimination laws, encouraging transparency in hiring and promotion practices, and giving incentives to firms to adopt diversity and inclusion policies. They can also provide guidelines and frameworks for diversity reporting and accountability, ensuring that firms actively work toward creating an equitable work environment.

That said, recent Supreme Court decisions against diversity efforts and affirmative action could hamstring how much regulators can do in this department through their own regulations.

What Can the Financial Industry Do to Increase Diversity?

The efforts of the financial industry to diversify seem well-intentioned and fairly effective. Nasdaq, for example, requires companies listed on its exchanges to meet gender and racial diversity targets for their boards of directors, though that initiative is under review in the courts.

An MIT Sloan Management Review study suggests such targets are too narrow. Rather, it says that companies should strive for an inclusive workplace beyond the boardrooms and executive suites.

The Bottom Line

The financial advisor industry continues to grapple with a significant lack of diversity, despite increased awareness and efforts to address the issue. Recent data shows that while there has been some progress, the representation of women and people of color in the industry remains disproportionately low.

This lack of diversity not only reflects broader societal inequalities but also has far-reaching consequences for clients, particularly those from underrepresented groups. The absence of diverse advisors can lead to missed opportunities for tailored financial advice, perpetuate the wealth gap, and create a disconnect between advisors and clients from different backgrounds.

Read the original article on Investopedia.