Addressing Retirement Shortfalls Among Diverse Investors

Share this

Picture in your mind the average client who walks through your door on a given day. Is it a man or a woman? A business owner or blue collar worker? Are they a person of color or a certain ethnic group?

If you’re like most financial advisors, you likely envision your “average” client as a white male. At least, that’s what a recent survey suggests. A CNBC poll found that only 58% of Black men and 62% of Hispanic men have investment assets of any kind compared to 77% of white men. When parsing out genders, the gap widens; only 41% of Black women and 52% of Hispanic women say they have invested in anything at all.1 

The investment gap is also evident when looking at those with established retirement accounts. About half as many Black men and women own a retirement account as white men — approximately one in three Black men (33%) and Black women (32%) compared to 63% of white men.1

However, there are hopeful signs indicating that the investment gap may be closing, albeit slowly. Nearly half of Black (47%) and Hispanic (45%) investors started investing in the last 18 months compared to just one in five of their white counterparts.1 

Perhaps rising wages, increased incentives from employers or concerns over the financial impact of the pandemic have played a role in the latest uptick. Whether that trend will continue is in question, however, as inequities remain. As you consider your role in addressing the needs and concerns of diverse investors, it’s important to understand where everyone stands.

Income Disparities

One big reason why people of color and marginalized ethnicities aren’t investing as much is simple: they’re not earning as much. For all the attention paid to gender pay gaps between men and women, there’s an equally concerning pay gap associated with race and ethnicity.

The Bureau of Labor Statistics issues a quarterly report on weekly earnings of wage and salary workers. Their most recent findings show that Black and Hispanic workers earn median weekly earnings of just under $800. That is considerably lower than the average earnings of white workers ($1,024) and Asian workers ($1,309).2 

According to the Federal Reserve’s latest data, the typical white family is eight times wealthier than the typical Black family and five times as wealthy as the typical Hispanic family.3 Compounded over a lifetime, the disparities can add up to significant differences in a family’s wealth. This explains why wealth gaps between white and non-white families widen considerably at older ages.3 

Access to Retirement Accounts

Consistent with other inequities, white working-age individuals have more access and higher participation rates in employer-sponsored retirement plans than Black or Hispanic families. Ultimately, about 60% of whites participate compared to about 45% of Blacks. Only about one in three Hispanic employees participate in employer-sponsored plans.3 

Not all employees are eligible to participate in employer-sponsored retirement plans, whether due to the employer not offering such benefits, the employee only working part time or other reasons. Unfortunately, the lack of access means employees will also miss out on any potential employer contributions or employer matches

Takeaways for Advisors

It’s clear that many minority groups simply don’t make as much money as their white counterparts, and they are less likely to take advantage of a retirement plan at work. It’s reasonable to consider that the chances of them seeking out an advisor to invest their money (which they might not have enough of to begin with) or being introduced to one as part of an employer-sponsored retirement planning process may be less likely.

Many of these individuals have all the more reason to work with a financial advisor to help them come up with a financial plan. So, what is an advisor to do? 

Some individuals may have perceived barriers to financial planning or working with a financial advisor, and it’s important to address them when given the opportunity. Is someone concerned about fees? Is there an overall mistrust of the financial industry? Do they think they can’t possibly squeeze out another penny from their paycheck to set aside in a retirement account? Remind them that there’s no threshold of personal wealth that needs to be achieved in order to start doing something that has the potential to bring long-term benefits. 

Consider this: if you assist a company with its employer-sponsored retirement plan, offer to set up meetings with all employees, even if they opt out of the employer plan. A simple 10-minute conversation or an educational handout could lead to a deeper exploration of ways you might help them get started on a path toward greater financial security. 

Understanding that there are disparities among diverse groups of people is the start. And it stresses the importance of being inclusive in your approach to serving all clients, no matter their backgrounds or how much wealth they have. 

Helping individuals address their fears about the future is an important part of your role as a financial advisor. To help, we’ve developed an award-winning Behavioral Finance Advice program with multiple resources that are intended to help you guide clients through their emotions to make rational, fact-based decisions. Access it today.



Blog Sub Logo

Get updates & insights

Enter your email below to subscribe!