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5 Things about Family Dynamics and Money in the African American Community with Lazetta Rainey Braxton

Lazetta Rainey Braxton.jpgLazetta Rainey Braxton, CFP® professional, knows that, many times, sitting down with a financial adviser might be the first time a couple has had a conversation about money. In the African American community, money conversations don’t often happen organically. Money might be viewed as a stressor, and talking about money might be seen as rude or uncomfortable. 

I recently sat down with Braxton for a 2050 TrailBlazers podcast episode to explore family dynamics and money, what guilt African American professionals may carry with them if they feel they’ve “made it” while their community still has financial need and how the importance of serving your clients best interests. 

There are people who feel a sense of fear to talk about money. Where does this come from and how does it impact the African American community? 

Regardless of race, there is lack of money talk in various families. What we should anchor this in is the statistics that really highlight the racial wealth gap that try to figure out how to navigate the disparities. There’s a New York Times article that says for every $100 in white family wealth, black families just hold $5 and 4 cents. So yes, as African Americans, as blacks, we say money talk is even more important because we have to try to make up for lost time. Also, each generation is trying to figure out how to navigate what they’ve inherited or not inherited in terms of the wealth transfer.

African Americans who I like to call first-generation wealth builders might feel an obligation to help everybody else in their family. Tell me more about how we can help clients put on their own financial oxygen mask first before helping others.

There is this obligation that you feel to give back and lift others up. When I work with clients, I ask them, “Do you have people who will be financially dependent on you?” And oftentimes I hear parents or aunts and uncles helping a niece or nephew get through school or they’re also dealing with their own children as well, but the extended family is typically on the payroll—or are a line item for that budget.

When family members ask clients for money, use the line item as a reference saying, “You know, my family fund is depleted.” I go a step further if you’ve learned how to put your mask on first—it’s your responsibility as you’re giving to help others put their mask on. Ask some questions. Why do you need the money? What went wrong? How can we not let this happen again? Because if we don’t try to educate and elevate, then the wealth gap within our own family will continue to persist.

Educate and elevate—what does that look like?

I start first by helping them name the family members who may be draining their finances. I  couple that with asking, “What are you proud of that you’ve done well with their finances, and where do you need to improve upon so that we can get everything out on the table?” We can eliminate what I call that money fog—fear, obligation and guilt. Having the conversation lifts the fog so you can be clear about who’s responsible for what. 

When you start liberating people to take the deeper dive and own how they want to live, it gets contagious. Then when people are asking them for money, they can say, “Well, hey, I improved my situation, you can too.” 

Historically the African American community has navigated toward annuities and whole life insurance as a way to invest versus the stock market. Also, they tend to want to own rental property. Shed some light on that for us.

In terms of exposure as African Americans historically, we like things that we can see and feel and know that there is a contract. That goes in line with what we’ve experienced within this country of having property taken from us. So if we know we own it—with the deed and with the contract and paying the premiums—there’s a feeling of having guaranteed income, even if there are other opportunities to grow that income. African Americans historically have anchored their wealth in real estate. They are also very comfortable with insurance because insurance has been around for a long period of time. Also annuities have a component of insurance tied to them as well. 

Now I’m not disparaging any of those asset classes—they are important. What I’m also saying is, I see wealth transfer among the white populations—which have significantly more wealth—is happening through the stock market. There is the ability to grow your wealth exponentially with this concept called compounded growth, while your money is constantly working for you. There are also tax considerations that make stock ownership or exposure to the market more attractive as well. African Americans have to be more comfortable with the stock market because a lot of their assets are in retirement plans. And there has to be that basic understanding and comfort level with knowing that there is potential for growth, noting that  markets do go up and down. We’re not saying that there’s not that volatility, but over long periods of time it has worked out well for other populations.

[Wanting to own rental property] is still an extension of what you know—if you own a home, you know what you need to maintain it. How we in our community fall short is that we don’t have the capital. You need a capital fund for home ownership. That capital fund is going to cover you when your renters tear up your home. When you have to fix stuff, right? When you’ve got to keep landscaping or if you can’t rent it for four months and you’ve got to still cover the mortgage on it. 

I’m sure there are some [readers] saying this happens with my clients and they’re not people of color. What I want to emphasize over and over again is that the wealth gap and the economic conditions compounds these issues within our community.

Something that is important in both of our lives and especially in the African American community is our religious beliefs. Tell us how that plays into money. 

So what institution historically has the most longevity in terms of organizational strength? The black church. Now we’re looking at several generations later where there is still some strong residual commitment to supporting the church. So the black church has been kind of the center of economic distribution—good or bad. It has supported people when society couldn’t really be there for them—whether it was helping them with rent, making sure they were fed, proving a place of refuge when the world was still saying you’re not welcomed here. So as a part of the biblical understanding of stewardship, I grew up with this understanding of you give to God first of your fruits and that really equated to 10 percent. So if you’re giving to God first and then yourself, you have to help people understand how to live off the remaining 90 percent when that 90 percent reflects a terrible income gap and a wage gap as well. So that cultural understanding of giving to the family and also giving to the church is a sensitivity that advisers have to be aware of when serving black clients.

This is where the f word comes into play: fiduciary. That means keeping your client’s best interests first. Our clients are telling us what their interests and what their goals are, and if you don’t have the cultural competency to understand that and take the deeper dive, then you’re not being that fiduciary that they need and deserve.

Rianka Dorsainvil

Rianka R. Dorsainvil, CFP® professional, is the founder and president of Your Greatest Contribution (YGC), a virtual, fee-only comprehensive financial planning firm dedicated to serving entrepreneurs, first-generation wealth builders and thriving professionals in their late 20s, 30s and 40s. She also hosts 2050 TrailBlazers, a podcast aimed to address the lack of diversity in the financial planning profession by engaging industry experts and leaders in conversation.


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5 Things to Know About Cultural Competence and Your Practice with Saundra Davis

Saundra DavisWe have officially kicked off season three of 2050 TrailBlazers with the theme money and culture. One taboo that transcends many cultures is talking about money. I recently sat down with Saundra Davis, MSFP, APFC®, FBS®, a world-traveled distinguished adjunct professor and financial coach with decades of experience, to have a deep discussion about various cultures and their lenses of money.

In our interview, Davis covered how to ask questions as financial planners or money coaches when working with a diverse client base. She also discussed different money values, and how planners and money coaches can stay in the mindset of curiosity to help our clients build their best financial lives.

What is your advice to the financial planners who want to work with a more diverse set of clients, but don’t know how?

Davis: This is why [financial] coaching is so crucial. Because as a coach, it doesn’t matter who I’m sitting next to because my first question—once we’re ready to look at their goal—is what do I need to know about this? What do I need to know about you? What do I need to know about what matters most to you? Once I lay that foundation, they don’t have to rattle off all their cultural stuff to me, it is going to come out.

And if I’m staying in the beginner’s mind and I’m staying with curiosity, if someone says, “Well, you know, I got to make sure that I cover my parents.” I would say, “OK, so tell me a little bit about that. What does taking care of your parents mean to you? What things are you willing to adjust to make sure that you do that?”

A comprehensive planner still has to look at that Monte Carlo [simulation], right? I don’t have that barrier, so I get to stay in that coaching seat. Whereas for you all, you have to balance those two things.

I would invite people to really make sure you truly make space in the beginning for people to say the things that are really important to them.

In other words, set very clear expectations up front with clients and hold them accountable to the promises they made to themselves. Is this accurate?

Davis: Absolutely. I often call it holding up the mirror. I’ll tell them, “Is what you’re doing getting you what you want, and is it congruent with what you say you want the desired outcome to be? Terrific. Keep doing that. If what you’re doing is not getting you what you want, what do you want to do differently and then how do I support you in figuring that out and then staying on task.”

You said that the client you’re sitting beside, and their culture, will determine how you approach various conversations. Tell us a little more about that.

Davis: The first thing is that I don’t make any assumptions and I don’t try to behave as though I understand what their experience is. I can empathize, but my experience is not the same.

I am a Black woman, born and raised in Northern California, and I have a very specific lens. If I’m dealing with a man from the South, I have to let him and his perspectives and his experience guide me in how I support him. I have to be able to hear what he has to say and listen for what’s important and then reflect back what I think I hear. That’s the most important thing—say, “So what I’m hearing is this. What did I miss?” Something that gives people permission to say, “You missed it completely,” or “You nailed it.”

Ask, “What are your top five values?” When we’re talking to people about their financial lives, there is nothing that doesn’t touch money, nothing. So how does money live in our lives? How do we live with it in our lives? If we’re pushing what we think is financial health … we have to do that in the context of what matters most to them.

Let’s talk about the difference between discovery of understanding and discovery of data, because those are two different meetings.

Davis: They are different, different things. And I would suggest not putting them together. The first discovery meeting is: Who are you? What do you want your life to look like? What are the things that influenced that? Describe the vision that you want to come out of this. How will you know we’ve got it? What is the best way for you and I to work together? What happens when you get stalled on the implementation of the plan? Who are the people we need to be thinking about in this mix? When you’re successful, what does it look like when you’re struggling? How will I know? What should I do when you’re struggling? The discovery is who we are together.

Then, once you’ve got that number one, the client now knows this isn’t just about my money. You’ve already sent a signal. Then you can say, all right, one of the things that’s important for you to know about my work as a planner is that there are some assumptions that I will have to make to make a good plan for you. And these are those assumptions. What do you think about this? Where am I wrong? Give yourself room to be wrong. Get them to correct you because what you’re getting out of that is their ownership.

As you mentioned, America is a beautiful melting pot—a mosaic. We’re going to be working with clients from different cultures. What are the top three major differences we should look out for?

Davis: I have had to learn—in traveling in and outside of this country—to not assume that my perceptions and my fears and my concerns about money are shared by other people. What I value or what I think is struggle isn’t necessarily struggle. What I think is a poor use of financial resources may not be a poor use of financial resources.

The idea that we have here in this country now about the side hustle makes me absolutely insane. The idea that people should be working all the time and always trying to make a dollar. I don’t think we’re thinking about what are we giving up—who’s raising our children, who is checking on our elders? Are we sitting out in the sun? We have to remember that our way isn’t always the best way and it certainly isn’t the only way. I would like to leave you with this: when we’re thinking about culture—whether it’s European culture, Latin American culture, South American, Africans on the continent, the different countries—let’s not predispose ourselves to a specific viewpoint that may or may not be accurate.

The more open that we can stay, the more free people will be to say, “Yeah, that’s not how I interpret it. That’s not going to get me the plan that I need. And I’m surely not going to execute it because it’s not my reality.” As professionals, if we can leave that space for people’s individual needs—whether it’s based on culture, whether it’s based on fear, money scripts, hopes, dreams, desires—they have the room to come through.

Editor’s note: This is an excerpt from Saundra Davis’ interview on the 2050 TrailBlazers podcast. Listen to the full episode.

Rianka Dorsainvil

Rianka R. Dorsainvil, CFP® professional is the founder and president of Your Greatest Contribution (YGC), a virtual, fee-only comprehensive financial planning firm dedicated to serving entrepreneurs, first-generation wealth builders and thriving professionals in their late 20s, 30s and 40s. She also hosts 2050 TrailBlazers, a podcast aimed to address the lack of diversity in the financial planning profession by engaging industry experts and leaders in conversation.


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Three Ways to Address the Lack of Adviser Diversity

The financial advice profession is objectively one of the least diverse professions in the United States. Many of us in the advice industry are painfully aware of this from an anecdotal perspective; one only needs to attend almost any industry function and simply scan the room for it to be clear.

The actual statistics are even more sobering. Of the more than 83,000 CFP® professionals in the U.S., less than 3.5 percent are black or Latino. Women enjoy somewhat better representation, at 23 percent. However, once you look at all advisers, not just CFP® professionals,  women only make up 16 percent of the total, and the black and Latino representation among all advisers is almost infinitesimal.

The reality is that advisers are a fairly homogenous bunch. With some exceptions, the average adviser is a 50-year-old white male, who likely began his career as a broker or insurance salesperson. In fact, the largest cohort of advisers is between the ages of 45-54. According to U.S. Census Bureau data, however, the average American is a woman, with a median age of 37, who makes around $47,000 annually. She also happens to live in a city (and leans Democratic, for what that’s worth).

Meanwhile, America, already a diverse nation, is becoming even more diverse. The Census Bureau projects that the U.S. will become a minority majority nation by 2043. Non-Hispanic whites will still be the largest single group, but no one group of people will have the majority. The implications of this should serve as a wake-up call to our profession. We need to be prepared to better serve the retirement planning needs of a much broader swath of Americans in the future. And it’s important to note that retirement planning needs have changed significantly, as most Americans no longer have pension plans to sustain them in retirement, and the median income is $60,000.

As such, these Americans are mostly unprepared for retirement, unfamiliar with investing and underserved from an advisory point of view. The Center for Retirement Research calculates a measure of retirement readiness, the National Retirement Risk Index (NRRI), which reports that 50 percent of Americans are at risk of declining living standards in retirement. These are people who desperately need to save for retirement, and currently have little in retirement savings. The majority of Americans need behavioral coaching around saving, financial planning and even basic personal finance assistance. There is most definitely a market for this type of advice; however, the reality is that this type of advice will not be anywhere near as lucrative as the high-net-worth individuals many advisers pursue today.

Coincident with the above is the fact that there happens to be fairly significant demographic changes taking place within the wealth management space. Almost 40 percent of advisers are expected to retire in the next 10 years, according to Cerulli Associates. Combined with the fact that over the next 20 years we will experience “the great wealth transfer”—the migration of assets from baby boomers to their heirs (most of whom do not currently have advisers) by 2022—the U.S. wealth management industry is likely to face a shortfall of at least 200,000 advisers.

The advisory practice of tomorrow is going to be very different than that of today. And the systemic changes described above just might help position the industry for the changes that I believe are necessary, including:

  1. Advisers becoming much less sales- and investing-oriented, and instead looking and feeling more like financial counselors, deploying soft skills such as emotional intelligence, empathy and compassion.
  2. Practices pivoting away from being profit-oriented toward being client-oriented.
  3. The profession embracing diversity and inclusion among advisers.

The question is how, and what are the practical steps we need to take in the meantime, as an industry, to ensure a more diverse adviser population positioned to serve an increasingly diverse population?

Recruit and Hire Purposefully

Too often, we hire from a rather closed network of friends and family, or even friends of friends and family, which directly contributes to the homogeneous culture we have today. Instead, we must make a conscious, purposeful decision to hire diverse candidates, and this commitment must come from the top and permeate the organization. Recruiting from historically black universities and colleges is a great start. Targeting appropriate affinity groups, professional networks and community associations is another way to identify diverse candidates.

Closely tied to a firm’s recruiting efforts is the overall messaging of the firm, which also needs to be consistent with a commitment to diversity and inclusion. Candidates will naturally review advisory firm websites, social media and communications before deciding to accept an offer, so firms need to ensure all internal and external communications and images align with the core commitment to diversity and inclusion.

Education is important, as well. Oftentimes, college and high school students simply do not realize that financial planning is a career option, or if they do, they view it as a hard-charging, Wall Street-type of role. It is critical for high schools and universities to offer classes in financial planning and/or financial literacy, and for industry leaders to do their part in enabling success for the next generation with programs such as the Envestnet Institute on Campus.

Rethink the Advisory Business Model

Technology must be incorporated in all areas of advisers’ practices in order to address the changing industry. From client acquisition and onboarding to aggregation to online meetings and scheduling, even elements of investment management. These practices will need to be automated in order for advisers to scale their practices and take on additional (perhaps lower margin) business. Independent RIAs with advanced technology integration generate around 50 percent more financial plans and investment proposals compared to their peers that don’t benefit from advanced integration. According to Envestnet-sponsored research from the Aite Group, this increased advice activity translates into a greater number of clients served by the practices (57 percent more), larger books of business (78 percent larger) and greater practice revenue/production (46 percent greater).

As many elements of the traditional advisory business model become commoditized, such as trading, asset allocation and even security selection, advisers must concentrate their efforts on higher-value—and more impactful—activities. They must do more with less and segment their clients appropriately. They must move away from providing advice on investments, and toward advice on life events, long-term goal planning, financial planning and relationship management. Everything else that is or has become commoditized must be automated.

For the more diverse adviser of tomorrow, this means supporting the industry’s move toward holistic financial wellness—an approach that incorporates all aspects of wealth management with less of a focus on pure investment management. Rather than relying on a data-driven approach to the handling of money, an increasingly diverse population of clients prefer a deeper focus on life goals for themselves and their families. This shift will attract advisers who care more about making financial wellness a reality and who respect the differences in communication styles when it comes to helping clients reach their goals.

Modify Compensation Approach

The way advisory firms are structured today from a compensation standpoint provides a self-selecting mechanism for hiring talent, which also contributes to the current lack of diversity. On the matter of hiring and onboarding practices, there is an emphasis on bringing in candidates who already have a strong network of potential clients. In fact, a vast majority of hiring professionals (86 percent) are looking for prospects who can bring in clients right away, according to CFP Board research.

This has a twofold effect of bringing into the firm primarily sales-focused individuals, and discouraging candidates who do not have friends and family with substantial-enough savings. Instead, firms can institute a team-based salary and bonus framework that would incentivize service, client retention and bringing in any new business, not just large books of business.

With a compensation strategy that includes a team-based incentive, firms reward everyone involved in the client relationship, with a scaled reward structure based on the level of personal contribution. That way, the need for financial security for all team members is addressed, and the team is motivated to work together and deliver strong results.

Conclusion

There are both aspirational and practical reasons to champion diversity. We should want every industry, including wealth management, to be diverse, because it’s simply the right thing to do. But also, countless studies have shown that diversity—of culture, gender, race, background, thought and more—objectively leads to better outcomes across the board. In order to ensure our industry thrives amid all the changes ahead, we must all do our part to enable and create a diverse, vibrant workforce.

Estee Jimerson

Estee Jimerson is the managing director, head of asset manager distribution at Envestnet.