In the final installment of the MIT AgeLab’s Aging and Equity virtual presentation series, Dr. Miranda Reiter, Assistant Professor of Financial Planning at Texas Tech University, described the relationship between the financial planning industry and the racial wealth gap, as well as steps the industry could take to help lessen economic racial disparities.
Nonwhite, and especially Black, populations, she explained, are underrepresented both among financial professionals in the US as well as their clients. Much of the reason why has to do with centuries of exclusion from opportunities to build intergenerational wealth: the cumulative result of slavery, redlining, unfair mortgage lending practices, excessive incarceration, and other unjust and exclusionary factors. “At current rates, Dr. Reiter said, “it would take 223 years for Black families, and 83 years for Latinx families to catch up to White families’ levels of wealth, according to research from Prosperity Now and the Institute for Policy Studies (2016).
Making matters worse is the unequal utilization of financial services by historically marginalized groups. Dr. Reiter suggested five steps financial planning professionals can take to provide more clients of color with the benefits associated with sound financial planning. These include:
1: Being aware and acting intentionally about inequities in financial planning
2: Attracting diversity into one’s practice or firm
3: Developing the competency and flexibility to speak to economic and cultural differences across communities
4: Adopting a more inclusive fee structure, including by finding alternatives to the standard Asset Under Management (AUM) structure, such as monthly fees or Laddered AUM
5: Giving back and educating. Groups excluded from financial wealth building can benefit greatly from pro-bono education and advice.
By adopting such practices, Dr. Reiter explained, the financial advisory industry can add to the strides has made toward equity and inclusion in the past several years.