Cultural competency: How advisors can gain

Shelly Gigante

By Shelly Gigante
Shelly Gigante specializes in personal finance issues. Her work has appeared in a variety of publications and news websites.
Posted on Jun 6, 2017

Cultural competency, once just a buzzword in the financial planning industry, is now considered a best practice among advisors who live and work in diverse communities.

Indeed, as the racial make-up of America shifts, financial advisors can no longer afford to focus on investment returns alone. To connect with a multicultural clientele and build their book of business, advisors must become versed in how the customs and ideals of various ethnic groups potentially color their relationship with money. They must also cultivate communication skills that invite dialogue about their clients’ life experience.

“If you just talk about numbers, you’re not going to get to know the person, their family, culture or community,” said Diane Manuel, an African American advisor with Urban Wealth Management in a suburb of Los Angeles, California, a firm which caters to a diverse clientele. “When you get to know their story and what matters to them, that really allows you to be the best advisor possible.”

One’s values surrounding money, she said, are often a complex byproduct of their family upbringing, age, ethnic background, race, gender and sexual identity/orientation.

Some, for example, may not feel comfortable investing in the stock market, said Manuel, particularly immigrants from largely cash-based countries. “One of my clients told me their parents came over from Cuba carrying gold in their sock and that’s all they had, so the concept of investing in the stock market is completely foreign to them,” said Manuel. “It’s not tangible.”

Others, including older generations and certain Asian cultures, do not like to discuss life insurance or estate planning tools, believing it may bring about bad luck.

Similarly, advisors who work with African American clients should be aware that religious conviction may be a dominant factor in their financial decision-making, said Crystal Alford-Cooper, owner of Davita Financial Planning in Savage, Maryland and president of the Association of African American Financial Advisors. “Our culture tends to be very faith-based, so you might meet with a client who is experiencing financial challenges, but because of their faith and culture they tithe (give 10 percent of their income) to their church before they pay their rent or mortgage,” she said. “If your first comment is that they should donate less to the church, you’ve lost them.”

Indeed, the role of the advisor is not to judge or dictate, but offer solutions to help clients meet their stated goals. “To the couple who is willing to sacrifice their own retirement to fund their children’s education, you show them what the possibilities are, how their decisions will potentially impact their future and offer a few alternatives,” said Alford-Cooper, noting well-intentioned parents sometimes forget their kids can apply for low-interest loans and potentially secure grants and scholarships. “Our job is to lay everything out in front of them, but ultimately the decision for how they spend their money is theirs.”

A Predominantly Caucasian, Male Industry

The need for cultural competency is significant in the financial advisory industry, said Alford-Cooper, which is overwhelmingly dominated by Caucasian males.

More than 79 percent of the 434,000 financial advisors in the U.S. are Caucasian, according to independent research from Investment News, using U.S. Census data. The study also found that the financial advisory industry includes fewer minority professionals than any other financial service industry, including financial analysts, accounting, and tax preparation.1

The tide, however, may be changing, according to Investment News, which found FAs under age 55 are more racially diverse than those age 55 and older. And, a plurality of those surveyed in 2016 say they openly encourage change. Nearly 42 percent, for example, agreed that the lack of diversity is a problem for the industry.

At present, the FA demographic does not reflect the population at large, a divide that may become more pronounced in the years ahead.

According to Census Bureau data, those who identify as non-Hispanic white currently represent the “majority” group in America, as it is both the largest racial and ethnic group, accounting for more than a 50 percent share of the nation’s total population. By 2044, however, this group will comprise less than half of the nation’s total population. And, by 2060, non-Hispanic whites will comprise roughly 44 percent of the population, at which point nearly one in five of the nation’s total population is projected to be foreign born.2

Early adopters of cultural competency skills, who establish relationships based on trust, have much to gain.

According to MassMutual’s College Planning & Saving Study, released in late May, the results from multicultural families revealed that fewer than half (40 percent) of parents/guardians say they currently have a professional financial planner, ranging from a high of 47% among African Americans to a low of 28% among Korean American respondents.

“There is still a lot of money being left on the table (by financial advisors who fail to reach out across cultural lines),” said Alford-Cooper. “If you recognize a need, you can then be proactive about engaging those clients.”

Making Clients Feel ‘Heard’

Some strategies for initiating contact with multicultural clients, however, are more effective than others.

Respondents to the MassMutual survey from a cross-section of ethnic groups suggested several ways that financial advisors could provide information about college saving and planning. Websites with articles, videos, tools and calculators may be most effective, as the Internet was their chief source of information on matters pertaining to college financial planning. Notably, however, they also suggested that financial planners take advantage of in-person opportunities, by participating in community events, visiting Parent Teacher Association (PTA) meetings at local schools to provide consumer education information, and conducting local seminars at community centers.

To be effective, however, such marketing moves must be authentic, said Steve Branton, an advisor with Mosaic Financial Partners in San Francisco, California.

Rather than posting pictures on their web site of same-sex couples, in a bid to demonstrate inclusion, for example, his firm donates to organizations that support their community – such as the Horizons Foundation. They also attend galas and other events for local LGBT groups, inviting clients to come as their guest.

“We have a large number of clients who are LGBT couples and/or Jewish, and in any practice the danger is that an advisor might say something like, ‘I have a Jewish friend,” or “I have a gay neighbor in my building,” which is done to make the client feel at ease, but it ends up making everyone feel awkward,” said Branton. “Our approach was to donate to various organizations and get involved.”

The firm might mention their participation in a monthly newsletter or email-blast, but they don’t make it a headline.

“There’s an opportunity there to build out your marketing plan and Internet presence in a way that shows the demographic you want to reach that you’re doing something meaningful, not just surfacy,” he said, noting such outreach initiatives yield a secondary benefit as well. “You learn a lot about the culture as you interact with members of that community, so when you meet with your clients it helps to deepen that connection.”

Diversity is America’s greatest asset, inviting a more robust exchange of ideas, beliefs and values.

Advisors who take the time to engage minority groups in their community – and leave stereotypes at the door – have a unique opportunity to cultivate cultural competency and differentiate themselves in the market.

“Most financial planners are really in this business to help people,” said Branton. “If we really want to do that we need to spend the time and energy to get into our client’s shoes; to make them feel more comfortable.”

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InvestmentNews, “A Diversity Problem,” 2015.

Census Bureau, “Projections of the Size and Composition of the U.S. Population: 2014-2060,” 2015.

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.