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Why Diversity In Finance & Business Matter

Forbes EQ

Whether it was redlining, disproportionate denials of business loans or being charged higher interest rates, Black Americans often have been marginalized within our financial ecosystem.

But as we strive to build a more inclusive economy, it’s critical for financial institutions to nurture greater inclusion within their own ranks. Embracing diversity is now paramount for any business that wants to drive growth, win the talent war and foster better customer relationships.

For financial institutions, it’s also vital that their organizations better reflect the communities they serve. Financial companies don’t just need to embrace diversity for diversity’s sake, they must move in this direction to future-proof their business. Here’s why.

The Current Diversity Landscape in Finance

Diversity is slowly growing in the financial industry, but not fast enough. The number of Black and Latino certified financial planners (CFPs) grew by nearly 13% between 2019 and 2020, but Black professionals still only account for slightly less than 2% of all CFPs. In accounting, representation is a bit better. Black men and women make up 8.5% of certified public accountants, while there are only 37 black-owned investment and asset management firms, according to a 2021 analysis by ABFE, a membership-based philanthropic organization focused on Black communities.

Several factors contribute to this lack of representation, one of which may be a chicken-and-egg syndrome. Underrepresentation in financial fields may contribute to less awareness of the financial profession as a viable career pathway for marginalized groups. There also could be more outreach to Black students and youth, whether via public-private partnerships and mentorship programs or via paid internship and other pipeline programs. One survey of minority financial professionals found that a lack of support, opportunities and mentorship were the main reasons for underrepresentation in the field.

America will become a majority-minority country within the next 25 years. The Black population also is expected to grow by nearly 70% by 2050. Therefore, financial firms and businesses of all stripes would be wise to make diversity, equity and inclusion (DEI) an integral part of how they do business.

Why Diversity Matters in Finance

Diversity can be a significant growth driver for financial services companies and institutions.

There’s a growing Black middle class, with some of these households earning six figures and above. They need access to financial services providers and professionals who understand their unique challenges when it comes to economic mobility, wealth building and wealth transfer. Black buying power will grow to a projected $1.8 trillion by 2024, and research indicates Black consumers are more likely than any other group to align their spending with their values. They also prefer to patronize companies that support racial equity, according to Nielsen research.

Diversity affects performance and revenue, too. A comprehensive literature review by the Center for Financial Planning (CFP) Board found companies with lower levels of racial diversity earn nearly 15 times less in revenue than those with high levels of racial diversity.

But diversity isn’t just important for future growth and better customer service, it’s critical for improved talent management and innovation. Organizations that embrace diversity often spend less time recruiting talent because they are drawing from a wider applicant pool with more diverse capabilities and perspectives. They’re also better at retaining talent. According to the CFP Board’s review, employees that work for diverse firms are often happier than those who don’t. This high level of employee engagement also correlates to a faster recruiting cycle and greater profitability at these firms. Think about it this way: there’s an opportunity cost to high turnover. Firms that constantly exert a lot of energy and resources to recruitment and retention can’t effectively direct these same resources to strategic initiatives that drive growth. Lack of diversity has both tangible and intangible costs — and this one of them.

Diversity also generates more creative capital within organizations. Diverse teams are higher performing and often come up with more innovative ideas. A diverse group of less experienced professionals even outperforms homogenous, more experienced teams, the research review found.

Diversity matters in all ways — and always — to the future of business. If the finance industry wants to better reflect a growing, diverse population, it needs to become more inclusive, especially at the top levels of leadership. Financial firms need to actively engage the Black community, whether that means cultivating partnerships with historically black colleges and institutions, workforce development organizations, or professional organizations like NABA Inc. The future will be won by organizations who don’t just virtue signal when it comes to diversity, but deeply understand that diversity is core to their competitive advantage.