A quickly growing minority population in the United States presents significant opportunities for financial advisors.
Currently, approximately 17% of the population in the U.S. is Hispanic, just over 13% is African-American and 5% is Asian. But by 2060 the U.S. Census Bureau projects that Hispanics will account for 31% of the population. The Asian population is expected to grow to about 8% and African-Americans will make up 14.7% of the population. That represents a significant demographic shift.
Advisors looking to tap these segments of the population will need to understand the unique investments views and needs of each group and tailor their services accordingly to successfully cater to this expanding base of potential clients.
A white paper by Spectrem Group, entitled Marketing Wealth Management to Ethnic Investors, provides insight into wealthy or affluent African-American, Hispanic and Asian investors. It highlights the differences between these three groups compared to all other investors in terms of their perceived investment knowledge and advisor dependency. (For more, see: Trends Challenging Financial Advisors.)
The study found that 80% of non-minority investors consider themselves either fairly knowledgeable or very knowledgeable about financial products and investments. African-American investors clocked the same percentage, although only 17% consider themselves very knowledgeable compared to 23% of the non-minority investor group. (For related reading, see: A Financial Advisor's Guide to Millennial Clients.)
Only 75% of affluent or wealthy Asian investors and 66% of Hispanic investors consider themselves either fairly knowledgeable or very knowledgeable when it comes to investments. Twenty-two percent of Asian investors and 16% of Hispanic investors consider themselves very knowledgeable.
Dependency on Advisors
Minority investors are less likely to use financial advisors. The study found that 41% of Asian investors consider themselves self-directed, meaning they make all of their investment decisions without an advisor. Thirty-six percent of Hispanics and African-Americans are self-directed, compared to 32% of non-minority investors. Many of the investors surveyed do not believe they have a portfolio that requires an advisor, others do not want to pay advisor fees, while some think they can outperform advisors. (For more, see: Why the Best Financial Advisor Might Be You.)
Wealthy or affluent minority investors are also less likely to use an advisor to make all investment decisions on their behalf. Just 4% of African-Americans, 8% of Asians and 9% of Hispanic investors are advisor dependent, which means an advisor handles most or all investment decisions. This compares to 13% of non-minority investors.
Minority investors also have less confidence in their advisor’s ability to understand their risk tolerance. Eighty-eight percent of non-minority investors believe their advisor understands their appetite for risk, compared to 65% of Asians, 73% of African-Americans and 74% of Hispanics. (For related reading, see: What Women Want from a Financial Advisor.)
Minority investors tend to be less satisfied with their financial advisors. Hispanic investors are the most satisfied (67%), followed by African-Americans (55%) and Asians (42%). This compares to 75% of all other investors.
Affluent minority investors are much less likely to be retired than the general population. About four in ten African-Americans are retired versus 52% of non-minority affluent investors. The gap widens among Asian investors where 35% are retired and only 27% of Hispanics.
Spectrem points out that minority households tend to be younger. This means opportunity for financial advisors as younger households still have many financial decisions to make, with planning for retirement being one of the most important. (For related reading, see: How Young Investors Can Avoid Financial Pitfalls.)
While Americans of all races face challenges when saving enough for retirement, this problem is far greater for African-American and Hispanic households. The study cites a 2013 National Institute on Retirement Security report that found that less than half of African-American and Hispanic workers have workplace retirement plans and that their average retirement account balances were four times less than those of the white population.
Marketing to Minorities
The research suggests that financial advisors looking to market their services to minorities should proactively reach out to them in a non-aggressive manner. It points out that the most important wealth management services among minorities is comprehensive financial planning and investment planning and emphasizes understanding their risk tolerance. (For more, see: 6 Essential Marketing Tips for Financial Advisors.)
It further breaks down what advisors should keep in mind when marketing or offering their investment services to prospects or existing clients in one or all of these communities.
- Tend to be very conservative investors
- Slightly less confident than other segments
- More likely to use several advisors versus one or two
- Have a greater allocation to fixed income than other minorities
- Most likely to use a financial advisor
- Most likely to still be working and not retired
- Greater chance of having received retirement planning advice from their advisor
- More dependent on advisors
- Greater allocation to alternative investments than other minorities
- Most likely to be self-directed
- Have a greater risk tolerance
- Have a more tentative relationship with financial advisors
- Most knowledgeable about financial products and investments
- Less likely to receive comprehensive financial planning
The Bottom Line
A growing minority population presents opportunities for financial advisors. In order to successfully court and cater to this segment of the population advisors will need to understand the unique investment views and needs of each group. (For related reading, see: A Look at Advisors Serving Niche Clients.)