Why Financial Advisory Firms Need to Embrace Corporate Social Responsibility
Black History Month in February; Women’s History Month, here and now, in March. If you’ve spent any time recently on major social media platforms, you’ve almost certainly seen an abundance of companies of all shapes and sizes recognize and reflect the diverse communities we inhabit and serve. Rightfully so.
In 2020, we wrote about how to “Take Action to Create More Diverse and Inclusive Teams,” noting: Wealth management is among the least diverse industries in America. According to the Government Accountability Office, less than 20% of financial advisors are people of color. Later in 2020, we covered the gender and generational gaps in wealth management in “Why Women and Millennials Are Essential to the Future of Financial Advice,” noting some of the stats illustrating similar gaps in the investor or client experience. In the latter, we posed the question: “Is the Pandemic Breaking Down Demographic Barriers?”
The data have certainly changed in the nearly two years since, whether for wealth management participation in Diversity, Equity and Inclusion (DEI) initiatives or investors’ experiences as women or millennials in accessing independent, fiduciary financial advice. But what’s becoming clearer by the day is that Corporate Social Responsibility is no longer a buzzword or marketing ploy, but rather a way of doing business in a post-pandemic world (related reading – How Advisors Are Becoming Mission-Driven and Value Led in 2021).
On the investment side, interest in ESG portfolios has taken off, with tools and communities rising to catch up to bubbling investor demand. According to the Harvard Law School Forum on Corporate Governance, “Inflows into ESG funds continued to grow in 2021, surpassing 2020’s total inflows of $51.1 billion before the end of Q3 in 2021. Current assessments estimate that there are more than $330 billion in assets under management in ESG funds, with the creation of more ESG funds expected in 2022.”
Though Climate and Green Energy are at the top of most strategies, many of the ESG standards touch on Corporate Social Responsibility in the screens for community investment, consumer protections, corporate governance, diversity and employment, employee relations and labor practices, and executive compensation.
On the business structure side, there was a 38% increase during 2020-2021 in the number of Certified B-Corporation submissions from 2018-2019. In other words, there was a big increase in the number of companies willing to make a legal commitment in their corporate governance structures and measuring their societal impact. Talk about living your core values, right?
Closer to home, in the wealth management space, there’s been an influx of mission-led professional networks and communities racing to address many of the gaps across gender, race and identity:
- CFP Diversity Summits
- Dimensional Women and Wealth Community
- FPA Diverse Member Communities
- FPA Women and Finance Knowledge Circles
- NAPFA DiversiFi Community
- NAPFA Women’s Initiative
Are you looking to improve diversity, equity, and inclusion within your organization? Here are a few resources to get you thinking:
- CFP Board – How Successful Firms Put Diversity in Action
- CFP Board – Metrics that Matter: Best Practices from Diversity, Equity and Inclusion Practitioners and Academics
- CFA Institute (PDF) – DIVERSITY, EQUITY, AND INCLUSION CODE
- Financial Planning Association: Networking – Diversity, Equity, and Inclusion
- Morningstar (login required): The Case for Real DEI in Your Advisory Business
At Beyond AUM, we are consistently impressed and inspired by the individuals and firms leading the financial services industry, and look forward to supporting them as they continue to take on these kinds of initiatives. Are you doing something in the DEI space? We’d love to hear about it.