I have been reflecting on the plight of African American wealth and wondering whether or not an African-American financial advisor as part of the solution. Yes I am an African-American financial advisor so I may be biased. I have found that no matter the race of my client, by finding a shared experience I am able to explain complex financial concepts as well is calm their fears regarding their financial life.
National Institute on Retirement Security (NIRS) published Race and Retirement Insecurity in the United States in 2013 highlighting racial disparities in retirement readiness. I wrote a blog on my sister site entitled African American retirement divided we fall. I believe that I have unique insights into this plight. None of my blood family had any specific education in retirement planning. They were not blessed with a transfer of wealth from their parents. In fact they were happy to have survived Jim Crow.
Fortunately my parents were blessed to both have pensions from the firms they work from along with Social Security. Some of their family members were not so blessed and never received a Social Security check for the years they had worked. Many Black people are aware of the higher mortality rates for Blacks in figure why should I save. If I make it that long I’ll collect Social Security. This is further cemented in their minds is we’ve seen so many high profile cases of violence against black men.
That being said, all of our futures are uncertain. My dad made it to 83; his brother to 90. The majority of their family died in their 50s or younger. For that reason it’s wise to believe there’s a chance you will live to see a day where you won’t be working. Depending upon your level of wealth you may call that financial freedom or retirement. Most African-American financial advisors I talk to, have similar life stories to mine. I believe this is an asset when counseling African-American clients and prospects.
Many Black people have had a bad experience with the financial services industry or are aware of the bad experience of others. Many have been unable to get loans or found themselves paying higher interest rates based on their color. While they may have been able to navigate these issues, they have often been targets of some type of financial scam. Predatory lending is a term often associated with communities of color. One study cited in the report noted that fewer than one in four African Americans who were in the top quartile of black wealth holders in 1984, remained there in 2004. The report also cited a study that found that black business owners received bank loans with less frequency, of smaller size and at higher interest rates than white-owned companies. 1
It’s not surprising then that according to research by Prudential 2 and ING 3 , Blacks tend to be more conservative investors than whites. Even wealthy African-Americans are much more conservative with their savings than whites with similar finances. A study done by Credit Suisse in conjunction with the Institute on Assets and Social Policy at Brandeis University, found that the wealthiest 5 percent of African Americans—those with a net worth of $357,000 or better–pour a greater share of their holdings into relatively low-risk, low-reward investment vehicles, such as certificates of deposit, saving bonds, and insurance policies, rather than stocks, bonds and mutual funds, investing more of their money in cash and savings bonds. 4
It’s hard to trust something you don’t understand. A survey noted a major barrier to maximizing defined contribution participation is the lack of education about how these plans work. My experience with an African-American woman that works for a nationally known hospital illustrates. For about a decade she had invested her 401(k) money in a money market. She trusted my counsel to invest in a balanced stock and bond portfolio. On a separate occasion I discovered she didn’t even know what a stock or bond was. How do we ask people to trust and investing their hard-earned money if they don’t understand the building blocks of 401(k) investments?
Many African-American youth look to sports and entertainment as a way to become wealthy. Unfortunately high income does not always translate into wealth. Many who’ve achieved great incomes have lost them because they had no education on evaluating the risks of their spending or investments. It inflames me every time I hear of another story of an athlete who has been taken advantage of by a financial professional. Many of the people came recommended by someone who might’ve been well-meaning, but was incapable of properly vetting their expertise and if they were worthy of trust .
I believe an African-American advisor can understand the pressures that many of these young people are under and trying to help their families get out of “the hood”. Many of gone without their whole lives and overspend this newfound income at the expense of their future. What about their friends were not so lucky to be physically gifted. If their high school, church or college didn’t teach them, where will they learn? Who will teach?
I’m proud to say that I am a member of the Association of African-American Financial Advisors. Currently few in number, I hope to see the numbers of African-American financial advisors grow. In 2000 while pursuing my MBA at MIT I was asked why there weren’t more black students pursuing careers in Finance. My answer was that there simply was a lack of exposure.
Like advice to the masses, the advice and education must be unbiased and independent of products being purchased. All African American advisors are not independent. Many sell one thing- life insurance. While an important part of a well-rounded financial plan, it is not everything. Certain financial professionals like a CERTIFIED FINANACIAL PLANNER™ professional or an investment advisor representative are obligated to work in their client’s sole interest. A CFP® has passed a completed coursework in the areas of insurance (risk management), retirement planning, tax planning, investment planning and estate planning. Their skills have been validated by passing a grueling two day comprehensive exam.
If you’d like to know more or work on an education program to reverse the results. Google African American Financial Advisors or contact us.