Advisors Must Help Reduce the Black-White Wealth Gap: RIA Exec

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Financial advisors have a role to play in helping reduce the wealth gap between Black and white families, according to a report from registered investment advisor firm Abacus Wealth Partners.

Earning, spending and housing are the greatest contributors — more than half, or 58.5% — to the wealth gap between white and Black families, according to the report published in June.

A fourth, or 25.6%, is due to 401(k) participation and 11% is due to asset allocation. Other contributors to the wealth gap are appreciation and interest rates (2.7%) and inheritance (1.5%).

“Contrary to much work about the importance of inheritance, the combination of incomes, savings rates and asset allocations have a much greater impact on the racial wealth gap,” the report states.

Financial firms should consider doing pro bono work with Black families to help close the wealth gap, according to Kamila Elliott, one of the Abacus Wealth Partners report’s authors.

Kamila Elliott

For example, firms can look for opportunities with the Foundation for Financial Planning or participate in Volunteer Income Tax Assistance, she said last week at the CFP Board’s 2021 Virtual Diversity Summit and Career Fair.

“Many Black households are excluded from standard professional financial planning. Many firms may have account minimums and things of that nature where they are prevented from accessing individuals like ourselves,” said Elliott, who is president of registered investment advisor firm Grid 202 Partners and chair-elect of CFP Board’s board of directors.

“Thinking about pro bono work and the support we can provide is important,” she added.

Elliott said firms should review their client books to understand how diverse their clients are and evaluate how they can focus on communities of color in their marketing of their services.

Firms should also examine their internal diversity to ensure that they “have the cultural competencies to serve Black households,” Elliott said.

She suggested firms work with the BLX Internship Program, an internship program for aspiring Black and Latinx financial planners, and the Association of African American Financial Advisors to help diversify their talent.

The Abacus Wealth Partners report lays out five pieces of financial advice that advisors can provide Black families. These include:

  • Attending a not-for-profit college or a vocational or trade school;
  • Opening a checking account for direct deposit;
  • Opening a retirement account as soon as possible and contributing at least as much as an employer will match;
  • Investing in low-cost stock index funds or a target-date fund; and
  • Using credit cards sparingly, paying off credit card balances each month or opting for a debit card instead.

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