It is high time to diversify the financial services sector
Last month, philanthropist Mackenzie Scott announced her largest donation ever: $436 million to Habitat for Humanity. Giving of this magnitude has made Scott one of the most visible philanthropists in the world, but our hyper-focus on his individual giving obscures the changing face of philanthropy and keeps white donors at the center of the field.
The world of money, from philanthropy to wealth management and financial planning, is not subject to change or diversity. America’s most visible philanthropists are mostly white men, as are the people responsible for managing their money, despite America’s communities of color growing in size and political, financial and cultural power. Yet philanthropic and financial institutions do not reflect these changes.
Last year, the Certified Financial Planner (CFP) standards board found that 83% of CFPs were white and 77% were men. By comparison, black Americans made up just 2% of the industry, while Hispanic Americans made up 3% and Asian Americans and Pacific Islanders (AAPI) 4%. Worse, this is considered diverse for the US financial planning industry. Between 2020 and 2021, the number of black financial planners increased by 10% and 15% more Hispanic CFPs entered the workforce. While any sign of diversity is encouraging, 9% CFP of color is no cause for celebration. It is a challenge for America to do better.
While Black, Hispanic, and AAPI CFPs remain rare, the influence and wealth of BIPOC communities is growing year by year. As a result, people of color now have the funds to invest in philanthropy that they did not have before. This is an important opportunity for the United States to change the field of philanthropy; and if we don’t reform America’s financial industries to better support this growing class of donors, we risk losing them. Too often, philanthropists of color are tokenized — or not represented at all — on the boards of nonprofit organizations and donor networks, with significant implications for what gets funded and who gets hired.
With support from the Donors of Color Network, I recently interviewed 113 wealthy people of color in the United States to find out where and how they donated their money. One pair of respondents was an African American couple who are active members of the community in their town. Although he has worked with several local nonprofits, the executive director of one organization passed them by for a fundraising event when they offered to help: the director assumed their house n was not big enough for the event and asked for donations based on their financial capacity. This couple lives in one of America’s wealthiest ZIP codes, sent all of their children to private schools and worked at a marquee American company during their decades-long career. The nonprofit organization missed the opportunity to deepen a critical relationship.
Changing this culture requires reform within nonprofit organizations, but the fields of wealth management and financial planning can also be part of the solution. By appointing more people of color to their own boards and leadership positions, these companies can shift their strategic priorities, hire more CFPs of color, and in turn, better understand donors of color.
The need for new ideas and new faces in the field of philanthropy cannot be underestimated. With racist activities like voter suppression, book bans, and hate crimes on the rise, the values that were meant to set America apart — equality, fairness, and justice — are at stake like never before. Protecting them means investing in new solutions from donors of color who have the life experience and vision we need. The more we support donors of color, the more results we will see in advancing social justice.
This is not just wishful thinking. Our donor survey findings reinforced what I already suspected: donors of color have the power to shake up the world of philanthropy and fix the broken institutions that are holding our country back.
Let’s start with where BIPOC donors put their money. Our conversations revealed that donors of color are generous donors, giving between $4,000 and $17 million each year. Together, annual donations from those surveyed totaled $56 million. When asked to rank their giving, the majority of donors cited education as their top philanthropic priority, followed closely by racial and social justice.
This ranking is important. As American racial and social justice activists will attest, organizations in their field are vastly underfunded by the mainstream philanthropic sector. From 2017 to 2019, for example, only 10% of the $14 billion given to racial equity initiatives funded by K-12 education, and less than 1% went to policy change, civic engagement and policy advocacy.
We need to do better, and empowering donors of color is the first step. Already, 31% of Asian American households and 19% of Black households gave to racial and social justice causes in 2020. By comparison, white families gave just 13%. Our research also revealed that BIPOC donations are neither episodic nor a response to times of crisis. It is a steady and sustained giving, born out of a life of racial discrimination.
Currently, our country’s major financial service providers are depriving this committed and growing class of donors of the institutional support and services they deserve. Like any wealthy person, donors of color need support to manage their philanthropic giving, but not the support of a financial planner. They need someone who understands the BIPOC experience, what it looks like, what it looks like, and how it affects generations of Americans. The key idea of this research is: you can’t fundraise or develop business relationships with people you don’t see.
If we want to see America reach its full potential, we must rethink hiring, promotion, retirement, and retention practices in financial planning, wealth management, asset management, and other related fields. . At the same time, we must learn to support an increasingly diverse and complex group of donors so that they have the resources to succeed.
Engaging wealthy people of color as donors, philanthropists, clients and customers is no longer optional. The financial services industry may encounter this moment, but it will require careful consideration of who sits in C-suites and on corporate boards. These changes will both streamline charitable giving from philanthropists and attract more donors of color to the financial services industry, setting off a chain reaction that benefits everyone. It will take a lot of work, but by prioritizing these changes, the financial planning industry has the power to change what philanthropy and our country look like.
Hali Lee is the lead author of Philanthropy Always Looks Like Someone Else: A Portrait of Wealthy People of Color. Hali is also a founding partner of Radiant Strategies, a boutique consultancy that aims to change the subject of philanthropy.