Here’s why the personal finance industry needs more black financial planners [Video]
Certified financial planners undergo rigorous training to offer financial advice to their clients and CFPs are often considered the gold standard for financial planners.
But very few are black.
According to the CFP board, certified black financial planners make up just 1.8% of certified financial planners, or just 1,652 out of a total of 92,000.
Many barriers prevent Black financial planners from applying for certification, which ultimately hurts many Black Americans who may be less likely to seek out financial planners who don’t understand their unique financial needs or experiences.
“I want to be a financial planner for the rest of us,” said Lazetta Rainey Braxton, CFP and president of 2050 Wealth Partners. “I have black clients who are often first-generation wealth builders who are part of the sandwich generation looking after parents and children.”
To become a certified financial planner, there are a series of steps to follow. Candidates must have a bachelor’s degree in any field and take the CFP Board courses, after which CFP candidates can take the test.
The 10-hour pass/fail CFP test has 170 multiple-choice questions and is offered three times a year in March, July and November. The pass rate for the test is just 58% as of November 2021, according to the CFP Board, and the standard registration fee for the test is $825, which can be prohibitive for many black applicants.
“Being able to have the time and resources to pass the exam is very difficult,” said James Brewer, CFP, the founder of Envision Wealth Planning. “We don’t need an easier test, we need to help people pass the test.”
Additionally, CFPs must complete 6,000 hours of professional financial planning or 4,000 hours of apprenticeship experience, which can take up to three years.
“It’s a tough profession,” Brewer said. “Before becoming a CFP, I need you to believe in me enough to invest your money. Few black CFPs have friends with $250,000 to invest with them.
Braxton agrees that commitment, lack of pay and professional relationships during the three-year work experience requirement may prevent black students from applying to become CFPs.
“Gaining three years of experience in the field can also be a challenge. You pass the test, and then you have to find people who will train you to get certified,” Braxton said. “How do you get the experience when you need a network?”
Black CFPs can help more diverse financial planning clients
The Federal Reserve found the median net worth of blacks to be $24,100, just a fraction of the wealth of whites at $142,500. Due to the systemic barriers they face, Black Americans are often excluded from building financial security. A black CFP who understands the challenges they face overcomes them better.
“I want to serve underserved populations. When I talk to people, I can get into their stories,” Brewer said, noting that minority customers often tell her, “I’m glad I met you.
Black customers may have cultural differences when it comes to money that make black CFPs easy to empathize with customers while advising them, Brewer said.
“They can support their whole family. For black people, there’s a cultural expectation that we’ve got to have the ride, we’ve got to have the clothes, we’ve got to live in a neighborhood that puts us in debt,” Brewer said.
Braxton also reaches out to black clients who lack the generational wealth of white clients and are often overlooked by other financial planners. She also advises black CFPs to offer seminars to teach potential black clients about financial planning.
Not only do black clients need financial planning from CFPs they can relate to, but Brewer also noted that clients of all races can benefit from having financial planners from diverse backgrounds. For example, many white customers sought out Brewer after the 2020 racial reckoning that began after the murder of George Floyd.
“There was a post-George Floyd movement. I’ve seen an increasing number of people looking for an African-American financial advisor,” Brewer said.
Progress has been made, but more changes are needed to add more black CFPs
The field of certified financial planning enhances its diversity with Kamila Elliott, the first black chair of the CFP Board of Standards.
Although there are a small number of black CFPs, there has been a 10% increase in 2021. The CFP is also adding diversity and inclusion programs to inspire more minority students to consider careers in financial planning.
Brewer noted that there is still a cultural bias that needs to be addressed when customers imagine what a CFP looks like — white and black customers — the latter of which may be more risk averse and take longer to build trust.
“I walk into the room and customers are often surprised to see a CFP that looks like me,” Brewer said. “Black clients may find it difficult to build trust with me because I give them advice that may be counter-intuitive to the financial advice they’ve received from other advisors.”
Brewer said while it’s tough for black CFPs, the field is worth entering once they have resources. He recommends that black students take finance courses at university and intern at financial planning firms to gain knowledge about the profession.
He also recommends candidates take the CFP test after graduating from undergrad to ensure they don’t regret investing three years in the profession while in college. He advises prospective CFPs to work as a Registered Investment Advisor so they can earn money while going through the CFP process. They should also join the Association of African-American Financial Advisors organization to find industry mentors.
Braxton also wants the industry to have more outreach programs to attract more black CFPs.
“I’ve seen quite a bit of scholarship, especially with the CFP board having conversations with some of the financial companies,” Braxton said. “I appreciate more publicity with people of color so you can see what you can be.”
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