The racial wealth gap exists; this is patently clear. But what are the reasons behind it, and how can the financial services industry help to close this gap?
According to a report by Runnymede Trust in April, Black and minority ethnic people in Britain face extensive and persistent economic inequality, brought on by unequal access to the housing market, the fact that recent migrants are less likely to inherit savings or homes, and experiences and outcomes in the labour market.
One of the biggest factors behind the wealth gap is the pay gap.
Some groups have lower employment rates and wages, meaning they are less likely to build up savings and assets compared to Caucasian British people.
A report published by the Office of National Statistics last year found that pay disparities in 2018 were more significant for Pakistani, Bangladeshi and Black groups, who on average earned less than Caucasian British employees by a margin of 16.9 per cent, 20.2 per cent and 9.2 per cent respectively.
>At all levels and stages, there needs to be more discussion and debate around salary bandings and better transparency.--Davinia Tomlinson
The disparities were less so for Indian and Chinese groups, who earned more than Caucasian British employees in 2018 by 12 per cent and 30.9 per cent, respectively.
Once other characteristics such as education and occupation are taken into account, the pay gap narrows. However, some significant gaps still remain – particularly for those born outside of the UK.
Within financial services, there is not enough data to accurately gauge the racial pay gap, but pressure is mounting on companies to release their figures. nsurance company Zurich, the Chartered Insurance Institute, and the Financial Conduct Authority are among the very few financial services organisations to have published their ethnicity pay gaps.
The government, which ran a consultation from October 2018 to January 2019 on Ethnicity Pay Reporting, is currently analysing responses.
Davinia Tomlinson, chief executive and founder of Rainchq, says companies should not wait for the government to force them to publish the data.
She adds: “At all levels and stages, there needs to be more discussion and debate around salary bandings and better transparency, so we can see if there are any institutional biases that mean certain groups, by gender or ethnicity, are being unfairly penalised because of the impact on their life prospects and later-life prospects.
“The ethnicity pay gap remains shrouded under a veil of secrecy by many organisations. As long as they remain silent and do not report, and frustrate attempts to report or to document publicly the gap that exists, certain ethnicities will always struggle.”
Matthew Connell, director of policy at the CII, says: “Until you measure [the pay gap], it is easy to make assumptions about where things are, but you don’t know for certain until you measure it, and that’s been true for the gender pay gap.
“There’s a lot we’ve got to learn as we go about the process, as ethnicity is more subjective and often more rooted in people’s own sense of identity than gender, so... you need a two-way process.”
Not every racial inequality can be explained by discrimination – they can also relate to class, poverty and educational underachievement. But although Runnymede Trust’s report says tackling it is unlikely to succeed without wider structural changes to the economy, there are actions businesses can take.
These include: policies such as targets (from hiring, to progression to senior management to board level); the ‘Rooney rule’, which applies in the US National Football League and requires interview panels to interview at least one ethnic minority candidate; and incentivising existing senior managers (by tying their own progression or wage rises to their performance on progressing ethnic minority staff).
Bridging the savings advice gap
Aside from the disparity in pay, there is also the question of savings strategies and outreach to clients in Black and other ethnic minority communities. How do you reach people with much-needed advice and financial guidance?
Liz Field, chief executive of Pimfa, says the “most obvious thing” for financial advisers to do is to provide advice services to those on lower incomes.
“How to reach them, however, is often the biggest problem,” she adds.
>“Until you measure [the pay gap], it is easy to make assumptions about where things are, but you don’t know for certain until you measure it, and that’s been true for the gender pay gap.--Matthew Connell
Ms Field says: “Those from households with lower incomes are less likely to seek, and less likely to believe they can afford, financial advice. But we know that those that do receive financial advice make better decisions and benefit financially from receiving advice.
“So it matters in the sense that understanding the ethnicity wealth gap means as an industry we’re better able to serve customers that could otherwise go ignored.”
Between 2014-16 Caucasian British households held the most wealth (£282,000), closely followed by Indian groups (£266,000), according to ONS data.
Pakistani households held £127,000, while Black Caribbean households possessed average wealth of £89,000. Saying that, regional and age distribution of different ethnic groups can also affect wealth, while some of the groups’ data sample size is too small, skewing some of the results.
Mr Connell says the industry needs to think about the needs of different groups to avoid unintentionally excluding people.
He adds: “The different ways in which we design processes, products and services...we naturally think of ourselves and people like us and it is [difficult] for one group of people to imagine their way into the lives of people who have different lives, whether it is because of ethnicity, gender, disability or caring responsibilities.”
Following the Retail Distribution Review the number of lower earners seeking any financial advice has plummeted and the advice gap has widened - a situation many have warned will worsen if regulatory fees continue to rise at current rate.
And with the days of the door-to-door insurance agent long gone, to some extent the close relationships formed with the community have been lost.
But Ms Field explains there are practical things advisers can do.
The more immediate would be to run free advice sessions (similar to pro-bono advice given by lawyers), perhaps at a local Citizens Advice Bureau.
The second, longer-term action is to ensure that personal finance is taught in school.
Ms Field says: “Knowledge is power, and we can provide better financial education through schools across all ethnic and income groups.
“It won’t solve the problem by itself but it should go some way to helping to close the wealth gap.”
>Those from households with lower incomes are less likely to seek, and less likely to believe they can afford, financial advice.--Liz Field
Mr Connell adds: “Some advisers who have a wider approach to segmentation will look at potential clients in terms of their attitude to financial planning - whether they come to the adviser for a one-off transaction and are not interested in financial planning, or are people who do have a fit with the kinds of services an adviser offers.
“Advisers tell us although those clients are not the wealthiest clients from day one, they will commercially be very rewarding clients to have because they are connected to what they are doing.
“Being relevant to every part of the community is, in the long-run, important for an advice firm.”
People buy people
Of course, a lot of this relates to visibility – people buy people, after all.
But if the industry has a perception of being the remit of wealthy, middle-class Caucasian baby boomers, how can young Black women, for example, be comfortable with seeking out advice?
Selina Flavius, who set up financial coaching company Black Girl Finance to help women gain confidence around talking about money and understand how to save and build wealth, says: “When I speak to a lot of women about whether [they have ever spoken] to a financial adviser, a lot of them say no, and it may go back to not seeing their parents do that.
“Also, when you do research on financial advisers, they tend to be Caucasian and male. That’s absolutely fine, but for some people, speaking to someone that looks like them makes it seem more accessible. For others it does not matter.”
The FCA has made it clear that levels of diversity and inclusion within advice companies will be a consideration in its supervision in the future.
A spokesperson for Quilter admits, across the board, the industry struggles with the public perception of financial advice and who it is for.
The spokesperson adds: “It is vital that, as an industry, we ensure that people know financial advice is inclusive because we know the value and peace of mind that it can provide.
“As an industry we need to ensure that we understand the needs of this population so we can provide the best possible financial advice.”
Ms Field says it is vital that advice companies are as diverse and inclusive as possible.
“It is next to impossible to adequately advise an increasingly diverse society if you don’t reflect that society. People are more willing to accept advice from those that look and sound like they do.”
So how is the industry faring when it comes to its hiring practices?
The Quilter spokesperson says: “Figures from the McGregor-Smith review, Race in the Workplace, reveals that 1 in 8 of the working age population are from a [Black or ethnic minority] background. Our industry is a long way from fitting that demographic.”
>The different ways in which we design processes, products and services...we naturally think of ourselves and people like us.--Matthew Connell
This is where recruitment and career progression frameworks come into play.
Ms Tomlinson says that by partnering with organisations that work with ethnic minority graduates, or at school level, offering internships and doing a lot of work at grassroots level, businesses can ensure they have a diverse pipeline of talent.
In some cases, change has already started.
There are educational programmes like MyBnk. Also, St James’s Place, Fidelity International and Invesco are among a group of 10 financial services companies looking to tackle the under-representation of Black talent in the investment industry.
As part of the programme, run by Entrepreneurs in Action, the companies will work with more than 25 students, primarily from schools across South London, to find ways to increase the applications, opportunities and development of young Black people in entry-level roles.
Ms Tomlinson says: “This [change in culture] is not about favouritism or positive discrimination; it is about meritocracy in its true sense, which can only exist if the top of your pipeline is being fed with a diverse pool.”
Ima Jackson-Obot is deputy features editor of FTAdviser and Financial Adviser