If you’re not actively seeking African-American clients, you’re overlooking a growing market. According to the “2011 Prudential Research Study, The African-American Financial Experience,” this group’s income and wealth are increasing. The study reported that 40 percent of respondents earn between $50,000 and $99,999 and 18 percent earn more than $100,000 per year.
“We found that nearly six in 10 of this population that were surveyed earned more than $50,000 of income,” says Mark Hug, executive vice president of marketing and distribution, Prudential Individual Life Insurance. “I would say that is a great opportunity for financial planning whether it may be for retirement, for life insurance protection or income protection.”
Recognizing common goals
On the surface, senior African-Americans’ financial goals closely resemble those likely to be found in other demographic groups. Lazetta Rainey Braxton, CFP, founder of advisory firm Financial Fountains in Chicago, says that her senior African-American clients are mostly concerned about:
- Ensuring that their estate planning documents reflect their wishes and expectations.
- Determining the most tax-efficient way of withdrawing funds from personal and retirement accounts while accounting for the taxability of Social Security benefits and pensions.
- Making sure their investment allocation is appropriate for their goals, time horizon and risk tolerance as retirees.
- Understanding Medicare and long-term care coverage and determining if there are gaps in coverage.
- Balancing their financial needs with the needs of their adult children and grandchildren.
The Prudential study found that survey respondents rated “educating children about debt avoidance, providing college tuition, and passing money on to heirs as very important, significantly more often than did the general population.” Additionally, the study found that “African-Americans are significantly more likely than the general population to cite charitable donations as an important financial goal.”
The continuing improvement in African-Americans’ finances is good news for advisors who wish to serve that market. But advisors should recognize potential differences among races’ and ethnic groups’ financial behaviors and preferences. For example, the 2007 Ariel/Hewitt study of 401(k) savings disparities examined data from nearly 3 million employees across 57 large, primarily Fortune 500 companies in the U.S. It’s striking how many African-Americans had outstanding loans or had taken withdrawals versus the other groups.
In the Prudential survey, respondents often expressed a need for increased use of advisors and products but they also showed a reluctance to take advantage of them. Much of the hesitation appeared to come from a lack of knowledge, the survey authors noted: “Our survey revealed that the lower the level of knowledge respondents had about complex financial products, the lower the level of ownership of these products, the fewer advisor relationships, and the lower the level of industry trust.”
If you want to work with African-Americans, don’t assume that every traditional marketing method works. Allyson Bailey-Leonard, a financial professional with the Greater Texas Agency of the Prudential Insurance Company of America, estimates that half her clients are older African Americans. She cautions that cold-calling prospects is “definitely is not the way to go—I haven’t found any success in cold calling.”
Instead, she says, earning prospects’ trust is a critical first step. Bailey-Leonard builds that trust in several ways. One is though speaking engagements in organizations, such as churches or the Urban League, in which her target market is active. Her participation with those organizations makes a favorable impression and creates opportunities to meet prospects. For example, she says, if you are in nonprofit or social organizations and speak to those groups, prospective clients are more likely to start a conversation that doubles as an interview with you.
Small business forums are also valuable marketing environments, says Bailey-Leonard. She points out that African-Americans tend to be entrepreneurial and many want to start their own businesses. “A lot of my speaking engagements have been centered around entrepreneurial activities or how to get a small business started: business continuation, strategies, how to keep that business going,” she says.
LeCount R. Davis, CFP, a financial advisor with an eponymous firm in Potomac, Md., estimates that 60 percent to 70 percent of his clients are older African-Americans. Many of his new clients come from existing clients’ referrals, but like Bailey-Leonard, he’s active in community organizations.
“I do believe in seminars and clinics but still, when it comes to the faith-based organizations, I do quite a bit of financial literacy seminars and clinics. From there I’ve been able to get new clients far quicker than I thought I would be able to do it.” -LeCount R. Davis, CFP
Davis also avoids cold calling. “We don’t do any cold calling at all because African-Americans usually do not respond to cold calling as much as you may think they do because they’re suspicious of it,” he says. “And with the media exposing some of the problems with people taking advantage of the elderly, the elderly get more suspicious of it because they’ve got to guard against it.”
Another option that Davis suggests: Firms should consider hiring African-Americans to bolster their marketing efforts to that market. “I think this is true in all ethnic groups that we tend to be clannish,” he says. “We usually deal with people whom we can relate to directly because our problems are usually unique and different. You’ve got to understand the person first and when you’re dealing with financial planning and the production of income from any services, you’re dealing with people first before you deal with the product.”