Many advisers do not want to be assigned clients or territories based on their race, national origin or other personal traits — but they are comfortable with relationships that evolve naturally from those factors.
NEW YORK — Many advisers do not want to be assigned clients or territories based on their race, national origin or other personal traits — but they are comfortable with relationships that evolve naturally from those factors.
The issue of personal traits in client prospecting and service was placed under a microscope this month when five black financial advisers sued Bank of America Corp. for race discrimination.
In the suit, filed in the U.S. District Court in Boston, the advisers claim that the Charlotte, N.C.-based bank assigned them low-income black clients and territories based on management’s assumptions about with whom black and white clients want to do business.
BofA managers have the perception that their “white, wealthy clients in affluent areas would only be comfortable with white advisers,” said Darnley Stewart, a partner at New York-based law firm Bernstein Litowitz Berger & Grossmann LLP, which is representing the advisers and seeking class action status for the suit.
“Our company does not tolerate discrimination, and we intend to vigorously defend against the claims,” said BofA spokeswoman Shirley Norton.
Although blatant race-based assignments are rare, financial firms often “bring people on board” with the intent that they service a specific racial or ethnic group, said Lee Baker, president of Apex Financial Services Inc. in Tucker, Ga. Mr. Baker also is chairman of the Denver-based Financial Planning Association’s diversity task force.
“Most company training programs encourage advisers to pursue a niche, and that niche can be racial,” added Mr. Baker, who is black.
Advisers interviewed — none of whom are involved in the BofA case — oppose the assignment of advisers to clients based on race or other personal characteristics. But many say there is some truth to the idea that clients prefer advisers with backgrounds similar to their own.
“People tend to trust people who look like them,” said Jerry Murphy, principal of JDM Financial & Investments Inc. in Bowie, Md., who is black. Mr. Murphy, whose client base is 95% black, currently is seeking to diversify that base.
“It’s never been suggested by management that I focus on serving the needs of the Hispanic community because I am Hispanic and speak fluent Spanish,” said Alex Saraci, an investment executive with Newport Beach, Calif.-based Tax & Financial Group, an affiliate of Securian Financial Services Inc.
Although he wouldn’t appreciate any such limitation, he noted that there are firms in Southern California that choose to serve exclusively the large Hispanic market, and he believes there is nothing wrong with that if it is voluntary.
Roots in insurance
The concept of pairing reps and clients based on personal characteristics in the financial services industry began in the insurance sector in the 1970s, said Phil Arbolino, president of Arbolino Asset Management in Manchester, Vt., who started his career as an insurance agent.
He said that the low entry barriers and minimal training required to sell insurance back then made it more conducive to marketing based on social networking as opposed to formal training.
Starting in the 1990s, “the investment industry higher-ups got the idea that female clients want to deal with female advisers, so many women were recruited into financial services,” Mr. Arbolino said.
One of the women who entered that arena following that recruitment drive was Carolyn McClanahan, now president of Life Planning Partners Inc. in Jacksonville, Fla.
In her case, it turned out the “higher-ups” had gotten it wrong.
“Two-thirds of my clients are men,” Ms. McClanahan said.
“Many of the men say that when they die, they want someone to take care of their wives’ finances — and they prefer a woman for that role, because they think it would make their wives more comfortable,” she said.
Split decisions
Advisers are split on whether using race, religion, gender or sexual orientation as target marketing strategies are effective or going the way of the dinosaur.
Some feel that similarities attract.
“All of my clients are gay or lesbian, or have siblings or children who are,” said David Taube, president of Kalorama Wealth Strategies in Washington. “I believe clients want to do business with people like themselves,” said Mr. Taube, who is gay.
But Mr. Arbolino believes that referrals from someone the client respects regarding money matters “transcend and supersede” all target marketing.
“I don’t target clients who are from India, and they don’t seek me out for national origin reasons,” agrees Kaushal Majmudar, president of The Ridgewood Group in Short Hills, N.J.
Rather, clients come to him because they are interested in his specialty — value investing — or have read his newsletter or something else that he wrote.
“Although I am Jewish and have Jewish clients, they are not anywhere near a majority,” said Leon Rousso, principal of Leon Rousso & Associates in Ventura, Calif.
He added that there are two kinds of clients — good and bad — and that he tries to attract the former.
“Half my clients are Jewish,” said Brian O’Rourke, principal of O’Rourke & Co. Inc. in Boston. Although Boston “has no shortage of Irish Catholic people,” that connection alone is insufficient for him to establish the adviser-client bond.
“Reminiscing about the nuns from parochial school is fine for the first 15 minutes, but after that, it’s all about the client,” Mr. O’Rourke said.
