Diversity in Financial Services and Investment Management

2020 has been the year no one could have predicted and certainly no one wished for.

Covid-19 spread across the globe and every country and community has been impacted. As the have months rolled on, we are eventually able to start making sense of the incomprehensible numbers that have been reported daily. Tens of thousands of new cases, thousands of excess deaths and billions of pounds being spent to prop up businesses.

It looked as though Covid-19 was indiscriminate in its infection and impact on populations.

However, it soon became clear that not all communities were being affected equally.

In the UK, Covid-19 related deaths amongst the black population was 4 times higher than those of white ethnicity. (1)

Racial inequality and injustice was already under the microscope. George Floyd’s murder shone a spotlight on racial injustice in the US and the urgent need and call for change got louder across the globe.

Slow Pace of Change

Companies have long resisted scrutiny when it comes to their approach on ED&I issues. In the UK it was not until 2017 companies were compelled to report on their Gender Gap. 49 years after the Equal Pay Act of 1970, those identifying as women in full-time employment, were still being paid 8.9 % less than those identifying as men in 2019. (2)

It is therefore no surprise that the progress being made on other ED&I issues has been equally protracted. In 2019, there were still double-digit pay gaps for four groups of ethnic minority employees in the UK. 16% for people of Pakistani descent, 15% for white and black African, 15% for Bangladeshi and 13% for white and black people of Caribbean decent. Conversely however, those of Chinese ethnicity earned 23.1% more and workers of Indian descent 15.5% more than white workers. (3)

The challenges to equal opportunity and equal pay and recognition are clearly not uniform across our population. Looking specifically at financial services and asset management the discrepancies are stark.

In investment management the gender pay gap is 30% and the bonus pay gap is 67% !! (4). Mandatory ethnicity pay gap reporting has not yet come into force.

When companies state that they are an “equal opportunities employer” , what does this really mean?

Over the last 5 years there has been a noticeable change in the way companies have approached ED&I in their recruitment strategies. Most companies will highlight their commitment to Equality, Diversity and Inclusion and have started to incorporate best practice into their recruitment processes.

However, a surprisingly large number of companies still do not have any ED&I strategies and are definitely not willing to share information about the diversity of their investment teams. Scrolling through a “Meet our Team” page can be uncomfortable when the lack of diversity seems to be screaming out.

It is not unusual for hedge funds or private equity firms to have been spun out from larger companies. Often ex-colleagues come together to start the next Big Thing. Some firms pride themselves on only hiring people they know or have worked with in the past.

Perhaps it is not surprising that when managing huge sums of personal and external capital, someone we already know, feels like the safest pair of hands.

Diverse Teams Boost Performance

The crash of 2008 was a wake-up call for many. The suggestion that male dominated trading floors created a culture of testosterone fuelled risk taking was taken increasingly seriously.

Since then efforts to measure the impact of diversity on profitability have been examined. Research undertaken by McKinsey showed that companies in the top quartile for racial and ethnic diversity were 35% more likely to earn returns above the industry median. (5) And when venture capital firms increased the number of female partners by 10%, their overall returns increased 1.5% a year and profitable exits rose by 10%. (6)

Recruitment Roadmap to Change

Every company has different challenges to overcome when it comes to implementing a successful roadmap to change. Creating a strong culture that values ED&I initiatives must come from a place of understanding. Companies can take a hands-on approach to this by implementing relevant training. For example, addressing internal challenges such as unconscious bias.

Implementing inclusive recruitment strategies that reach and attract diverse candidates is also an important part of the process. There is no “one-size fits all” solution to addressing ED&I issues. It is necessary to create bespoke recruitment strategies that address each company’s existing structure. By creating sustainable strategies that promotes ED&I, this will not only improve the diversity in wealth management, but ultimately, research indicates this will also positively impact the bottom line