Most RIAs are well aware of the racial wealth gap in the United States, and many wonder how to harness our expertise to support our clients who are seeking to heal from the past, present and future of this lived reality. It’s a tough discussion to navigate but, fortunately, one that enough advisors are stepping up to address in their financial practices. A simple question that many may ask is, “What can we do?” given that the problem is much bigger than any one individual.
A good first step is to listen to individuals’ stories, confront the data and commit to learning.
Connecting Dots: Statistics And Stories
You may be familiar with the statistic that the median Black household in America has around $24,000 in savings, investments, home equity and other elements of wealth. In contrast, the median White household has $189,000, comparatively. What this means, on a human level, is that statistically, Black families are less equipped than White families to handle unexpected expenses, healthcare challenges and life emergencies. As a result of these challenges, Black families also have a tougher time attaining intergenerational social mobility. In fact, in recent years, the median wealth disparity has been getting worse, not better.
In my experience, many African-American financial advisors want to help by closing the racial wealth gap in the United States. This means improving the wealth outcomes for their client base of Black families, especially those whose ancestors were once enslaved and those continuing to suffer from wealth disparities today because of 100 years of systemic discrimination and racism following emancipation.
For countless Black Americans, the racial wealth gap, and racism more broadly, is a lived experience that reflects the overall socio-economic status of African Americans in American society. It’s how we exist in the world, beyond just a number, such as “AUM.” That’s why, as an RIA community, we need to see the humanity of every person we serve—and hopefully, take time to understand their unique story—which so many of us already do in our practices.
Here’s mine.
History Wasn’t In Any One Person’s Control
It started before any of us were born. There was a lot of intentionality behind the oppression system in the American economy, especially leading up to the Civil Rights era. Then, it all went into autopilot.
Think of an analogy. If you plant a seed and it grows and germinates, eventually, you personally wouldn’t have to keep watering it. The natural environment will take over and nurture the plant, and it will eventually grow on its own. Similarly, the racial wealth gap formed through a collection of racially motivated decisions and powered by racism working through state and federal legislation. The culmination of such legislation would inevitably converge to create a wealth disparity, an ever-growing gap in wealth and socio-economic status, in the United States among White Americans and African Americans.
I honestly don’t know if anyone who had the biggest impact, historically, on the racial wealth gap, being what it is today, knew the long-term consequences of what the wealth gap would become.
We are all the ancestors of America’s past, along a timeline where wealth has been transferred intergenerationally for some and gained, lost (or taken by force), and having a decades-long struggle to rebuild, as it were, for African Americans.
When emancipation occurred for African Americans, it was freedom to famine immediately. Our ancestors left the plantation homeless with just the clothes on their backs. That’s it.
Many had no choice but to return to the plantation for basic shelter. But they had to lease it, like a mortgage, by leveraging the future value of the harvest. Since many of them were illiterate, the plantation owners would find a way for the sharecroppers to come up short at harvest time.
For example, my great-grandfather, the Rev. Daniel Lewis McClure (1880-1949), the son of Robert McClure, a Methodist Bishop, attended Bishop College. Bishop College was a historically black college founded in Marshall, Texas, in 1881 by the Baptist Home Mission Society. It was intended to serve students in east Texas, where much of the Black population lived at the time. However, in 1961, the administration moved the college to Dallas, Texas. It closed in 1988.
Rev. Daniel McClure was a traveling Minister of the Gospel of Christ. He was known for helping to establish churches; some were in barns. As an educated Black man, he would help sharecroppers by setting up an accounting process to protect themselves from being taken advantage of or swindled out of their harvest by their former enslavers and landlords.
My great-grandfather’s early work in financial literacy put him and his entire family’s lives at risk. Word spread quickly that Rev. Daniel McClure taught sharecroppers how to account for their harvest and money properly. Angry White landlords known for taking advantage of uneducated sharecroppers at harvest began to search for my great-grandfather to do him harm or worse!
Therefore, Rev. Daniel McClure was forced to relocate his entire family often. But thankfully, he remained faithful to the call of the ministry and continued to advocate for economic equality by providing financial education to local sharecroppers. His story isn’t an isolated incident. This was the lived experience of many African Americans following the end of Reconstruction.
After the end of Reconstruction, it didn’t take much for someone who had begun to experience financial prosperity to find themselves back in poverty. For example, the 13th Amendment allowed for the re-enslavement of African Americans if they were arrested for committing a crime. A Black person could be arrested for looking a White person in the eyes while engaging in a conversation, for not stepping off the sidewalk as a White person approached, for being within the city limits of a “sundown city” by nightfall, for being unemployed, etc. For these and many other reasons, African Americans were subject to arrests, the most frivolous and false crimes that could lead to them being essentially owned by the state and federal government and then leased back to the plantation where African Americans had previously been enslaved. Whatever wealth was achieved prior could be wiped out overnight.
Nearly 70 years later, African Americans were excluded in many respects when the New Deal came out under Franklin D. Roosevelt. For example, domestic workers couldn’t benefit from social security, many of whom were African Americans. Redlining prevented African Americans from obtaining a mortgage to purchase a home. In addition, African American servicemen and women were excluded from the GI Bill after the world wars, which did not extend benefits to African Americans. In the 1960s, affirmative action finally kicked in. But by the time affirmative action became legal, there were already decades of an ingrained machine based on the oppression of non-white Americans.
The tools to fix it were more policing. Jobs continued to go to the people who were already the most affluent. Kids in Black neighborhoods were underserved in education, healthcare and nutrition.
It’s A Part Of My Life As An American
I grew up down the street from what is now the Facebook campus in East Palo Alto. Unlike today, there weren’t many jobs in my community growing up. As a teenager, I had to go to the more affluent areas of Palo Alto, Menlo Park or Mountain View to find a job.
I was also one of those teens bussed daily to school from my neighborhood in East Palo Alto to Menlo Park/Atherton, one of the wealthiest zip codes in the United States. Growing up in the Bay Area, where most of my jobs as a teenager were in the neighboring cities of Palo Alto, Mountain View and Menlo Park, I was exposed to a broader community that wasn’t predominately African American. Hence, my peer group had become more racially integrated, which ultimately benefited me when I sought employment opportunities.
The irony is that while being from East Palo Alto, I was accepted outside my community as “one who was more articulate” and therefore deemed “safe” to hire. This cultural phenomenon is known within the Black community as “code-switching.” In fact, code-switching has been a way of survival for Black Americans for centuries. African Americans have had the challenge of learning how to exist within a broader society where the burden was on us to make White Americans feel comfortable in our presence, and this is usually accomplished through our speech communication. Code-switching isn’t necessarily about not using profanity but more about our speech’s cadence, vocal inflection and tonality to sound “less Black.”
Strangely, it has humanized African Americans in the perception of some White Americans. This is very similar to how early settlers and explorers such as Christopher Columbus believed that the primary method for eradicating the perceived savage nature of the indigenous native groups of people of North and South America was by forcing them to convert to Christianity. This, too, was a form of code-switching to give people the sense that the native people groups of this land had become “civilized.”
As a kid, I witnessed and experienced this disparity every day. It didn’t really bother me. But I knew it was weird.
In 1982, when I was 14 years old, a big blow came to my neighborhood with the influx of cocaine being trafficked across the southern border. This was the Reagan era when President Reagan’s administration turned a blind eye to the importation of cocaine into the U.S. (and into the African-American community in particular) because their focus was fighting an illegal proxy war against Russia by opposing the Sandinistas, which the U.S. government viewed as a threat to the economic interest of American Corporations in Nicaragua and national security. In fact, President Reagan stated in 1983, “The defense of the USA’s southern frontier was at state.”
The potential unintended consequence—which many would argue was actually intentional—is that the African American community throughout the U.S. was caught in the crossfire, as illegal narcotics (mostly cocaine) began pouring into the Black community almost non-stop, which resulted in the “crack cocaine epidemic of the ’80s and ’90s.” Our neighborhood went from a relatively safe community to a place overrun with crack cocaine, a lot of money in the hands of some teenagers who decided to sell cocaine. Throughout those years, the violence grew, and so did the wealth disparity.
What I want to clarify is that I don’t see these experiences from the perspective of a victim’s mindset. It’s something I think about, reflect upon, have lived through and continually study. I try to be self-aware of the cycle despite having created a privileged life for myself.
Here’s a personal experience that explains what I mean.
During the Great Recession, just a few decades ago, Black neighborhoods were specifically targeted for financial redlining. More specifically, we were targeted with high interest rates and subprime mortgages. I was one of those recipients, even though I did not realize it until I received a letter from the Department of Justice notifying me that my former mortgage servicer, Countrywide Mortgage, was being sued in a class-action lawsuit for engaging in Redlining.
At the time, I had received a substantial signing bonus and purchased a second home. As a financial advisor, I was not well-versed in the intricacies of mortgages at the time. Even though my payment was high, I thought it was normal. The irony is that, at this point, I had built an independent advisory practice on the premise of coaching my clients out of predatory life insurance products.
There I was, with a predatory loan product. I was lucky enough to get out of it.
Disparities Aren’t Good For Anyone
What happens if, suddenly, all Americans had equal opportunities for wealth creation and economic mobility? What if discriminatory practices came to an end once and for all?
It turns out, according to the data, we’d be better off as a nation. Studies consistently show that the United States is losing money due to discriminatory practices. In fact, in 2020, Citigroup published a report quantifying the economic losses over the last 20 years to $16T. By comparison, U.S. GDP was $19.5T in 2019, the year before Citigroup’s study was published.
Here’s a breakdown of that $16T figure, according to Citigroup:
• $13 trillion lost in potential business revenue because of discriminatory lending to African American entrepreneurs, with an estimated 6.1 million jobs not generated as a result
• $2.7 trillion in income lost because of disparities in wages suffered by African Americans
• $218 billion lost over the past two decades because of discrimination in providing housing credit
• And $90 billion to $113 billion in lifetime income lost from discrimination in accessing higher education
Nobody benefits from racism, discrimination or oppression. When society suffers, everyone experiences a drawback. The notion of a social contract has always been a part of American history and is the connection between all of us.
What The Path Forward Looks Like
We need to address this underlying problem in our society through jobs, education, housing, healthcare and support for mental wellness. It’s about putting the money where the disparities truly are not more policing. It’s also about supporting small businesses and building communities that support inclusion and integration rather than separation.
Financial resources need to circulate through our communities. Dollars need to make more stops in the hands of African Americans as they circulate throughout the community to benefit more people. As financial advisors, we must envision ourselves as ambassadors for these values. The investment decisions of Americans ultimately impact people’s lives.
Job creation within our wealth management firms is also critical. Hiring for diversity makes a big difference, especially as younger generations, the most racially and ethnically diverse generation in history, begin their investment journeys. Unfortunately, we are living in a time when diversity, equity and inclusion (DEI) are under attack by right-wing groups and individuals. The Supreme Court’s ruling against affirmative action in college admissions has opened the door for lawsuits to be filed against efforts to ensure DEI in hiring, among corporate boards, contracting, etc.
Therefore, it is imperative for investment firms to do everything that they can to improve their outreach efforts through education to the younger generation, preferably at the high school level so that teenagers can begin to envision themselves working in the finance field, which for too long has had poor representation among Blacks and Latinos. At the college level, investment firms should begin visiting community colleges, small colleges and universities they may have overlooked in the past to encourage more applicants of color! Without such intentionality, coupled with this new assault on DEI, the finance industry will inevitably revert backward, thus widening the disparity of employment opportunities and, ultimately, the wealth creation needed in the African-American community.
Unfortunately, the type of socio-economic change to improve the financial well-being of people of color isn’t something that will happen by itself. It has always required a struggle and a prolonged fight, whether it was ending slavery in the U.S. and/or dealing a death blow to Jim Crow and achieving Civil Rights. What is worth having has always been worth fighting for, whether we’re talking about a young kid from a predominately African American community in the Bay Area of California who would eventually leave the city, attend a prominent HBCU (Howard University), and graduate school at Georgetown University. Or, if we’re considering changing the trajectory of wealth and social standing for an entire group of people in this country who have had to overcome 400 years of legal oppression and still have to fight to maintain the previous hard-fought civil rights victories of the past.
Positive change doesn’t come naturally on this side of Heaven. We will have to continue to struggle and fight to make the ideal of what America is supposed to be—the land of freedom for all its citizens and potentially limitless opportunity—come to fruition.
Martin A. Smith is the founder and president of Wealthcare Financial Group and a 25+ year veteran in the financial services industry with a focus on retirement planning, investment management and fiduciary consulting. As an African American investment professional, he is aware of the need to address the challenge of financial literacy within communities of color. He is also passionate about helping to close the “racial wealth gap” resulting from historical legacies of institutional racism. Along with his younger brother, Daniel J. Fountenberry, he conceptualized and launched two fintech startups to help close the racial wealth gap: HBCU Legacy LLC and WealthVillage. HBCU Legacy LLC is a digital investment advisor (i.e., “robo-advisor”) serving the investment needs of a global alumni community of historically Black colleges and universities graduates.