Diversity, equity, and inclusion (DEI) are initiatives commonly used in the workplace and across various professional communities to help better hear the many voices that make up our diverse world. At Abacus, we understand that diversity and inclusion are essential to the success of any organization or industry. We also acknowledge that the financial services industry, in many ways, has often fallen short in both its awareness and its ability to evolve. 

As we continue our commitment to running an inclusive financial planning firm and building a more diverse and equitable profession, we wanted to outline the current state of the financial planning profession, what we’re doing to build a more inclusive future for the industry, and how you can keep diversity in mind when making decisions about your wealth.

The State of Diversity in Finance Today

Though an emphasis on diversity and inclusion has certainly become a focus for many financial firms today, recent data indicates that the industry still has far to go.

While there are numerous positions within the financial services space, here is the current demographic of financial advisors by race in the United States:  

• White: 72.1%
• Hispanic or Latinx: 9.5%
• Asian: 8.3%
• Black or African American: 5.6%
• American Indian: 0.1%

In addition, around 72.3% of financial advisors are men, compared to 27.7% women. Considering that only around 30% of the U.S. population are white males, diverse voices are underrepresented within the financial services industry.

While we as an industry have certainly made strides in recent years – the number of Black and LatinX CFP® professionals rose 13% from 2019 to 2020, for example – this is an ongoing challenge that must be continually addressed.  

Diversity Is Good for Business

Diversity and inclusion matter for many reasons, but it’s worth pointing out that including diverse voices in positions of power and leadership directly equates to more positive performance. The CFP® Board recently conducted a review that found companies with a greater racial diversity earned nearly 15 times more in revenue than those with lower levels of diversity. 

Gender diversity has also proven profitable for companies, both in the financial world and beyond. Currently, around 35% of senior leadership positions are held by women. For Fortune 500 companies, that drops to just 10% of women-held leadership positions. Yet, companies with women executives are 30% more likely to outperform their competitors.   

The Benefits of a Diverse Finance Workforce

By emphasizing diversity and inclusion in financial institutions, advisors and clients can benefit from more creativity, innovation, and voices with varying perspectives. Including more people in the conversation expands the decision-making process – which ultimately can help improve the firm’s risk management efforts. 

Not to mention, a diverse team is better equipped to serve a diverse customer base. Seventy percent of women investors, for example, prefer to work with a female advisor. Considering money is one of the most intimate aspects of a person’s life, it makes sense why people want to work with someone they trust, feel comfortable opening up to, and can connect with on a deeper level.

How Firms Are Working to Overcome Diversity Barriers

The big question is, what can advisory firms do to address issues with diversity and inclusion?

As has been shown, diversity ensures greater access to talented professionals, and the business case for a diverse workforce is strong. But firms still need to make a conscious effort to attract diverse candidates, nurture future leaders, and instill a culture of inclusivity.

A few common ways to promote diversity and inclusion include:

• Implementing inclusive hiring practices
• Promoting mentorship or sponsorship programs for underrepresented individuals
• Setting measurable diversity goals (and tracking progress)
• Fostering a culture of care

How You Can Help Promote Diversity and Inclusion

Maybe you’re in a leadership position in your career, which means you can be an advocate for greater DEI practices at your workplace. Or, maybe you’d like to be more conscious about using your money to make a difference.

Here are four ways to promote diversity and inclusion.

1. Incorporate SRI Into Your Portfolio

Socially responsible investing, or SRI, is investing your money into companies that you consider socially conscious or are actively working to make a difference. You may buy stock in socially conscious companies or invest in SRI-focused mutual funds.

While SRI can refer to many areas – climate change, geopolitical conflict, food scarcity, clean energy initiatives, etc. – it can also refer to investing in companies that make a real effort to embrace and celebrate diversity.

Most large corporations should be able to provide information on their DEI initiatives, though it’s essential to do your research. With the rise in popularity of SRI, some companies have been found guilty of “greenwashing,” which refers to making their company look more socially responsible than they are. They may make false claims about their eco-friendly practices or allege their workforce is more diverse than it is.

The encouraging news? This is an issue many investors are aware of and have raised public concern over. You should be able to research any company you want to invest in to learn more about their SRI practices and previous claims. The non-profit group As You Sow, for example, provides a database where investors can identify funds based on a particular issue (such as gender equality).

2. Advocate for Financial Education

Financial literacy in American adults has been an ongoing concern for decades. A 2021 study found that over the last decade, financial literacy has declined among adults. What’s more concerning is these assessments also found an apparent discrepancy between financial literacy in white adults and BIPOC (Black, Indigenous, people of color) adults. 

While Asian and White Americans answered, on average, 3.2 out of six questions correctly on a basic financial literacy test, Latinx and Black Americans answered 2.6 and 2.3 questions correctly, respectively. 

Having a basic understanding of financial concepts is something that sets people up for a more prosperous and confident financial future. Lacking an understanding leads to poor money management and financial stress (especially under extraordinary circumstances like COVID-19).    

As a concerned investor, what can you do to help improve financial literacy, especially within the BIPOC community? Advocate for greater access to financial education – and more specifically, financial education that includes diverse perspectives and addresses cultural differences. You can also make an impact by volunteering with or donating to local organizations with education-focused missions that work with underserved communities.

3. Invest in Diverse Businesses

Did you know that minority-owned businesses generate over $2 trillion in revenue annually? They play an integral role in our economy, yet they face systematic challenges in receiving funding for those businesses.

According to the Federal Reserve, White business owners applying for loans are approved at a higher rate than any other demographic:  

• White: 35%
• Hispanic: 19%
• Black: 16%
• Asian: 15%

With all else being equal, diverse business owners have a harder time obtaining funding. This, of course, makes it harder for these businesses to expand and thrive. 

As a consumer, you have the power to make a difference with every dollar you spend. Your city or state likely offers a directory for women-owned or BIPOC-owned small businesses in your area. Or search a national database such as Support Black Owned. 

As an investor, you can also check out different options for investing in minority-owned businesses. These include peer-to-peer lending, angel investing, buying stock in specific companies, or participating in crowdfunding opportunities.

Small businesses are the backbone of America, and making a conscious effort to uplift diverse owners is incredibly important and impactful.

4. Hold Institutions Accountable

When you invest with or otherwise interact with large institutions (especially financial ones), don’t hesitate to request information about their DEI policy, inclusion efforts, or staff demographics. At Abacus, we’re proud to be transparent about our employee makeup and of the progress we’ve made:

• 50% of our CFPs are women (vs. 23% of the industry)
• 55% of our owners are women
• 34% of our employees are people of color
• 23% of our advisors are people of color
• 18% of our owners are people of color
• 15% of our advisors are LGBTQ+
• 14% of our C-suite are LGBTQ+ identified

By requesting this information, it’s an easy way to keep larger corporations and institutions accountable, and it lets them know that people do care about the steps companies are taking to create a more inclusive work environment. 

You can also look to incorporate shareholder advocacy into your investing strategy. This might look like participating in proxy voting, direct outreach, and creating proposals for change within the organization.

5. Commit to Due Diligence 2.0

Abacus committed to Due Diligence 2.0 in 2021; many investors don’t know this commitment is available to vet businesses and investment managers for diversity and inclusion. 

The Due Diligence 2.0 Commitment focuses on broadening capital availability by using non-discriminatory screening, and focuses on other key metrics for businesses seeking capital. 

Traditional due diligence methods often focus on total assets and other potential markets that can exclude BIPOC companies (who often have a lower asset threshold but are still doing phenomenal work). The Due Diligence 2.0 Commitment opens up questions for investment committees to use, including items such as:

1. What are your current and future plans for diversity?
2. What type of focus is there on products and services of underlying investments?
3. What groups do you support, and do those products/services do any harm?

Investors can seek out companies and investment opportunities that have been vetted using the Due Diligence 2.0 standard to increase their commitment to diversity in finance and their portfolios.

Promoting Diversity in Finance

While we’ve certainly made strides as an industry in recent years, much work remains. Diversity in finance (and across any business sector) is vital as it provides more opportunities to traditionally underrepresented people, helping to amplify voices with differing perspectives. 

We have a collective responsibility to achieve a more diverse and empowered finance sector, and Abacus continues doing our part to support these initiatives. If you’re curious about reviewing your portfolio and want to make adjustments based on your values and beliefs, schedule a call with an Abacus advisor today to learn more how we can help.

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Women earn around 83 cents for every dollar their male counterparts earn.

Just let that sink in for a minute. 

Meanwhile, this startling fact only scrapes the surface of the full impact gender wage inequality has on women in the workplace. It doesn’t account for women of different races, different ages, or who work in different industries. For example, Black women earn 70 cents to a man’s dollar and Hispanic women earn 65 cents, highlighting an even more alarming discrepancy for women of color. 

Gender wage inequality is certainly not new; it’s had a direct impact on women’s financial security for decades. Unequal pay has limited women’s abilities to save for retirement, and affected their ability to start and raise families. Less income also means less money to put toward their investments or other savings goals, which will often dictate their long term financial plans and options for the future.   

We’re diving deep into where this issue stands today, and what strategies we can use to address the ongoing gender wage inequality.

Understanding Gender Wage Inequality

The gender wage gap refers to the difference between what a man versus a woman in equal positions earns from their employer. As we mentioned earlier, there is a clear discrepancy in how much women earn for every dollar their male counterpart does — and that divide grows even more significant for women of color, and older women.

The gender wage gap has been documented for decades. In 1982, women were earning around 65 cents for every man’s dollar. By 2002, the female wage average had increased to roughly 80 cents to the dollar, but it has stayed relatively the same in the 21 years since.

Notably, the pay gap doesn’t change based on the level of education a woman has. College-educated women and non-college-educated women both experience the same wage discrepancy. This indicates that less obvious factors are fueling this inequity, such as the perceived responsibility of raising a family, and other forms of gender discrimination.

The Motherhood Penalty vs. The Fatherhood Premium

While women leaving the workforce to start families tends to result in only a short-lived pay cut — typically in the form of maternity leave — they often face challenges upon their return. Women who are mothers of young children may be passed up for promotions, or otherwise seen as unable to fully manage their professional responsibilities. This is sometimes referred to as the “motherhood wage penalty.”

Conversely, fathers are seen in an opposite light. A phenomenon known as the “fatherhood wage premium” was first studied in the 1980s but is still observed in the workforce today. When working men become fathers, they’re statistically likely to earn more money than those who aren’t. This is especially apparent amongst white-collar, high-earning men. 

The Consequences of the Gender Pay Gap

Just how much do women miss out on earning over their lifetime as a result of this inequality? Using the assumed median earnings for a White, Black, and Hispanic woman, let’s look at how far the gap spreads over a 40-year career: 

With the current discrepancies in place, these women are projected to receive notably less income over the course of their careers than their male counterparts in similar roles might otherwise be benefiting from:

• White woman: a reduction of $527,440
• Black woman: a reduction of $941,600
• Hispanic woman: a reduction of $1,121,440

That’s a significant lifetime of lost earnings, which creates additional hurdles for women trying to save for retirement or other financial goals.

Additionally, women account for around 60% of all caregivers for older relatives, typically parents or in-laws. Caregiving inherently creates financial strain, and can often take women out of the workforce — further lowering their lifetime earning potential and limiting opportunities for professional growth. Caregivers spend an average of $7,242 annually, or around 26% of their income, on needs and considerations for older loved ones.   

In terms of retirement savings, these challenges are evident in the distinct gap between how much men have saved versus women. A 2023 report found that, on average, men had 50% more saved in their 401(k)s than women. 

Considering women are statistically likely to live longer, this lack of savings poses a serious threat to their future financial security.

How to Address the Gender Wage Gap

Beyond simply acknowledging that the gender wage inequality exists, it is important to identify strategies for addressing and overcoming it. Here are a few ways to protect yourself and advocate for greater equality in the workplace:

Stay Up-to-Date on Legislation and Policy Initiatives

The Equal Pay Act of 1963 dictated that men and women need to be paid the same for jobs that are “substantially equal.” This includes base pay or salary, bonuses, stock options, overtime pay, insurance benefits, vacation pay, etc. In the 1964 Civil Rights Act, sex-based and race-based discrimination became illegal in the workplace, again furthering protections for women.  

While these laws were theoretically passed to close the gender pay gap, it’s estimated that since 1967 women have failed to receive a cumulative $61 trillion in wages. This staggering number doesn’t discredit the vast improvements women have seen in the workplace, but it does clearly indicate the need for more work to be done in balancing these inequities. 

In recent years, some states have enacted salary range transparency laws, which require jobs to include salary ranges on job postings. This is done to reduce pay gaps and give women more leverage to negotiate fair wages. 

As of 2023, states with mandated pay transparency include: 

• Washington
• Nevada
• California
• Colorado
• New York
• Connecticut
• Maryland
• Rhode Island 

Keep a close eye on your state’s proposed legislation regarding pay transparency, changes to the minimum wage, maternity leave requirements, and other similar bills. It’s possible that in the coming years, you’ll see more changes being made to support women as the call for workplace reform grows stronger.

Promote Pay Transparency

Despite what some companies say overtly or “strongly suggest,” you have the right to share your wage information with other employees. This right is protected under the National Labor Relations Act (NLRA).   

Discussing your compensation with others is one of the most effective ways to keep your employer accountable for pay equality. It gives you leverage in negotiations, and can help others identify discrepancies or even possible discrimination issues. 

Talking about money can, of course, be a taboo topic for some people — employers often count on the fact that their employees are too uncomfortable to share their pay information with each other. But you may find that opening up to coworkers is both empowering and mutually-beneficial, especially for women.

Equal Pay for Equal Work

Promoting pay transparency within your workplace is the first step to ensuring all employees receive equal pay for equal work. Again, this concept is protected under the Equal Pay Act, though employers can often find ways around it.

You can advocate for your human resources (HR) department to conduct a pay equity audit or analysis. A pay equity audit will show your company leaders where possible inequities exist on the payroll, and what factors may be influencing those inequities (such as gender, race, or family status).

You may have more success in making this happen if you’re in a leadership position. But hiring managers or trainers can also make the case that pay equity is a big draw for future candidates, meaning it might increase your company’s success in attracting and retaining talented, high-performing employees.

Polish Your Compensation Negotiation Skills

If you’re looking for a substantial salary increase, it may be more beneficial to switch companies entirely. Most businesses have a larger budget for attracting new talent than they do for rewarding current employees, so promotions within an existing company role tend to result in more minor pay bumps than starting somewhere new might.

With that in mind, salary negotiations as you join a new company are significant — this is when you’ll likely have the most leverage to influence your income. Yet, unlike men, few women tend to negotiate for higher pay during these discussions, and, even more frustratingly, fewer women are likely to receive what they asked for.

When you’re approaching salary negotiations, here are a few tips for earning what you deserve:

• Know and demonstrate your worth. Research comparable positions in your industry and their respective salaries, and look at the different responsibilities you’ll have in your role. Listing out the value you bring to the table, and knowing what that value is worth on the market, goes a long way in salary negotiations.
• Give notice. Don’t spring a salary negotiation on your employer. Instead, let them know in advance you’d like to discuss your compensation and role at the company, and send them any necessary materials so they can prepare.
• Compromise, don’t compete. You don’t “win” a salary negotiation, you compromise to find a balance that works for both parties. Come in expecting to negotiate, and know what you’re willing to compromise on.
• Set healthy boundaries. Know your non-negotiables, and don’t be afraid to walk away. Whether you have a minimum salary you’re willing to accept, or you’re looking for a shift in role or responsibilities, identify your boundaries ahead of salary negotiations to stay true to yourself.
• Negotiate for alternative compensation. Even if your base salary can’t be increased, you can always negotiate a better bonus plan, employee stock options, more time off, etc.

Creating Equality for Women in the Workplace

Our team members at Abacus are fierce and passionate advocates for diversity, inclusion, and equal pay. If you’d like professional guidance around addressing any gaps in your own savings and retirement plans, or advice for negotiating fairer pay at work, we encourage you to book a meeting with one of our advisors today. We are stronger, together.

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Fourth Quarter Market Review

In the last quarter of 2023, there was a notable easing of financial conditions. The Federal Reserve, acknowledging in October that the proceeding months had witnessed a tightening of financial conditions, indicated a dampened need for additional rate increases. This sentiment was reinforced by the Fed’s decision to hold interest rates steady throughout the quarter. By December, policymakers were projecting three rate cuts in 2024, signaling a supportive monetary policy environment.

Against this backdrop, the disinflation trend gained further momentum, as shown in Exhibit 1 below. Core PCE inflation for November came in at 1.9% on a six-month annualized basis, marking the first time in over three years that the measure had fallen below the Fed’s target. This development underscored the growing evidence of moderating inflation pressures.

Data from 12/1/2022-11/30/2023. Source: Bureau of Economic Analysis from FRED.

Meanwhile, consumers demonstrated remarkable resilience, with positive retail sales figures and sustained consumer confidence. Corporate earnings reports over the past several months were also generally robust, highlighting the continued strength of the US economy.

Aligned with the strong economic backdrop, the fourth quarter presented a favorable environment for investors, with positive returns for the quarter across stocks, bonds and real estate, as seen in Exhibit 2.

Source: MSCI

Reflections on 2023

While the overall sentiment in the fourth quarter of the year was positive, there’s more nuance to  dig into when looking back at the entire year.

You may recall, early in 2023, many experts predicted a recession in the new year, citing factors such as high interest rates, consumer uncertainty, and geopolitical tensions. Despite these gloomy forecasts, markets had a pretty good year! The Federal Reserve raised interest rates several times, but at a more gradual pace than previously anticipated. This helped to ease inflation concerns and bolster investor confidence, as was evidenced in the aforementioned fourth quarter.

A standout performer in the market was the artificial intelligence (AI) industry, exemplified by notable gains in stocks such as NVIDIA, which soared by over 230%. The enthusiasm was fueled by increasing interest and excitement in chatbots and other language models. However, with great power comes great responsibility – and this growth sparked discussion and calls about the need for stricter regulations and ethical considerations surrounding AI use. We covered our take on AI and how it affects your investment portfolio in detail in our Q3 Reflections update.

We saw continued criticism around values-aligned or ESG (Environmental, Social, and Governance) investing, including greenwashing, lack of transparency, conflicts of interest, performance trade-offs, and political polarization.  These controversies highlight the complexities and challenges associated with ESG investing, and why it’s important to have a trusted advisor to help you navigate creating a portfolio that truly aligns with your financial goals and societal values. Exhibit 3 below demonstrates that it is possible to integrate values without sacrificing returns.

Source: MSCI

In March, we witnessed a minor banking crisis that caused a ripple of jitters in the market. Banks like Silicon Valley Bank, Signature Bank, and First Republic Bank encountered challenges, and ultimately failed, due to issues with their balance sheets in the face of the Fed’s efforts to curb inflation. However, the government stepped in to guarantee uninsured deposits, and the situation resolved itself without any major fallout.

Persistent geopolitical issues, such as the enduring conflicts in Ukraine, the Middle East, and the heightened tensions between the US and China, consistently garnered attention in the headlines. Nevertheless, in the face of these global concerns and distressing events, the market exhibited resilience.

Despite the myriad of headlines and events, along with notable market volatility, 2023 ultimately proved to be a good year for investors across different parts of the market as shown in Exhibit 4 below.

Date as of 12/31/2023. Performance in USD. Periods greater than one year have no guarantee of future results. Source: Dimensional Fund Advisors

Investors who stayed invested and committed through the challenges in 2022 and didn’t let fluctuating headlines and volatility throughout 2023 sway their investment plan were duly rewarded. We see this displayed in Exhibit 5.

Source: Bloomberg Finance L.P. Data as of December 14, 2023 Note: U.S. Equities represented by S&P 500 Index, World Equities by MSCI World Index, 60/40 MSCI World and 40$ Global Aggregate Bond Index (both in USD terms), U.S. High Yield by Bloomberg U.S. High Yield Corporate Index, USD Cash by Bloomberg U.S. Treasury Bills (1-3M), U.S. Agg. Bonds by Bloomberg U.S. Aggregate Index, and Commodities by Bloomberg Commodity Index. Past Performance is no guarantee of future results. It is not possible to invest directly in an index.

Looking Ahead to 2024

As we kick off 2024, it’s important to remember that predicting the future is never easy, especially when it comes to financial markets. Last year was a perfect example of this – who could have predicted the unexpected twists and turns we saw in the markets?

Despite the uncertainty, economists and investors love to make predictions and there are diverse opinions abound. And why not? It’s always exciting to try and guess what might happen next. As we start the new year, there are plenty of mixed predictions floating around. Some experts think interest rates will stay higher this year, while others believe they’ll come back down significantly through the course of the year. Some expect Big Tech to keep booming, while others predict a correction. And let’s not forget about global events and the 2024 Presidential election in the U.S. – those typically introduce an additional layer of complexity.

So, what’s an investor like you to do? Well, the first step is to take a deep breath and relax. Remember, no one has a crystal ball that can accurately predict the future. Instead, it’s important to focus on your long-term goals and risk tolerance. Stick to your strategy and try not to get too caught up in the day-to-day market fluctuations. And if you’re feeling uncertain or anxious, don’t hesitate to reach out to a trusted financial advisor for support.

Ultimately, the key to success in investing is to stay disciplined and patient. Easy, right? Okay, maybe not always easy, but definitely worth it in the long run.

Happy New Year, and here’s to a successful 2024!

Disclosure:

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your Abacus account holdings correspond directly to any comparative indices or categories.

Please Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Abacus accounts; and, (3) a description of each comparative benchmark/index is available upon request.

Please Also Note: This material is not intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Abacus Wealth Partners is not an accounting firm. Please consult with your tax professional regarding your specific tax situation when determining if any of the mentioned strategies are right for you.

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