Survey Finds Blacks Remain Underinvested Due To Distrust Of Financial Advisors

Jet, May 31, 1999

Though high-income Blacks are more interested than ever in becoming stock investors, they remain underinvested due to distrust, according to a survey.

The 1999 Ariel/Schwab Black Investor Survey, commissioned by Ariel Mutual Funds and Charles Schwab & Co., Inc., probed a range of cultural factors, such as spending patterns, upbringing and overall attitudes toward the investment community, that have led many Blacks to keep most of their assets in banks, real estate and whole life insurance rather than with brokerage firms or mutual funds.

Many middle-class Blacks have stayed away from stock investing, the survey said, because they lack trust in financial advisors and have had little exposure to saving and investing.

The survey found that just 36 percent of Blacks opened a bank account before high school, versus 54 percent of Whites; barely half as many Blacks (24 percent) as Whites (46 percent) grew up in a home with stocks; and just 43 percent of Blacks have a will, compared to 61 percent of Whites.

Black women are less skeptical of the industry as a whole than Black males and are more open to seeking professional investment advice.

Trust for women, according to the survey, was less of a barrier with just 41 percent agreeing that stockbrokers and financial advisors are "more interested in making money for themselves than in giving good advice," compared to 57 percent of Black males.

Said John W. Rogers Jr., president of Ariel Mutual Funds, "After working so hard to join the middle class, many Blacks are still missing out on the greatest wealth-building opportunity in American history. But the industry is starting to reach out and our community is responding."

Among Blacks with annual incomes of more than $50,000, 56 percent have a brokerage or mutual fund account, compared with 71 percent of Whites, the survey reported. Yet, it was learned that Blacks are more likely than Whites (65 percent to 58 percent) to have an account with an insurance company.

When Blacks were asked where they keep "most of their assets," 44 percent said banks, versus 31 percent of Whites; 17 percent of Blacks said insurance companies, compared to 10 percent of Whites; and just 30 percent of Blacks listed mutual funds or brokerage houses, compared to 51 percent of Whites.

This year's survey also probed deeper into the historical preference Blacks have for real estate investing. According to the survey, 39 percent of Blacks (versus 30 percent of Whites) called real estate the "best investment overall" with many agreeing that it is "tangible," "you can borrow against it," use it to earn "extra income," and "You can pass it down to heirs." By contrast, 47 percent of Whites felt stocks were the "best investment" compared to just 32 percent of Blacks. Despite these differences, both groups define real estate in the same way.

The survey showed that Black women were more interested in investing than Black men and more open to receiving advice from investment advisors. But, they were less likely to do so because of family demands such as caring for children and financially supporting others.

"The barriers to investing are very real, but there is also a clear message from the poll; the Black community is ready to take a giant step forward into the world of investing-and this is even more true of Black women," said Mellody Hobson, senior vice president of Ariel Mutual Funds. "The challenge for investment companies is to understand these barriers and help eliminate them."

Added Michael DeFlorimonte, vice president in charge of Schwab's African-American Marketing Initiative, "The financial services industry won't reach the African-American investor through traditional marketing methods alone. In order to overcome this culture of conservatism, we must continue to build long-term relationships with institutions Blacks know and trust-and there is no short cut to building trust nor substitute for time and commitment."