Getting Retirement Advice Isn’t Always Easy for Black Savers

Programs include:

• Down payment assistance (DPA). Offered by state governments and many cities and counties, DPA programs provide grants or loans to help cover the initial costs of buying a home. Grant funds do not have to be repaid; DPA loans are typically treated as second mortgages.
• Closing cost assistance. Federal, state and local programs may include help with the fees due at the mortgage signing, typically 3 percent to 6 percent of the loan amount. You can also ask the seller to chip in with closing costs; you’re more likely to get a “yes” when the housing market is soft.
• Homebuyer education classes. Widely offered by states and nonprofit organizations, these courses can help you navigate this often-daunting process, helping you figure out how much house you can afford, where to find assistance programs and how to maintain your home once you move in. Ask your mortgage lender if they can recommend a class in your area (some lenders require courses for first-time buyers).

Getting retirement advice while Black

Historical discrimination in the financial services industry, and elsewhere, has made many African American not just distrustful of advisers but reluctant to talk about their finances at all, says Travis Walker, a business solutions and diversity consultant for Allianz Investment Management.

“My own great-grandfather, I remember vividly, kept his cash in a Hills Bros. coffee can and would not have any conversation about investing. I mean, forget that,” Walker says.

“So now, fast-forward all these years later, you do have people obviously recognizing the need for it,” he says. “But old habits die hard, and a lot of the skepticism is not just born out of the financial services industry. It’s just been everything throughout their existence in the country.”

There are economic obstacles as well. Consider the basic problem of hiring a financial pro when you have limited savings. Black families, on average, have lower incomes and less savings than white families. Advisers typically charge $1,000 to $3,000 for a basic financial plan. Implementing that plan will rack up more fees.

Even $300 can be a significant barrier for households of modest means, says Rodney Brooks, a veteran finance journalist and author of Fixing the Racial Wealth Gap.

Problems also arise from how advisers get paid. Some take commissions for the investments they recommend, creating a built-in incentive to push products with the highest commission, not necessarily what’s best for the investor.

“In many Black communities, the people pushing financial services to them are people whose basic history is pushing whole life insurance, which financial professionals say is a bad investment,” Brooks says. “That goes back 100 years.”

An alternative is fee-only advisers, who don’t accept commissions. Instead, they take a percentage of the assets they manage; their fee only goes up when the client’s account does.

Here, too, there’s a disadvantage for anyone with low income or savings: Some fee-based advisers only take on clients with $1 million in assets or more. Among Black Americans who do have retirement accounts, the median balance is $35,000, versus $80,000 for whites, according to an analysis of federal survey data by the Employee Benefit Research Institute. It can be tough finding an impartial adviser for a $35,000 account.

Diversifying finance

In response to these racial and economic barriers, many financial planners are adapting affordable fee schedules for their clients. Some offer pro bono (free) advice for qualifying clients. Others are willing to work on an hourly basis or provide a basic set of recommendations the client can implement.

There are also growing corporate and academic efforts to open pathways for planners of color and diversify the overwhelmingly white field.

For example, Howard University has an online financial planning program that satisfies the education requirement to become a CFP. Another historically Black institution, Delaware State University, offers a minor in financial planning.

The Black Financial Advisors Network of Raymond James provides professional development work to attract and retain Black talent at the financial services firm, and TIAA operates a professional development program for Black and Indigenous women employees who want to become financial planners and consultants.

If you’re looking for a Black financial planner, the Association of African American Financial Advisors (AAAA) can help you find professionals in your area. And many local and regional nonprofits offer pro bono financial services, no matter what your race. The Foundation for Financial Planning supports vulnerable groups such as domestic violence survivors, wounded veterans, lower-income essential workers and people with cancer. Last year, it helped 124,800 people in need. Sophisticated financial planning tools are also increasingly democratic. Nearly every big brokerage offers so-called robo-advisers — apps and web platforms that help people at all income levels set up and maintain investment accounts and manage their retirement savings.

For those in a position to save and plan, the path to better retirement outcomes is largely the same, regardless of race. Here are a few things advisers consider key.

Save regularly. A good target savings rate is 15 percent of your income, according to T. Rowe Price, but don’t wait if you can’t get to that level yet: Start at 1 percent, say, and try to increase your savings each year. If you have a retirement plan at work that matches your contributions, all the better. At companies that offer a 401(k) or similar plan, Black and white employees contribute at almost the same rate. 

Start as early as you can. The longer you have to save, the more money you’ll probably have for retirement. Encourage your kids and grandkids to participate in their company’s retirement plan. Start their financial education young: “I have a 13-year-old, and I’ve already got him on an app, getting familiar with money and how it works,” Walker says.

Get help if you need it. Look for financial wellness counseling, either from work or the community. Some companies offer employees counseling for debt management, budgeting and emergency savings. The Foundation for Financial Planning has a guide to places where you can find an adviser in your state who does pro bono work.