How Financial Advisors Can Help Close the Racial Wealth Gap

Key Ideas

• The racial wealth gap extends beyond income to investing, retirement savings, and homeownership.
• Greater trust and representation can improve access to financial advice and wealth-building opportunities.
• Closing the wealth gap could benefit both communities and the financial services industry.

Understanding the Racial Wealth Gap

Earlier this month, professionals from across the industry gathered in Chicago for the 20th annual Conference of African American Financial Professionals (CAAFP). In his session, “How Lifetime Learning Builds Specialists Who Endure,” CFP® Certification Education and Chartered Financial Consultant® (ChFC®) Program Director Alfonso Cobb, EdD, MSPFP, MSAT, MSFA, CPBC®, CFEI®, MPAS®, CSM®, examined one of financial services’ most persistent challenges: the racial wealth gap.

Cobb's research explores how differences in financial literacy, investment behavior, and access to financial professionals have contributed to disparities in wealth accumulation for African Americans. It also points to an opportunity for the industry: by expanding access to financial education, building greater trust and representation, and continuing to develop financial professionals, the industry can help more people pursue long-term wealth-building opportunities.

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How the Racial Wealth Gap Extends Beyond Income

Cobb's research highlights disparities across many aspects of financial life, including investing, retirement savings, homeownership, and inheritance. His research begins with the significant differences in wealth accumulation between African Americans and White Americans.  

For example, the research points to a significant difference in stock market participation. While 71% of White Americans invest in the stock market, only 55% of African Americans do. In 2019, African American families had a median net worth of $24,100, compared with $142,500 for White families.¹ Investment and retirement behaviors can further widen these differences over time.  

Cobb cites research showing that 33% of African American households owned equity investments in 2019, compared with 61% of White households.² Median retirement savings for African Americans ages 25 to 61 were also less than half those of White Americans.³ These numbers illustrate a broader point in Cobb's research: even when income is similar, differences in financial behaviors and access to wealth-building opportunities can impact long-term financial goals.

Trust and Representation in Financial Services

Cobb also examines the relationship between representation and trust in financial services.

According to the Ariel-Schwab Black Investor Survey, just 35% of Black investors said they felt they were treated with respect and professionalism by financial services institutions, compared with 62% of White investors. The survey also found that 63% of Black investors consider a firm's racial diversity when deciding whether to become a client.¹

At the same time, African Americans remain significantly underrepresented among financial advisors. Although African Americans accounted for approximately 14% of the U.S. population, they represented only 3% of financial advisors.⁴ For Cobb, increasing representation is more than a workforce issue. It is also an opportunity to expand access to financial education and advice, strengthen trust, and create more connections between financial professionals and communities that have historically had less access to those resources.

How Advisors Can Support Better Decision-Making

This is where lifelong learning becomes especially important. If financial professionals are going to serve as trusted educators as well as advisors, Cobb says, they need to continuously expand both their technical expertise and their understanding of how clients make financial decisions.  

Cobb's research calls for financial professionals to develop a deeper understanding of behavioral finance, helping them better recognize the factors that influence clients' financial decisions. That perspective can help advisors become more effective financial educators — professionals who can translate complex financial concepts into guidance clients can understand.

It also speaks to the broader role of professional development in financial services. As clients' needs evolve, so must the expertise of the professionals serving them. Continuous learning can strengthen an advisor's confidence and credibility while helping them build lasting relationships.

Why Closing the Wealth Gap Matters

Cobb's research also suggests that closing the racial wealth gap would benefit more than individual households. Greater financial inclusion could create meaningful economic opportunities for the financial services industry and the broader economy.  

Cobb cites research estimating that by increasing African Americans’ access to financial products, the financial services sector could create approximately $2 billion in additional annual revenue. If the median wealth and stock investment rates increased for African Americans to a level comparable to that of White Americans, the industry could see $60 billion in additional annual revenue.⁵

But the opportunity goes beyond numbers.

Cobb's research points toward a financial services industry that is more representative, more trusted, and better equipped to educate the communities it serves. Expanding the pipeline of African American financial professionals — and supporting those professionals through continuous learning — can help create stronger connections between financial expertise and the people who need it.

Closing the racial wealth gap is a complex challenge with no simple solution. But as Cobb's research illustrates, developing knowledgeable, trusted, and continually learning financial professionals can be an important part of building a more financially inclusive future.

More on Representation

• Learn more about the Center for Economic Empowerment and Equality
• Gain additional insights on knowledge gaps in the industry with The Advisor Expertise Study
• Help clients enhance their financial literacy with Know Yourself, Grow Your Wealth®