Minority Investors May Offer Huge Potential for Wall Street
Senior Editor, CNBC
Even as Wall Street recovers from the financial crisis, it may be missing out of billions of dollars of potential investment from an untapped resource—minority investors.
"It's a very untapped market with enormous potential," says Dr. Tahira Hira, a professor of financial literature at Iowa State Universityand who conducted a survey on trends of minority investing.
"Like women—Hispanics, African-Americans and Asian-Americans all have financial needs and I think it's easy to say they have not become a big player on Wall Street yet," Hira adds.
"It's really a lost opportunity," says Dr. Mitchell A. Franklin, an assistant professor at the Martin J.Whitman School of Management at Syracuse University. "One reason for this is that statistically there are a smaller number of minority groups on Wall Street offering services and minorities are left out of marketing efforts. They're not really part of the Street's demographics."
Right now, minority groups tend to put their money in safe places like banks, CDs and savings bonds, according to Dr. Hira's study. But that could change as minorities age along with the general population and look for better investment returns to help them in their retirement years, say analysts.
"Minority groups are getting older and they will be looking for someplace to invest for their future like other baby boomers," says Russell James, assistant professor in financial planning at Texas Tech University. "There's going to be a huge shift in the next ten years with these groups to more active investing and the taking of risks, especially the high end earners."
There are no reliable estimates on how much minority investment money could be tapped, but they are clearly becoming a bigger force in the US economy.
Current estimates put the total purchasing power of goods and services for Hispanics at $1 trillion and growing.And their numbers have exploded to 14.4 percent of the total U.S. population in 2006—and they are expected to move from a minority to the majority in the U.S. in 2050.
Asian Americans have more than $579 billion in purchasing power with a median income of $52,018 higher than the U.S. average of $43,318. Overall, the Asian-American population grew 48% from 1990 to 2000, more than four times the growth rate of the U.S. population.
And in a report entitled “African Americans in 2010,” the U.S. black population is said to be growing 34 percent faster than the population as a whole. The purchasing power for the African-American community is expected to reach $1.1 trillion by 2012.
"There's a big opportunity here that most financial firms are ignoring," says Tom Castro, president and ceo of El Dorado Capital in Houston, Texas. "There are a lot of high end people in minority groups that have a lot of financial power that's waiting to be used, whether it's investing in businesses or financial products."
But it doesn't seem Wall Street is looking in their direction—at least not now.
"We do need Spanish language portals out there for people and there aren't many," says Michael Torres, chief executive officer at Adelante Capital Management in Oakland, California. "I don't see Vanguard or Fidelity with one. We have high end and non-high end investors who don't need a Spanish translation. But many do and they're looking for places for their retirement and not finding much."
A spokesman for Fidelity Investments says they target all investors not any single group of investors like Asian-Americans or African-Americans. And the firm doesn't have any domestic literature targeting non-English speakers. It's the same with Vanguard.
Merrill Lynch, now part of Bank of America had an outreach program targeting Latino investors, but a spokesperson there says the plan was stopped "some years ago," but didn't say why.
Lack of those types of programs—along with language barriers—are a problem for minorities, specifically Latino investors says Luis Hernandez, managing partner of Linq Financial, which is part of Mass Mutual, in Miami Florida and caters to Latinos.
"It's tough to put financial literature in Spanish or another language, but by not doing this, they haven't recognized the possibilities of doing business with non-English speakers here in the U.S.," says Hernandez.
Minority groups have their own tendencies
Analysts say Wall Street could also help themselves with minorities by learning specific financial tendencies within a group. Each has trends as shown in Dr.Hira's 2006 study. Some examples include:
- Asian-Americans are confident about their ability to invest, but worry about investment outcomes more than any other group.
- More African-Americans were found to use financial advisors than Asians or Hispanics.
- Hispanics were found to be more conservative in their approach to investing than anyone else.
"Brokers and dealers need to know that minority groups have cultural differences and the groups themselves are not monolithic," says Texas Tech's Mitchell Franklin. "Advisors need to learn those differences with training sessions and educate those advisors on a strategy to appropriately target these groups and market to them in an honest and appropriate manner."
But Wall Street will have to see a profitable bottom line before anything changes, says Ty J. Young is president and ceo of Ty J. Young, a financial advisory firm that has a large portion of African-American clients.
"The Street only cares about the color green, as in money," Young says. "Wall Street always follows the money and it's hard for any investor group to make it (Wall Street) change its behavior to follow one group or another. When Wall Street sees the money, then they might change."
"I don't think it's racial discrimination, but more based on economics," says Manyell Akinfe, senior vice president of business development at Optimum Capital Management. "Wall Street looks at the numbers and sees for instance, that African-Americans put money in banks and invest less than whites."
Akinfe sees improvement in Wall Street's approach if and when minorities do their part.
"The median amount Blacks contribute to their retirement plans is $230 per month, compared to the $337 a month contributed by Whites," Akinfe goes on to say. "When you look at the amount of time and research it takes to put together a solid portfolio a financial professional has to ask himself, 'Do I spend my time working with an individual that plans to invest $230 a month or $337?' If Wall Street notices an influx of minority investors putting up numbers, their attitudes will begin to shift."
In the end, some say Wall Street's attitude should change no matter who invests.
"I don't feel personally discriminated against. I think Wall Street ignores most investors, not just minorities," says 35 year old Jesus Rodriguez, who invests 10 percent of his income as president of his own armored car firm in Miami, Florida.
"The process is not transparent for anyone," adds Rodriguez who employs a financial planner. "Trying to figure out how a fund works and what it does is not easy. The way they put things in writing, it's so hard to understand. They should make it easier to invest for anyone, no matter what color or race they are."