Racial animosity and Black financial advisor underrepresentation

Abstract

This study provides compelling evidence for Black underrepresenation in the financial advisor industry. Using a dataset of all U.S. securities-licensed individuals (N = 642,543), we first estimate the racial and ethnic composition of the industry using an algorithm that accounts for name, gender, and location. Second, we use a dataset enhanced by a commercial vendor to restrict the analysis to only those identified as working as financial advisors (n = 237,435). Using Google search volume for a racial epithet as a proxy for area racism, we find that greater racism in a market is associated with greater Black advisor underrepresentation. Overall, we estimate at the individual level that 10.1% of financial advisors are Black (relative to 13.4% of the U.S. population). Furthermore, our results suggest market-level racial animosity toward Blacks is negatively associated with Black advisor representation. We estimate a difference of 0.9 percentage points when comparing markets with the highest and lowest levels of animosity. For the average market with an estimated 11.4% Black advisor representation, an increase of 0.9 percentage points would represent a 7.9% increase in Black advisor representation.