Morningstar - Q3 2021 - 19

gGender-diverse firms are 15% more likely to
outperform, whereas racially/ethnically diverse
firms are 35% more likely to outperform.
gIn the past five years, the impact of genderdiversity
success increased to a 25% greater
likelihood of outperformance.
gAmong the many benefits of DEI are improved
customer experience, greater employee
satisfaction, and better decision-making and
innovation.
gFirms with diverse leadership are 21% more
likely to outperform in terms of profitability and
27% more likely to have superior valuecreation
results.
Another way to look at it: In addition to the
huge and compounding opportunity
cost, what's the real negative impact on
productivity and profitability of failing to pursue
and practice DEI?
The math illustrates this profoundly. If your
firm can achieve a growth rate only a third of
what McKinsey observed of gender-diverse
organizations, this could be worth as
much as 28% in additional revenue growth in
the next five years.
Irrespective of your firm's margins, this significant
improvement can become even greater the
better you get at DEI. If you can achieve
comparable racial and ethnic diversity, the payoff
is even bigger-as much as an additional
74% in revenue growth in the next five years.
Your Two Constituencies
So, given the depth, breadth, and conclusiveness
of the research-though there may be a few
advisors who still refuse to accept the data-
how exactly does one practice DEI in ways that
lead to sustainable superior performance?
One way to address this opportunity is to think
of your two client constituencies-your
internal clients, who are your colleagues, and
your fee-paying external clients-as advisors.
Increasing your organizational cultural fluency can
lead to meaningful improvements in your
relationships with both of these groups, which
in turn can lead to the outsize performance
that the DEI research reveals.
For example, research shows that having more
female advisors makes your firm attractive
to female investors, who now collectively control
more than half of all assets to be managed.
But-and I'm speaking mainly to men here-
to attract and, more importantly, retain female
professionals, your firm's culture will have
to be welcoming to them.
That means conducting a cultural audit that will
help you understand your firm's positives
and negatives from the perspective of your two
client constituencies. Then you can begin
the meaningful work of evolving your firm's culture.
This will not only lead to a better gender mix
among your advisor colleagues, but it will
also make your firm much more attractive to
female clients and prospects.
Again, why should you consider this? Because,
according to one expert organization, achieving
better gender diversity in the wealth-management
industry could lead to an additional $25 billion
in fees for advisors and their firms.
The How-Tos
To position your firm to benefit from these
efforts, you can connect with industry associations
and other groups that will bring you into
communication with female advisors at various
career stages. You can then complement
these efforts by increasing your outreach to
organizations that can connect you with
professionals of color, those who are nextgeneration,
members of the LGBTQ+ community,
people with disabilities, or any group with
whom your firm has little real experience.
Or hire a DEI consultant to explore the myriad
ways to do this.
Yes, there may be some initial discomfort at the
beginning stages of these outreach efforts, but the
magnitude of the enhanced performance that
can follow will more than compensate for this.
It's incredibly important to remember that bringing
more-diverse talent in the door is just the first
step. You must complement this with an ongoing
focus on inclusion, integrating these new
colleagues fully into the life, culture, and work
of the firm.
Here are some of the key steps:
1 Education: This is for both yourself and your
existing team members. Learn about the
realities of DEI (both the benefits and costs). That
means coming to grips with the business
case for DEI and what it really takes to pursue it,
and then committing to it.
2 Perform a cultural audit: Use surveys and other
methods to objectively assess the perspectives of
all the firm's constituencies/stakeholders-leaders,
employees, clients, the broader community
(professional and geographic), and so on.
3 Cast a wider talent net: Create purposeful and
sustained engagement with sources of morediverse
talent and eliminate hiring biases in the
selection process.
4 Create an employee experience that leads to a
similarly positive and competitively differentiated
client experience by managing in a holistic
and bespoke way.
One last thought to help you develop the courage
to overcome your initial discomfort or unease:
The potential productivity increases will translate
into improving your firm's enterprise value.
Whatever valuation method you use, what will
become crystal clear is that your firm's ultimate
value can be amplified by your DEI efforts.
Is this guaranteed? No. Does it require real work?
Yes. Is it possible that you could struggle in
this effort? Of course.
In the end, do it for the right reason-that it's
great for colleagues, clients, and your firm.
Or do it for the less noble but nonetheless worthy
reason-that the potential payoff will be
huge in terms of medium-term profitability and
long-run enterprise value. But by all means
do it. Stop just checking the box and embrace
the DEI opportunity fully. K
Walter K. Booker is the chief operating officer of
MarketCounsel, a business and regulatory consulting
firm for Registered Investment Advisors. The views
expressed in this article do not necessarily reflect the
views of Morningstar.
morningstar.com/lp/magazine
19
https://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters https://www.mckinsey.com/business-functions/organization/our-insights/delivering-through-diversity https://www.mckinsey.com/business-functions/organization/our-insights/delivering-through-diversity https://www.oliverwyman.com/our-expertise/hubs/gender-diversity-in-financial-services.html http://www.morningstar.com/lp/magazine

Morningstar - Q3 2021

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Contents
Morningstar - Q3 2021 - Cover1
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