Getting Retirement Advice Isn’t Always Easy for Black Savers

Legacy of discrimination, lack of affordability affect access

John Waggoner,

AARP

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En español

Published October 18, 2023

senior couple sitting with their financial advisor in their home during the day

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Chris Woods didn’t grow up in a household that trusted financial institutions.

His father grew up in the South when Jim Crow laws restricted where Black people could learn, eat, shop and bank. As an adult, when his father wanted to buy a house, he had to cope with redlining — the practice of denying Black homebuyers access to loans or entrée to particular neighborhoods.

“African Americans who are aging now, the boomer generation, a lot of them didn’t seek that financial advice because of their lack of trust in institutions,” says Woods, an adviser himself at Silvis Financial, a firm he founded in Charlotte, North Carolina. “I think in the Black community, it’s not something that was modeled for us by our parents, in a lot of cases.”

That may help explain why Black Americans are less likely to use a financial adviser than white people in similar economic circumstances. In a 2023 survey by Allianz Life of adults with incomes of $50,000 or more or at least $150,000 in investable assets, 36 percent of Black respondents say they have an adviser, compared with 47 percent of whites.

black financial advidor chris woods in his office

Chris Woods, a financial advisor and founder of Silvis Financial at his office in Charlotte, North Carolina.

Travis Dove

A historic distrust of financial institutions is far from the only reason many African Americans struggle to save enough for retirement. Black families, on average, have lower incomes and homeownership rates than white families, undercutting two of the main ways for Americans to build retirement security and generational wealth.

Black families seeking professional help from advisers who share their understanding and personal experience of inequality face a bleak landscape. Less than 2 percent of certified financial planners (CFPs) are African American, according to the CFP Board, which grants the designation.

Nationwide, just 22 federally insured banks have Black majority ownership or control, according to data from the Federal Deposit Insurance Corp. There are 37 Black-owned investment and asset management firms, according to the Association of Black Foundation Executives (ABFE), a philanthropic organization that advocates for investment in Black communities.

Discrimination, lack of trust and fewer sources of financial advice add up to enormous problems building lasting wealth for Black families. “You can see how it becomes this baked-in system, with every generation having less to pass down to the next generation,” Jonathan Welburn, a researcher at the Rand Corp., says in a May 2023 essay on the organization’s blog.

The problem isn’t intractable. Though the racial gap in median household wealth remains wide (and persistent, barely narrowing since the 1970s), average net worth for Black families has grown considerably in the past few years. Many African Americans, such as Woods, are doing quite well. And a range of institutions work to put more and better wealth-building tools in Black hands.

Bringing wealth home

Housing is the backbone of many Americans’ wealth, but for Black families, making this game-changing investment can be especially challenging. The homeownership rate for Black Americans is 44 percent, compared with 72.7 percent for whites, according to the National Association of Realtors (NAR). It’s the largest racial gap in homeownership in a decade.

Where to Find Housing Help

The federal Fair Housing Act prohibits discrimination in housing-related activities, including selling or renting a home, providing mortgages or appraising property. You can take these steps if you believe you have experienced housing discrimination:

File a complaint with the U.S. Department of Housing and Urban Development, which enforces the Fair Housing Act.
You can report mortgage lending discrimination to the Consumer Financial Protection Bureau.
Contact the nonprofit National Fair Housing Alliance (NFHA) or one of its local partner agencies, which advocate for victims of housing discrimination. In some cases, the NFHA can send out testers to see if there’s evidence of discrimination in renting, selling or lending.

One reason the gap has grown is that overall housing affordability is at near-record lows because of a surging housing market and rising mortgage rates. That hits families with lower incomes and fewer assets especially hard. NAR estimates that 17 percent of white renters can afford to buy the median-priced home, but only 9 percent of Black renters can. About 1 in 6 Black borrowers took money from their retirement accounts to buy a home, more than any other racial or ethnic group.

Then there’s just plain discrimination. A quarter of Black homebuyers report that either an owner or real estate agent refused to show them certain properties, and 2 in 5 say they have been discriminated against in a home appraisal, a 2023 NAR study found. Only 6 percent of real estate brokers are Black, and their white counterparts earn almost three times as much as they do, according to NAR.

According to the Boston College Center for Retirement Research, 80 percent of working-age minority renters have less than $5,000 in cash. Black and Hispanic homeownership rates would increase significantly if the people who earn enough to pay a mortgage every month also had $25,000 for a down payment. The Black homeownership rate would jump from 36 percent to about 44 percent. Fortunately, financial help for first-time and low-income homebuyers is more widely available than it was a generation ago, and these programs can be a big help for African American homebuyers as well.

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.

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John Waggoner is a contributing writer of all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously, he was a reporter for Kiplinger’s Personal Finance and USA Today and has written books on investing and the 2008 financial crisis. Waggoner’s USA Today investing column ran in dozens of newspapers for 25 years.