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Diversity, Equity, and Inclusion in Finance

Diversity, Equity, and Inclusion (DEI) is critical to the future of the investment management industry
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Why Is Diversity, Equity, and Inclusion Important in Finance?

A rapidly evolving finance industry demands new capabilities and a more diverse workforce and inclusive workplace cultures. According to CFA Institute's own definition of DEI, diversity is the spectrum of human attributes, perspectives, identities, and backgrounds while inclusion is a dynamic state of operating in which any individual or group can be and feel respected, valued, safe, and fully engaged. Each of these factors must be deliberately encouraged and leveraged to develop a successful, diverse, and inclusive environment. According to a recent PwC Global survey, 85 percent of financial services CEOs polled said promoting inclusion and diversity helps enhance business performance. Other research also supports the business case for inclusive cultures that lead to increased profitability, creativity, and innovation. Indeed, a 2019 McKinsey & Co. study revealed top-quartile companies for racial and ethnic inclusion outperformed those in the fourth quartile by 36% in profitability.

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Diversity in Asset Management

The discussion around motivations for pursuing diversity in investment management often revolves around two main areas: "the business case for diversity" (i.e., with more diverse perspectives, business outcomes will improve) and "because it is the right thing to do.” Overall, asset management firms tend to be in a reactive phase of diversity and inclusion, meaning that actions are taken primarily to comply with local laws and social pressure.

CFA Institute Recruits Industry Partners to Drive Diversity, Equity, and Inclusion in Asset Management

CFA Institute seeks to drive DEI efforts in the investment management industry toward more progressive policies and to demonstrate best practice to create more inclusive investment profession. Through the CFA Institute-led Experimental Partners Program, more than 40 participating firms (representing $17 trillion in assets under management) are committed to incorporating more diverse perspectives into how they run their businesses, and into investment decision making to improve investor outcomes. They are also encouraging the industry to embrace different viewpoints.

A key area of focus is on managing biases, including in hiring and advancement. The impact of the coronavirus pandemic has shown that those firms that have stressed inclusive leadership, built trust through leveraging Employee Resource Groups, and supported regular unconscious bias training for managers adapted more quickly to widely adopted work-from-home arrangements.

External Diversity, Equity, and Inclusion Motivations

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Millennial Trust

More than one in three Americans (35%) in the labor force are millennials, making this group the largest generation of the US workforce. To attract millennials and members of Gen-Z, firms should set out to achieve a broad balance of objectives, including an emphasis on inclusion and diversity.

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Regulators and Policymakers

Diversity is part of the larger conduct and culture focus of regulators. Amid increased regulatory focus, industry standard setters are stepping in to fill the void, including CFA Institute which is developing Environmental, Social, and Governance (ESG) Disclosure Standards for Investment Products.

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Investor Demand

Demand from large investment consultants for DEI data and progress is on the rise, including metrics on asset managers’ investment team diversity in requests for proposals. According to the recent CFA Institute Earning Investors’ Trust study 76% of institutional investors and 69% of retail investors have interest in investment design and products that incorporate environmental, social, and governance (ESG) factors, with a growing number of investors prioritizing racial diversity and justice to create a more inclusive society.

I can’t think of a problem that more urgently requires a better outcome than racism. I believe we need to begin to answer the “what must we do” question by focusing on our firm and how we make it better — for our people, our clients, and our communities.

Ronald P. O'Hanley, CEO, State Street

Teams Dominate

Many firms are recognizing that the diversity of their employees can be a key part of their success. For example, firms are shifting from the “star portfolio manager” model to diverse investment teams, which leads to better outcomes in complex decision making.

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Awareness of Biases

The investment management industry must continue to think more deeply about how behavioral biases affect decision making more broadly and the benefits of diversity in overcoming groupthink. We all have something to learn when it comes to behavioral biases.

Benefits of Diversity, Equity, and Inclusion in the Workplace

  • Innovation

    Finance firms that foster inclusive cultures are more open and innovative.

  • Representation

    Firms that promote diversity, equity, and inclusion also recognize the importance of responding to changing client demographics with a more diverse professional team.

  • Competition

    Diversity, equity, and inclusion enables firms to better serve prospective and current clients and to better compete for top talent.