Cultural Competency: How Advisors Can Educate Themselves on the Immigrant Experience

Editors Note: This column is part two of our series on the intersection of financial advice and different cultures, historical backgrounds and identities. Morningstar Office clients can find more Morningstar DEI research and commentary here.

Drs. Sen & Sen come to you for advice. They are immigrants from India and have a 7-year-old child. They are good at debt management but are nervous about the financial norms/maze of their adopted country. As you speak to them, they mention that a major concern is the care of their child given that they have no relatives in this country.

How would you rank the following priorities for this couple?

a) Retirement Planning b) Life Insurance Planning c) Estate Planning d) None of the above

Many of us would prioritize insurance, then retirement, and then estate planning. But the Sens are perplexed when you present your plan. Their choice would be “none of the above.” They wanted to see education planning, and insurance was not even in their radar.

This was a real-life scenario with one of my clients (their name have been changed). Even though I am an Indian immigrant myself, I was finding it difficult to help them realize that life insurance planning was crucial.

And this is just one example of how financial advisors need to better understand the client’s cultural "pain points" in order to provide them the advice that they need.

As financial planners, the first checkpoint is to understand our client’s “BP,” that is, their background and philosophy, along with their needs and objectives. Each immigrant has a story, and it is imperative that the planner knows and respects the story.

My husband and I left our country for a better future (through education in particular), leaving behind a well-paying job and all the comfort of a known environment. I write this column both to tell the story of my own experience and to shed some light on the immigrant experience with finances more broadly.

We are by no definition risk-averse, but our willingness to assume risk in the financial markets may appear to be very different for two reasons--a lack of understanding of the financial jargon of our adopted country and different goal priorities. I did not understand what a Roth was, and most immigrants do not recognize that a Roth can also be used as a vehicle to finance their child’s education. For us, our family goals are more important than personal goals.

The Changing American Landscape The demographics of the United States have changed over the years. Nearly 14% of the U.S. population was born in another country, numbering more than 44 million people in 2017. The change has been gradual, but the systems that clients must navigate and, to some extent, the way we think about how our clients make decisions are constrained by our past.

How does the diverse client-base differ from the previously homogenous client-base in accessing financial services and products? What can we do to help them navigate the maze of their adopted country? As financial planners, we need to educate ourselves first about our clients’ values and goals. Our client-base is diverse and so are their attitudes toward finances.

Who do the immigrants want to work with?

Someone who respects their culture. How an immigrant thinks about finances is largely influenced by culture, upbringing, and experiences in the adopted country. Personally, my experience with financial advisors who needed to know my net worth to measure my suitability as client was outright insulting to me. I was not at all comfortable discussing my finances with a professional who has standardized way of deciphering clients.

As an immigrant, I am looking for an expert who respects my cultural values and understands how they impact the financial goals of my family.

Let’s look at some of the issues that may lead to different experiences around financial advice:

New and Different Financial Services and Tools The U.S. financial system is set up differently from other countries, and some of the investments and services that immigrants might have had freely available in their home country are now privately funded. For example, pensions plans may still be widespread in their home country. The public may not have complete and easy access to various ways to participate in the stock market as they do here. Some financial instruments might not have been available to them in their home country.

And take the example of insurance. Insurance products and sales are very different in other countries. Your immigrant client may not realize the importance and affordability of term insurance in the United States. Instead, based on their experience in their country of origin, they may be viewing insurance as an expensive low-return investment, along the lines of an annuity.

Key takeaway: Immigrants may need help in deciphering the financial jargon of the adopted country.

Goal Prioritization Our textbooks here say: "Saving for retirement should be the top goal for everyone." It is common to hear statements like "You cannot borrow for your retirement, whereas you can borrow for your child's education." Therein lies the issue of not even attempting to understand the other person's viewpoint.

For me, retirement was never the top goal. Most immigrants come to this country for a better life for their children (that includes education) or education for themselves. As with the Sens, it is engraved in their culture that the education goal is second to none. This does not mean they are not thinking about their retirement. It is just that their priorities are not in sync with what the U.S. textbooks and the profession here vouch for. Their retirements plans could be very different in that their retirement ticket is "education for their children."

Key takeaway: Do not impose the benchmark client’s goal prioritization on the immigrant client.

Differences in Portfolio Allocation Even with the same risk profile, you will notice a substantially different portfolio allocation among the immigrants and the benchmark client that represents the majority (white) culture. Immigrants may not be fluent in the advisor's jargon, but when they think about asset allocation, they are thinking about both asset diversification and location diversification. Location diversification in their case isn't taxable accounts versus tax-advantaged accounts. For them, location diversification translates into cross-border diversification. This means factoring in cross-border tax impact, liquidation of assets held abroad, and the risk of repatriation of those assets, along with their personal values that influence their portfolio allocation.

For example, illiquidity may be the overriding concern as they may need to liquidate their resources for upfront resettlement in their home country, if that is their overarching retirement goal.

I see myself as an international snowbird, splitting my retirement years between the U.S. and my home country. My portfolio allocation will consist of some resources assigned to my home country, either in the financial market or even real estate that will later serve as my second home during retirement years. For a client such as this, liquidity becomes an important factor in retirement planning. If the client has a Roth 401(k) option, it makes sense to contribute to the Roth 401(k) and then roll it over to a Roth IRA to mitigate penalty.

Key takeaway: Expatriates do have ties in the home country and love to diversify their assets across the borders.

Lack of Trust in the Financial System Immigrants are often not as risk averse as the average individual. Immigrants took the biggest risk in leaving their countries of origin for an adopted country. The lack of trust is not in people but rather in financial and government systems based on previous experiences. Not trusting the system manifests in the immigrant being nervous about putting money into retirement accounts, as they are afraid that the rules might change on them and they will lose their hard-earned resources.

You may see your client shut down by simply replying, “I don’t know.” The interpretation is not simply that they really do not know but rather they are not comfortable sharing this information because of a difference in value systems. It may be more of a stalling tactic, as an immigrant’s top goal is generally not retirement. They may not be comfortable in expressing their viewpoints as their money mindset and their idea of financial freedom is very different from the benchmark client.

I always say, “I do not talk about my finances with everyone. I am comfortable discussing my finances only with someone that I am comfortable to invite to my kitchen table.” So, try to understand me and my views, and nudge and educate me on the things that I do not understand--that is, "nudge-ucate" me while respecting my values.

Key takeaway: Immigrants are looking for an authentic relationship with their financial advisor--someone who understands their cultural values, money-management mindset, and their interpretation of financial freedom.

Uncertainty About Their Future Have you ever wondered what it is like to live in a different world? Well, immigrants and even second-generation immigrants live in a parallel universe simultaneously. As my daughter--who was born here--would say, "I am neither an American nor an Indian. I am certainly not hyphenated." They, like all of us, are tethered by their family and cultural bonds, but the difference is they are simultaneously trying to make a home away from home in an adopted country.

They understand seismic cultural shifts, and so their retirement goals might include going back to their roots--but not really, as now because of their absence they have become alienated from their own country's immediate past. They find themselves in a peculiar status with no place to call their hometown, while every place they live becomes their home. Still, these are their dreams and values, and financial planners need to respect that. A third of retiring immigrants are choosing to split each year across their host and origin countries, traveling back and forth between them. Can we help them reach their retirement goals in a meaningful way? We now understand why they are wary of retirement savings vehicles.

Key take-away: The financial advisor needs to provide sound value-based financial advice and not push products.

Solving the Jigsaw Puzzle We need to understand and change our thinking that benchmarks and standards are firmly anchored. We should not be tethered by our past when the population was majority white. By acknowledging the impact of culture on financial decision-making, financial professionals will be able to better serve their clients. Avoid unconscious biases or standardized solutions.

Take the question: “How do you see supporting yourself during retirement?" There is an inherent assumption that the client must finance her own retirement. We could instead ask:

How do you see yourself living in retirement?

a) Living independently in your own home? b) With family members in a multigenerational household? c) In an assisted-living facility?

Although the client might be thinking, "It is a given that I am going to live in a multigenerational household," they might have never thought of discussing this with their adult children, who may have other ideas. The follow-up question could be, “Have you discussed with your adult children as to how household duties and expenses will be distributed?”

One Last Scenario Mr. and Mrs. Das are first-generation immigrants from India by the way of Canada. They come to you as prospective clients. You pride in your understanding of the Indian culture as you have watched more than a few Bollywood movies.

As you discuss things with them, you realize the wife is taking a back-seat, as is obvious from her silence and body language. It reinforces your understanding of the Indian culture. You have a very good first meeting and schedule a second meeting for the following week. Mr. Das calls you after a couple of days and says that he is not interested in moving further. You are taken aback and probe further. Mr. Das says that his wife does not think you are the right fit.

You brood over the whole issue and wonder what went wrong? Bollywood movies' depiction of Indian culture is not necessarily accurate. What you needed to learn was that the Indian wife, while appearing to take a back seat to "outsiders," is quite often an equal partner in major decisions.

Dr. Nandita Das is a professor of finance and the director of the CFP-board registered financial planning program at Delaware State University. She also advises clients on financial planning through Das Financial Health, LLC. The views expressed in this article do not necessarily reflect the views of Morningstar.