8 Key Steps to Provide Better Advice to Latino Clients
Opening your firm to a more diverse client base starts with education.
Get Morningstar's essential reading for financial professionals in Advisor Digest. Editor's note: One quick point on terminology: While we are using Latino in this article, you might have clients who identify as Hispanic or Latinx. If it's relevant to a conversation, it is worth asking if they have a preference.
I jokingly tell my clients that I started my financial planning career when I was 8 years old.
My mother was the last of nine children in a family of 10 that received a visa to leave Colombia and come to the United States in 1983. She arrived in the U.S as the single mother of three--myself and my two older brothers.
I quickly learned English and became the check writer, and translator, before there was "Press 2 for Español." To help my mom, I called the utilities companies and anyone else who didn't speak Spanish. I experienced the angst and frustration that came along with learning a new language and new systems along with a lack of funds.
After a midcareer switch into the financial planning industry, what surprised me the most was the limited way in which financial planning operated outside the realm of high-net-worth clients. There was little connection between the basics--taxes, investments, estate planning, and so on--and the information that comes with listening to the human side into the equation.
Then when you consider what is available to the Latino community provided by Spanish-speaking financial advisors, the options are extremely limited. According to the Certified Financial Planner Board, as of 2017 less than 3.5% of certified financial planners were Black or Latino. And yet these demographics, along with other nonwhites, are projected to represent a majority of the U.S. population by the year 2045, according to the U.S. Bureau of Labor Statistics.
As other advisors have highlighted in this series, opening your firm to a more diverse client base (not to mention, employees) starts with education.
Here are some areas to understand and explore to help you better serve Latino clients.
There are big differences in the history and culture across the Spanish-speaking world. Clients from Cuba, Mexico, Colombia, and Argentina all bring different economic, social, and cultural histories into your office. Do your research and learn more about the commonalities and differences in the political and financial systems, as well as social aspects of their lives, such as greetings or even their food.
My grandparents, who left Colombia many years before my mother could, were considered middle class and continued their jewelry business when they arrived in New York, while also running a small grocery store. It's common that people can't continue their prior profession immediately. You may find wealthy doctors, dentists, and engineers, working in less desirable jobs until they can get their transcripts translated and retake licensing exams in the U.S. to pursue their vocation. Additionally, they may have more assets in their prior country such as a pension that may or may not be allowed to be rolled over to the U.S., but that can significantly shape their retirement income needs.
I encourage American-born advisors to ask about assets in the U.S. and abroad. I have two clients with homes and businesses abroad, and they plan to sell and then invest the proceeds in the U.S. An advisor can add significant value by helping them navigate taxes, estate planning, and international pension systems. If a prospect calls and has an accent and isn't familiar with the American system, don't turn them away.
If your clients come from a country where the banking system has failed and their life savings disappeared overnight, the experience of having gone from riches to rags can be absolutely devastating and leave a lasting impact. Trust in the rule of law and financial stability don't come easily.
I learned a lot from an Argentine who lost liquidity during the 1998-2002 great depression, so when shocks happen to a client's portfolio, I need to be sensitive to this. I have another client who is willing to pay us a significant amount for financial planning but does not want us to manage his portfolio for fear of the funds losing money. Another wants to spread assets and how they are held across several countries.
This can show in other ways as well. Cubans may be more hesitant to depend on Social Security and other safety nets built into the U.S. system because they view them as communism or socialism. Instead, they may think they should be responsible for creating their own wealth via building a small business before setting up retirement savings that could be wiped out--like they were in their native country when communism took over.
With all of these clients, we need to work on educating them over time about the safeguards in our system to build their trust.
Owning real estate outright is a bigger deal than you might realize if you don't ask the right questions. It represents financial security and safety. For some, it means that no one can make you homeless again. For others, real estate is the best investment return you can get when you can't trust your own government, banking system, currency, or double-digit inflation. In other words, it means both emotional and physical security. Clients may struggle with the idea of investing savings in the markets versus putting it all into property.
When you combine a history in your client's country of origin that leads to nervousness about the stability of financial systems with the importance of having a home, there may be a reluctance to hold mortgage debt even when it's in his or her long-term financial interest.
Showing the difference between putting money into paying off a home and investing in tax-deferred or taxable accounts coupled with tax savings recently changed a client's view on buying a $1 million home to instead using a mortgage as leverage to build wealth with the rest of the funds in cash.
I find that many Latino clients don't understand college savings options and the availability of federal financial aid. When I decided to go to college, my brother financed my first semester. I borrowed about $400 and off to college I went. After I enrolled, I found out about college financing. You mean there are other ways to finance school besides asking my brother for money? Who knew? Clearly, I didn't, and many other immigrants may not know, either. I once had a client contemplate cashing out 100% of a Roth IRA--a large portion of his retirement assets--to pay for a child's education. In the end, the client opted for student loans with the strategy of pursuing loan-reduction strategies after graduation.
Taking the time to explain how college can be financed, prepaid savings plans, and the benefits of 529 plans without just suggesting that clients go research these options will go a long way in helping them make better financial decisions.
The older generation says, "Retirement savings? What is that? My kids will take care of me." Both generations accept this as the norm. Family comes first, and they will take care of each other. If your clients are fortunate to have benefited from their parents' sacrifices, they'll feel gratitude and an obligation to support them. This is a budget item that needs to be respected.
I had a recent conversation with a prospect who felt comfortable enough to tell me that he and his wife financed an extension built out at his in-law's home so they could live there to support his mother-in-law now that her husband passed away. He repeatedly told me that he knows he's a bit behind with his own retirement planning, but that family comes first, and his own plan is a second priority. As we moved into his retirement projection, I needed to factor this into his plan while also making sure he is comfortable with the income he may get from his investments to sustain him and his extended family. I have another client who was planning on living with his spouse in a small condo tell me that now that both his and his husband's fathers passed, they plan to purchase a larger place to accommodate their two moms and serve as their primary caretakers.
Working longer if needed to take care of family is a top priority. Talk of sending parents to a nursing home without understanding this would be almost insulting.
This is a tricky one. Many Latin cultures are patriarchal. Not all Latino couples will be this way, but couples in all cultures have one person that is more the "CFO" of the family than the other. It may not be comfortable for you, especially if you are a woman advisor. It goes against the trends happening today. But remember, that even if you are from the U.S., your grandparents were likely that way. Latinos may change over time, as we all do when we are part of a new culture, but we need to accept where many are today.
The American way is not the only path to financial security. Really listening and not making assumptions are always important in our roles as financial advisors, and especially important in the Latino community. Take the time to ask questions and understand their goals and values, before making recommendations. Be a safe place for your client to trust you by setting clear goals, identifying obstacles, and honoring fears. In other words, ask more questions and make fewer assumptions.
Catalina Franco-Cicero joined Tobias Financial Advisors in October 2017 as a financial advisor. In this role, her responsibilities include client relationship management, financial plan design, and advisory of retirement plans--401(k)s--for small businesses and delivery of financial wellness education programming to their employees. In addition, she also works with Spanish-language clients and serves as a mentor for the next generation of advisors on the team. Franco-Cicero switched careers to the financial-services industry in 2011. Prior to switching careers, she was a wellness professional and adjunct professor with Barry University. The views expressed in this article do not necessarily reflect the views of Morningstar