Three Ways Financial Advisors Can Advance Racial and Gender Equity

When looking to meaningfully address the gender and racial wealth gap, investors should consider parking their funds at financial institutions like HOPE Credit Union (HOPE) that are in the communities where this work needs to happen.

At the onset of the pandemic, as market rates dropped and the country responded to the murders of George Floyd and Breonna Taylor, HOPE experienced an uptick in corporations and other deposit aggregators calling to make deposits. The conversation was easy. The rate of return was barely concessionary, and these organizations had a very direct and easy way to publicly show investment in advancing economic justice. Now, some are choosing to pull deposits because the rates are too low.

HOPE’s priorities and the reality of our borrowers have not changed. We still need these deposits to fuel growth in deploying capital to disadvantaged communities. Consider the story of Courtney Tobias. Ms. Tobias needed capital for her start-up, Lunchroom Coffee, an organic fresh-roasted coffee distributor in Louisiana. Like too many women and business owners of color, she met resistance from traditional financial institutions. Ready to give up, she thought she was “done with lending institutions because they weren’t structured for people like me.” Before giving up, she was referred to HOPE and was provided a $10,000 loan structured to support entrepreneurs affected by the pandemic. Today, her product is sold in 13 retail outlets and she maintains a robust online presence. Looking ahead, she wants to expand by purchasing a trailer and, ultimately, building her own manufacturing facility.

These loans are made possible because HOPE is a trusted partner in the community and also representative of the community it serves. Nearly 70% of HOPE associates are people of color and 72% are women, and this extends to HOPE’s senior leadership as well. We know from FDIC research that Black owned banks locate in Black communities at much higher rates than White owned financial institutions. And not surprising, they lend at much higher rates to Black homeowners and small business owners seeking credit. 

Further, the loan is made possible through HOPE’s core deposits, many of which are available through HOPE’s Transformational Deposits program. 

Transformational Deposits Stand In For Core Deposits

Core deposits (regular checking and savings) come with lower rates of return while fueling loan growth in mainstream institutions. HOPE and other community development depositories differ in access to these deposits. Two out of three HOPE members – on any given day – have less than $1,000 in their savings account. HOPE must use Transformational Deposits – money market accounts and certificates of deposit (CDs) with below market returns as “stand-ins.” According to data from Callahan & Associates, HOPE’s core deposits compared to total deposits is just 20%, whereas peer credit unions in Mississippi and across the U.S. consistently have core deposits that comprise 40%.

When you consider that fixed income is one of the largest asset classes in the United States, there is the opportunity to unlock substantial capital from mainstream investors to fuel direct lending to capital starved communities. 

What Can Financial Advisors Do?

If your clients would like to invest to close the equity gap for women and/or communities of color, have a deliberate conversation about what kinds of returns are reasonable from these investments to make progress. Some minority depository institutions have raised interest rates to follow market trends for CDs. For these institutions located in Chicago, New York, or Los Angeles with greater population density, core deposits are more prevalent than in rural towns across the Deep South.

Below are some topics to consider towards unlocking fixed income assets for gender and racial equity investing: 

1) Have a conversation with a minority depository institution. Ask the minority depository institution about their deposit needs.

2) In client conversations, discuss why these deposits are important to closing gender and racial wealth gaps. Conversations with clients should highlight this avenue to help close the gender and racial wealth gaps with low-risk deposits insured up to $250,000, while will capitalizing the credit union to fuel lending to these communities. In Steven Rogers’ recent book, A Letter to My White Friends and Colleagues, he notes that “the absence of banks in the Black community is akin to the canary in the coal mine. The death of the canary signifies that there is human danger due to a lack of oxygen in the area. Black communities without banks are also starved of metaphorical oxygen in the mines of financial resources needed for people to live healthy lives.” 

3) Standardize this offering for your clients. The firm Natural Investments, which has specialized in socially responsible investing for more than 30 years, has offered client deposits at HOPE for many years. Working with 9 advisors, HOPE now as more than $20 million through our Transformational Deposit program. Michael Kramer, Principal at Natural Investments notes, “More and more of our clients have wanted to make larger investments in people and communities of color, and HOPE offers the perfect opportunity for them to invest in a strong, high impact institution with deep roots in places where capital is most needed.” These advisors have a direct line to HOPE associates who know the firm and whose role is dedicated to working with advisors to open and service client accounts. Further, impact reporting is baked into the process with quarterly and annual updates on HOPE’s impact in communities across the Deep South.