Wealth Distribution: Black-Owned Investment Firms Tackle Racial Financial Divide | Small business

Bthe lack of investors has long been underrepresented in the stock market; only 33.5% of black American households held stocks in 2019, according to the Federal Reserve Data. But that is starting to change. Across the country, a new generation of young black wealth managers are launching businesses that aim to make investing accessible within the black community — and in doing so, help close the racial wealth gap between generations.

“We all need education, access and tools to be successful, and these are things that weren’t always available to us,” says Calvin Williams, founder of Freeman Capital. The Charlotte, North Carolina company is the only black-owned automated investing platform currently registered with the SEC.

Named by Investment News as one of the “40 Under 40An industry leader to watch in 2021, Williams launched his business with Black investors in mind specifically. He hopes to push back a legacy of “systemic and institutional barriers that have made investing inaccessible and uncomfortable” for Black Americans.

The tides are turning for the better, a shift that is particularly visible among Williams’ other black millennial investors. The 2020 Ariel-Schwab survey of black investors, published earlier this year, found “evidence of growing engagement” in equity investing by black Americans under 40. In fact, 63% of black respondents in this age group reported holding investments, a rate equal to that of their white counterparts. 29% of these young black investors said they started investing in 2020, compared to just 16% of their white respondents.

Williams attributes the rise in stock market participation to both last year’s social justice resurgence and the circumstances of the pandemic. As a byproduct of Covid lockdowns and social distancing mandates, people have been spending less time and money on recreational activities. As a result, young adults in particular found themselves with additional resources to invest, as well as time to consider their options.

Lowering barriers to entry hasn’t hurt either. Williams customers pay significantly lower monthly subscription fees than average $4,000 annual retainer for an account with a traditional business. He says this kind of flexibility is key to increasing diversity among investors.

“By building my own wealth, I learned that if you don’t bring wealth to the wealth management industry, they [often did] don’t want to serve you,” Williams said. “There was no business created with our specific needs” – the needs of black investors – “and our goals in mind.”

In other words, most businesses are ill-equipped to meet the needs of black customers. “If you want to build a business, you have to do it in a unique way with a deep understanding of our community and the solutions they need to help them build wealth,” says Williams.

The racial disparity in the financial services industry is profound. 2019 data from the U.S. Department of Labor indicates that only 5% of American wealth management professionals are black.

But with increased demand from black investors comes increased opportunities for black-owned businesses. William Huston and Ekenna Anya-Gafu — respectively CCO and CFO of Bay Street Capital Holdings, an investment firm based in Palo Alto, Calif. — believe black-owned wealth management firms are poised to grow at a much faster pace than in the past. year.

Part of this opportunity stems from broader changes in the industry, like the rise of beginner-friendly stock trading apps that make investing at your fingertips.

“[In 2020] we heard about Robin Hood everywhere, and now people know that you don’t need thousands of dollars to start investing,” says Anya-Gafu. He reports that between March and December last year, Bay Street Capital saw a more than 50% increase in black investors.

Bay Street Capital takes a similarly inclusive approach with its holdings. While other companies focus on maximizing returns, Huston and Anya-Gafu place a higher priority on total risk management. They choose to invest in companies with positive cash flow, which protects Bay Street investors by avoiding an absolute loss on any allocation.

This approach puts the company in a position to work with black-owned businesses that are good investments but have been told “no” by the banks because they are small businesses or not scalable.

“I’ll give them the time of day,” Huston said. “Right there, I’m making a subset of decisions that another company won’t make. And if there’s revenue, we can build around it, instead of just pumping in cash. It’s a win for everyone involved.

According to Williams, the fight for racial justice includes the fight for financial fairness. “I think what we’ve learned through the social justice movement is that the power of community cannot be contained,” he says. “We’re looking at the holistic impact we want to have on wealth creation in this country.”