When asked at the IMCA 2010 New York Consultant’s Conference on January 11 to pick an asset class for the next 10 years, Nouriel Roubini, professor of economics at New York University’s Stern School of Business, highlighted emerging markets, since, he explained, the "share of the global economy from emerging markets is rising; from the advanced economies, falling." Roubini added that it’s "a trend that’s likely to continue." The majority of the members of Investment Advisor’s panel of market gurus (see page 7) agreed with the statement that "Global investing is the best place for alpha in 2010," though with a caveat or two. (See long-time IA contributor Ben Warwick’s take on what’s ahead in the markets for 2010 on page 31).
However, independent American advisors also are rooted in geography: they operate by definition close to home, in a specific town or neighborhood; they are often active benefactors of their communities; and their clients are often of a specific type. But there are more "types" than ever in the United States. We are a diverse country, though at 11.1%, the percentage of Americans who are foreign born is quite a bit below the 14.7% record high as measured by the Census Bureau exactly 100 years ago, in 1910. Jody Agius Vallejo of the University of Southern California points out that unlike the immigrants who arrived at the turn of the 20th century, today’s are "notably non-European: 85% of the country’s immigrants arrive from Asia, Latin America, or the Caribbean." In fact, says Agius Vallejo, while immigration has slowed down over the past decade, using the latest statistics from the 2000 Census Bureau, the U.S. foreign-born population exceeded 34.2 million as of 2004, and the U.S.-born second generation accounted for another 30.4 million. Immigrants and their children comprise almost 65 million people, or about 23% of the U.S. population.
Agius Vallejo further points out that a "quarter of the labor force growth in the next 20 years is going to be children of Hispanic immigrants," whose spending power is likely to "reach about $1 trillion this year; it’s a fast-growing market and an underserved one in terms of financial planning."
While acknowledging that now there’s a "large working class population, there’s also this emerging middle-class Latino population," she says we’re also seeing an increase in the numbers of educated professionals and also business owners. There’s a "stereotype reinforced in the media that Latinos are poor or likely to remain so for generations," but Agius Vallejo’s research shows significant gains among the population in "intergenerational mobility in indicators of assimilation or incorporation," such as occupation, income, and home ownership.
Are you comfortable serving that diverse population? Agius Vallejo and other experts consulted for this story suggest that you should be, even if you don’t speak Spanish or Hindi or Urdu. You do need to understand more about the culture and family structures of these immigrant groups. You may also need to disabuse yourself of some preconceived notions, starting with the idea, says Agius Vallejo, that you need to speak Spanish to market to the Latino population. In fact, by the second generation (people whose parents were immigrants), Latinos prefer to be spoken to, and read marketing materials, in English. Agius Vallejo also points out that, like most previous immigrant populations, by the third generation (those whose grandparents were immigrants), for most Latinos speaking Spanish is dead. America, she says, is "the graveyard of languages."
Not a Monolithic CultureTo begin, says Agius Vallejo, an assistant professor of sociology at USC who has conducted research into the Hispanic middle class for years, feel free to call people whose country of origin (or their parents’ or grandparents’) is Spanish speaking either Latino or Hispanics. Using statistics from the Census Bureau, she notes that Latinos are now the largest single minority group in the United States, comprising 15% of the population. Moreover, Hispanics’ proportion of the population is projected to increase to 30% by 2050. Agius Vallejo points out that this growth "is being driven by natural increase, not immigration," which means, she says, that "we are going have a larger second and third generation of children and grandchildren of immigrants." While speaking Spanish may be a marker of the first generation, "it’s not a monolithic population," and while Latinos are an ethnic group that is "disproportionately Mexican" in the U.S., "there are differences in national origin and in class."
So what are the differences, what are the commonalities, what are the opportunities for advisors among this growing, and increasingly affluent, group?
Agius Vallejo says there are three general segments of the Hispanic market, though she is quick to point out that there are "outliers in each segment who do not fit within these profiles."
• The First Generation. Hispanic immigrants value saving and investing, but tend to have lower incomes and are more concerned with day-to-day subsistence, which, she says, means that they have fewer financial resources to direct toward investing. The first generation is probably more comfortable speaking Spanish and they engage with Spanish-language media. "This demographic," Agius Vallejo says, "likely requires more relationship building and financial literacy education" about the U.S. financial industry, "especially because many Hispanics hail from countries that have experienced market failures. However, this is a large demographic with many opportunities, especially because income, rates of home ownership, and English language proficiency rise with length of time in the United States." First-generation Hispanics, and Asian immigrants, she points out, "typically expect their children to give back financially. If the financial status of the first generation is secure you will not see the second generation giving back as much."
Financial advisors can reach this population, Agius Vallejo says, "through local Spanish language media outlets relatively inexpensively. Most metro areas have smaller magazines (like Para Todos in Southern California) or newspapers that cater to this population." There’s another way to reach this population: through Hispanic grocery stores, many of which rent out small booths to outside vendors.
• The Working Class 2nd and 3rd Generation. This is a population that has higher incomes than the foreign born and higher levels of education, and will be "comfortable speaking in English," Agius Vallejo says. Some might work in jobs that provide pensions, but many will not.
• Upwardly Mobile and Middle-Class Hispanics. The main issue with this group is that some "grew up ‘solidly’ middle class and therefore their behaviors, in terms of individualism and unidirectional flows of support from parents to children, are similar to whites." Since the majority of this group has "achieved their mobility in one generation," they retain ties to poorer relatives and acquaintances of the same ethnic group (co-ethnics, in sociological parlance) and "provide less advantaged relatives with financial support." This is a group, she says, that has traditionally achieved their mobility through education, while those without college degrees may have forged an alternate path to mobility through entrepreneurship.
"Advisors can reach this population not only through Hispanic professional/business asssociations," Agius Vallejo points out, "but also through Hispanic organizations targeted at specific professions like attorneys (local chapters of the Hispanic Bar Association) and engineers." These organizations tend to exist in the traditional ‘gateway’ states for Hispanic immigrants, particularly in the Southwest, Florida, and California, but others, such as the Hispanic Chamber of Commerce or the National Latina Businesswoman Association, can be found nationwide.
There’s another financial development in those gateway areas: small local banks and credit unions targeted at Hispanics. Some of these banks serve all three of the segments outlined above, and some are targeted specifically at entrepreneurs and business owners. "Advisors should investigate the types of financial services these banks offer," she suggests, "as they may be able to form partnerships with Hispanic banks to provide financial services they lack."
Why You Should CareSo if you don’t happen to practice in those "gateway" areas, should you care about the growing affluence of this growing segment of the population? Agius Vallejo cites an emerging trend in the last 15 years "where we’re seeing the demographic spread of Hispanics away from traditional areas to new destinations—primarily small towns, suburbs in the South and the East where the [Hispanic] population was really nonexistent." This population shift "will present opportunities for advisors in these new areas of Hispanic growth, especially in the future."
As for education levels, each generation, she says, is surpassing the levels of the generation before it. Attainment of a college degree rises from 3% in the first generation to 7% in the second, but Agius Vallejo says Hispanics are achieving upward mobility via alternative routes, through entrepreneurship and business ownership. Findings from the 2000 Census reported that as of 2002, Latino-owned firms accounted for about 7% of businesses, "generating about $222 billion in receipts and sales," and rates of business ownership has "grown 31% among Latinos, which is three times the national average." She points out that many of these new firms are incorporated businesses with paid employees. "What’s particularly interesting," she says, is that businesses owned by Latino women are "going through the roof." Latinas are also more likely to graduate college than their male counterparts.
Agius Vallejo, who happens to "come from a family of financial planners," says there’s one myth about Latinos that she’d particularly like to debunk: that an advisor needs to speak Spanish to break into the market. She concedes that if your clientele comprises the first generation of immigrants, "then you probably need to speak Spanish," but if you want to tap into the more affluent, upwardly mobile segments of the population, "Spanish language ability is not a necessary precondition to doing business, because linguistic assimilation is achieved over the generations." The second generation, she says, "is typically bilingual but overwhelmingly prefers to speak English, especially when doing business. By the third generation, Spanish is practically dead, even in southern California; studies show time and again that Spanish is really almost extinct by the third generation of U.S. residency." In other words, Latinos experience the "same rapid linguistic assimilation" of other, prior immigrant groups.
If speaking the language isn’t important, what is? "Being able to identify what makes Latinos different, especially the Latino upwardly mobile."
What You Need to KnowAgius Vallejo says that what advisors need to understand is that the Spanish population is "not monolithic, there are variations within the population, and that financial needs are going to differ depending on generations, class background, and current class status."
As for the upwardly mobile, there are "two separate trajectories: one that is middle class now, and grew up middle class, and whose outlooks, attitudes, and investing behaviors are closer to middle-class whites." The other trajectory, Agius Vallejo says, are "Latinos who grew up lower income, but who are now middle class and have achieved their mobility in one generation. They retain close ties to co-ethnics, especially their parents," who tend to be poor. Advisors need to understand that these Latinos have extended family obligations "that they cannot escape," and display patterns "that we’ve seen with previous waves of white immigrants." Essentially, these upwardly mobile, mature Latinos are "still allocating some of their resources to their families." They may understand that this financial support for their families is hindering their wealth accumulation or their ability to save for retirement, but they "feel an obligation to give back to those who aren’t as successful. This is rooted in the immigrant experience, the struggle for upward mobility." The "act of migration creates opportunities" for the second and third generation, but they "have to allocate a portion of their resources, to give back in different ways. They are, basically, a safety net in times of economic catastrophe. Because they are the person who is successful, their families look to them." In addition to this regular support for extended families, Latinos also give back to their families in a more sporadic manner, "maybe they’re not their safety nets necessarily or they’re not fully supporting their parents or their family, maybe they just help out their families with a couple hundred dollars a month here and there. There’re these different patterns of giving back and financial support that can affect their long-term investments and their financial futures down the road."
Agius Vallejo has found in her research that some respondents felt, when they talked to advisors, "that the financial planners couldn’t always understand why they felt they needed to give back to their families. They would try and convince them to have a more individualistic attitude. In some ways it almost alienated [the prospective clients] from investing," quoting one respondent who said that the advisor "couldn’t understand why I would want to leave some of my life insurance to my parents, and why I’m giving them $500 a month," while the advisor saying she should be putting that money "away to my retirement. But I am my parents’ retirement, they sacrificed so much for me I can’t not provide for them now when they don’t have money to provide for themselves." Agius Vallejo says the majority of those who support their families in this way understand that the practice inhibits their own wealth accumulation, "but they understand that there really is nobody else to help. They retain this immigrant narrative, ‘My parents sacrificed so much for me so now I have to give back.’"
It’s not just parents who are the recipients of this largesse, many "upwardly mobile Hispanics paid for their younger siblings to go to private schools or to try and increase the educational stability, for example, of their younger siblings, in a way that a parent traditionally would in a white middle-class family." Interestingly, Agius Vallejo says that many of these middle-class Latinos "don’t expect their children to give back to them. And that is part of the assimilation experience."
Socioeconomics, Not CultureThere’s a silver lining to Latinos’ strong ties with family, Agius Vallejo says. "Even though second- or third-generation Latinos retain ties to poor co-ethnics, they also have extremely dense social ties to other co-ethnics," such as those with whom they went to college, or who are in their business networks. That would be a rich source of referrals for advisors, whom she suggests should join Hispanic business groups "to network face to face with this population," like the aforementioned Hispanic Bar Association and Chamber of Commerce, and the National Latina Businesswoman Association.
There’s another myth that Agius Vallejo would like to dispel: that Hispanics are "fatalistic because of their religious background," or that "there’s this ‘mañana’ syndrome or this ‘machismo’ effect," that Hispanic culture "doesn’t value saving for the future." The differences an observer might notice in these areas are related to socioeconomics, not culture, she argues. This is a population, she says, that is "very concerned about their financial future in investing, and investing in their children’s college education, they just have different resources at their disposal to make it happen."
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