Industry media has often noted that gender pay gaps among financial advisors are shockingly large – with gaps observed as high as 40% or more. However, these headline-grabbing numbers don’t tell the full story. In particular, just looking at ‘raw’ pay gaps (i.e., gaps that don’t adjust for other relevant pay-related differences between men and women) can be misleading, because it doesn’t tell us whether the gap results from men and women being paid unequally for doing equal work, from men and women being paid relatively equally but working in different capacities, or from some combination of these factors. In fact, the Bureau of Labor Statistics—the entity that publishes the data most advisor gender pay gap statistics are based on—explicitly cautions that their data does not include the relevant information needed to fully assess a pay gap.

At the same time, many misunderstandings exist with respect to how to interpret and understand pay gap analyses themselves. For instance, just because a gap does not remain after controlling for relevant differences does not suggest that gender discrimination is not an issue within an industry. A proper pay gap analysis will control for relevant differences in worker characteristics (e.g., job role, hours worked, productivity, etc.), but if differences in these characteristics are themselves the result of discrimination (e.g., a ‘glass ceiling’ effect in which equally qualified women are passed up for promotions for discriminatory reasons), then this effect will not be picked up in a pay gap analysis. Such effects are not picked up because a gender pay gap analysis is only examining the very narrow question of whether men and women receive equal pay for equal work, and not the broader question of whether other discriminatory factors may influence the roles that individuals end up in. On the other hand, another common way to misinterpret a pay gap analysis is to conclude that any unexplained gap is evidence of discrimination. Discrimination is one possible explanation, but there are alternative explanations, such as researchers not having access to other relevant variables that should have been controlled for.

In the context of the financial advisory industry—an industry that has long been male-dominated and has struggled to recruit more women into the field—understanding the extent to which we do see evidence of potential discrimination is important, as the common message that women are not paid equally in our field could itself be a factor discouraging women from pursuing a career in financial planning. Accordingly, using data from our 2018 Kitces Research Study, we conducted what was, to our knowledge, the first gender pay gap analysis among financial advisors that examined more than just the ‘raw’ gap between men and women.

Based on highly detailed information provided by over 700 financial advisors, we observed a ‘raw’ gender pay gap of 19% among financial advisors before controlling for a number of factors such as experience, credentials, advisory role, team structure, hours worked, revenue produced, marital status, and psychological motivators around compensation. The gap we observed is likely lower than the ~40% commonly reported in the media because we excluded administrative workers, many of whom would be included in the BLS statistics. However, the factors controlled for in our study (including both revenue and time spent, and the preference for variable vs stable salary income) explained 91% of the gender pay gap observed, leaving an unexplained gap of just 1.8 percentage points. Discrimination is one potential factor that could explain this remaining gap of 1.8 percentage points, although other factors, such as relevant variables that were not included in our study, could also explain the remaining gap. Notably, the biggest driver of the pay gap that we observed was the tendency for men, on average, to be more motivated by income potential (and ostensibly choosing more variable-compensation revenue-sharing roles), while women were, on average, more motivated by stable pay (and thus may tend to choose salaried roles with less long-term upside).

Of course, as noted previously, our findings do not suggest that gender discrimination is not an issue within financial planning. In fact, previous research has found that factors such as ‘performance support bias’ (e.g., the assignment of better accounts to men relative to women when a broker leaves a firm) do contribute to the advisor gender pay gap in a manner that would be missed by our study. Furthermore, a follow-up Kitces Research Study in 2019 that sought to examine relationships between family characteristics and advisor earnings (since the "motherhood penalty"—i.e., systematic biases that working mothers face in the labor market—contributes significantly to the gender pay gap in many fields) and did find gender differences in relationships between income and family-related characteristics among advisors. For example, we found evidence of a ‘marriage premium’ and a ‘stay-at-home spouse premium’  among men but not women, providing support to the notion that factors outside of the workplace may also be influencing earnings differences amongst advisors, and emphasizing that work to further close the gender pay gap should be cognizant of addressing these complicated factors.

At the same time, we do believe there are potential reasons to be optimistic about our findings. While we could not examine all potential types of gender bias, at least on this narrow form of potential discrimination (unequal pay for equal work), we did not find evidence of significant gender discrimination. We see this as a positive message for women who otherwise fear that they may not be paid fairly if they pursue a career as a financial advisor. Furthermore, women were represented among all levels of advisor success, including the highest earners bringing in over $1 million in annual personal income. And while it did appear that, on average, women prioritized some career choices over income to a greater extent than men, average income among women was still very high relative to income levels of most Americans ($165,000 for women in 2018 and $197,000 in 2019). So, to the extent that advisors (regardless of gender) may select different pathways within the industry based on personal preferences (e.g., selecting a stable-pay job because of a desire/choice to use that as a foundation to start a family and have more work-life flexibility), it still appears that excellent career opportunities are available regardless of preferences.

Ultimately, the bottom line is that despite widespread reports of large gender pay gaps within the financial advisory industry, we did not find evidence of unequal pay for equal work. And while our studies do identify some differences in income between men and women in the advisory industry, other relevant differences, particularly with respect to work and income preferences, explained most of the gender differences in income that were observed. While our findings should not be interpreted as suggesting that gender discrimination is not an issue within the industry (as there are many forms of potential discrimination that would not show up in a pay gap analysis and other limitations to consider), our findings do suggest that perhaps, at least on the narrow dimension of unequal pay for equal work, the news is not as bad as commonly reported.

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Over the past several years, despite numerous programs from a wide range of organizations encouraging women, people of color, and minority groups to join the profession, the financial planning industry has struggled to increase diversity among its ranks. Which appears at least in part to be due to the fact that, while a 2019 CFP Professionals Survey showed strong job satisfaction among women, Black, and Latino CFP professionals, those satisfaction levels are still materially lower than for ‘traditional’ white male CFP professionals, signaling that the financial planning profession may be attracting more diversity but is also losing diverse CFP professionals at a faster rate… such that the overall diversity among CFP professionals has not increased despite a steady rise in both the total number of certificants and the number of diversity programs targeting them. Because the reality is that the problem is not necessarily one that can be addressed by increasing diversity efforts alone, and instead appears to be that increasing inclusion efforts is the key to increasing (and maintaining!) a more diverse pool of financial planners.

Whereas diversity efforts can be thought of as sending invitations to (more) guests to attend a party, inclusion efforts are separate from those of diversity and can be thought of as asking the guests who arrive to actually dance and engage with other guests. Inclusion involves helping individuals feel safe, involved in the group, respected, and valued. It also recognizes and honors cultural diversity, supporting individuals to express themselves authentically and as valued members of the organization. Furthermore, researchers have found that without efforts to facilitate inclusion, diversity policies can actually be damaging to an organization by upsetting the racial majority, who can tend to feel that the diversity programs are set up to unfairly discriminate against them.

Importantly, effective diversity and inclusion training programs are dynamic and necessarily take into account the unique potential prejudicial viewpoints of their participants, which can range from blatant (openly expressing prejudicial opinions) to symbolic (veiled but deliberately expressed) to aversive (subconsciously expressed). Depending on the participants involved and their respective viewpoints, good training programs can simply encourage individual self-reflection, or can incorporate philanthropic community engagement to give participants opportunities to interact with individuals from more and different cultural backgrounds.

Financial advisory firms looking for ways to increase diversity and inclusion can start by developing mentorship programs to support new financial planners of all backgrounds and by investing in scholarship programs to help aspiring CFPs meet their education and exam requirements. Even compensation can be structured to be more supportive of diversity and inclusion efforts, adopting different compensation models such as monthly or hourly subscription fees to help newer advisors who may initially lack the social structures to thrive on commission-based or AUM-based compensation models (that have disproportionately relied on new financial planners coming from backgrounds and ZIP codes that already have significant financial affluence to turn ‘friends and family’ into initial clients).

Ultimately, diversity and inclusion are important aspects of the financial planning industry that can only help businesses succeed. Not only does a diverse industry workforce better serve a diverse client base, it also helps firms retain diverse employee pools and gives them access to a richer pipeline when recruiting new talent. Despite the shortfall of diversity efforts in our industry so far, a growing focus on inclusion – particularly including mentoring, and organizing/attending conferences and events dedicated to supporting specific groups – can help the industry work towards achieving a net increase in diversity, and not simply bringing in more diverse financial planners only to continue to lose them a few years later.

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