AFRICAN-AMERICAN INVESTORS: IT'S A MATTER OF TRUST

Edited by Douglas Harbrecht

African Americans don't trust financial advisers as much as whites do. That's the conclusion of a recent survey commissioned by Chicago-based Ariel Mutual Funds and Charles Schwab & Co. And that distrust has widely disparate consequences for black and white investors.

The survey compared the investment habits of 500 black and 732 white households earning more than $50,000 a year. Two-thirds of both groups felt bullish about the stock market. But only 57% of blacks said they had money in the market, compared with 81% of whites. Of those who invested, black households also had 50% less in stocks or mutual funds on average. Many black investors have "missed out on this incredible bull market," says John W. Rogers Jr., founder and CEO of Ariel, which manages close to $2.5 billion for individuals and institutions.

The survey found that a much higher proportion of blacks (39%) than of whites (24%) strongly agreed that "you never know if you can trust a financial adviser." Rogers says the African American community's relative lack of experience with investing has caused some serious misconceptions about the market. For one thing, 23% of blacks surveyed (12% of whites) believed they wouldn't be able to "access" their money if they put it in the stock market. And 39% thought they would incur high penalties for withdrawing money from their investment accounts.

The black community clearly doesn't feel comfortable with the stock market. Rogers says: "Historically, investing hasn't been a topic of conversation around the dinner table." Consequently, African Americans are apt to invest in real estate and whole life insurance products rather than stocks and mutual funds.

Carla Arnold, vice-president in charge of African-American investor initiatives at Schwab, gives credit to the insurance industry. "They've done a terrific job marketing to blacks," says Arnold.

But Arnold and Rogers both see the underinvestment of African Americans in stocks as an opportunity for growth. Ariel has been targeting the community since Rogers founded the company 15 years ago. And his efforts have inspired a number of competitors such as Kenwood Group in Chicago and the Brown Group of funds in Maryland.

Rogers is all for competition. He says more black-owned investment businesses will help make African Americans more comfortable with putting their money in stocks. "When I started my business, people began investing with me because they knew me, they trusted me," says Rogers.

Indeed, the survey also showed that 58% of blacks would be more likely to invest with a "racially diverse" firm. More than 50% of black respondents say they want a black-managed mutual fund as a choice in their 401(k) plans. Considering that Ariel is currently the only such fund in Schwab's OneSource network, Rogers could reap some major benefits if he can get his message out.

Schwab could be particularly helpful in this regard. "Education is a huge issue for the African-American market when it comes to investing," says Arnold. "We have a particular strength in that area." Schwab and Ariel intend to team up on joint advertising campaigns in black newspapers and magazines as well as publish the results of their survey on NetNoir, a Web site popular with African Americans.

They are also sponsoring a series of educational seminars during the week of April 20-24 in support of the Coalition of Black Investors.

Attitudes won't change overnight, but a large untapped market exists that Schwab and Ariel intend to develop. "This survey is a wake-up call for the industry and for African Americans," says Arnold.

By Andrew Osterland in Chicago