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10 Jul 2011

Complicated Financial Products Are a Tough Sell to Blacks

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July 10, 2011 Category: Color Of Money Posted by:

By Michelle Singletary


I frequently find myself in a debate with a dear friend about the slew of surveys concerning the financial behavior of blacks.


When the companies release their findings, which often show blacks lagging in savings and investment holdings, the question he’s left with is: Are the results because of race, class or poor marketing?


The most recent look at black financial habits comes from Prudential Financial, which released “The African-American Financial Experience,” a survey that is part of the company’s research on multicultural markets.


Prudential found the same thing other financial companies have reported: that a majority of blacks want retirement saving and planning advice but many say they don’t know or can’t find a professional they can trust.


“Our survey revealed that the lower the level of knowledge respondents had about complex financial products, the lower the level of ownership of these products, the fewer adviser relationships, and the lower the level of industry trust,” Prudential wrote in its survey report.


I can’t understand why financial professionals don’t understand it’s the complexity of the products they are selling that is befuddling people.


Blacks are compromising their ability to meet their financial goals when they shy away from other products such as long-term care insurance and annuities, Prudential and other companies contend.


Then simplify the products and own up to the fact that the mistrust people have with the industry is not without merit.


“There is a long-standing perception that the financial industry has fallen short in terms of reaching and serving the African-American community,” Prudential says.


That’s not a perception. Many financial services companies have taken advantage of consumers, including blacks. We only have to look to the recent financial crisis to find evidence of deception and predatory lending practices. Blacks and Hispanics were disproportionately steered into higher-priced loans despite the fact that many – based on their income and credit profile – would have qualified for the best-priced terms.


AARP found in a recent investor survey a majority of 401(k) plan participants are largely unaware of the fees they pay to their plan providers. When asked, 71 percent of participants said they didn’t think they paid any fees.


“Fees are often hard to read and understand even when you know you are paying them,” said Jean Setzfand, AARP director of financial security. To help participants, AARP has a fee calculator at


When blacks understand a financial product, they use it. Their ownership of traditional products such as life insurance and savings accounts is slightly higher than that of the general population. Makes sense to me.


With a simple savings account, you put your money in the bank and the institution promises a certain interest rate (as pitiful as it might be). It’s a risk-free product.


With term life insurance, you make premium payments and, if you die during the covered period, the insurance makes a payout to your beneficiaries.


Like my friend, I’ve grown weary of the black investor surveys that make comparisons without commitments.


This time, at least, Prudential’s survey was constructive not because of its obvious findings but because the company is challenging itself and its rivals to acknowledge their parts in why blacks aren’t turning to them for advice.

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