This paper aims to shed light on the underrepresentation of Black and Hispanic households in financial planning services and provide insights into the barriers that may exist, with a particular emphasis on the role of trust in seeking financial advice. Additionally, the paper seeks to examine the interplay between risk tolerance, financial literacy, and trust and their collective impact on financial advice-seeking behavior.

The Influence of Risk, Financial Literacy, and Trust on Financial Advice-seeking Behavior in a Cross-Racial Examination

  • Ludwig, Heckman, and McCoy
  • Journal of Financial Planning, February 2023
  • A version of this paper can be found here
  • Want to read our summaries of academic finance papers? Check out our Academic Research Insight category

What are the Research Questions?

The authors ask the following questions:

  1. What are the factors that contribute to the relatively low utilization of financial planners in the United States, particularly among Black and Hispanic households?
  2. What is the relationship between risk tolerance, financial literacy, and trust in the context of seeking financial advice, and how do these factors interplay in influencing individuals’ choices?
  3. What is the significance of demographic variables, including race and ethnicity, in influencing financial advice-seeking behavior?

What are the Academic Insights?

  1. These factors can include: lack of awareness, cost concerns, historical mistrust, cultural and language barriers, limited access to financial services,  income disparities, educational disparities, wealth disparities and perceived discrimination.
  2. Individuals with higher risk tolerance are found to have higher odds of seeking professional advice for saving and investing decisions. Higher levels of financial literacy are associated with higher odds of seeking professional advice for saving and investing decisions. As far as trust, the results regarding the association between trust levels and the use of a financial professional were not statistically significant in the study. However, the study acknowledges that trust, as measured by the Survey of Consumer Finance (SCF), may be domain-specific. Individuals could be suspicious about surveys but trusting in other areas.
  3. Racial identity is found to be important in both seeking advice and the type of advice sought. Non-White participants, particularly Black respondents, are reported to have less trust in stockbrokers and investment advisers compared to White participants. Similar to Burke and Hung (2021), the authors of this study confirm that non-White participants have less trust in stockbrokers and investment advisers compared to White participants. The multinomial model indicates that Black respondents, compared to White respondents, had 40.6 percent lower odds of using a paid adviser to a non-professional source. Preferences for non-professional sources, such as friends and family or the internet, are highlighted as significant among Black households.

Why does studying the pursuit of financial advice matter?

The study provides implications for financial planners targeting diverse populations. It suggests that financial planners may need to use less formal and less traditional communication channels to reach Black households, such as online chat groups, podcasts, and blog posts.

The Most Important Chart from the Paper:


The utilization of financial planners has been an increasing trend in the United States, but overall levels of use are still relatively low at about 25 percent of households (Hanna 2011). This is despite research that shows having a financial planner is very advantageous. Having a planner increases the chances of an individual having an emergency fund, being aware of fees and investment costs, regularly rebalancing their portfolio, not carrying a credit card balance, making payments on time, and having no debt (Blanchett 2019; Kim, Pak, Shin, and Hanna 2018; Williams 2022).

The low rate of usage is even more striking among Black and Hispanic households. In a recent study of financial planning clients (McCoy et al. 2022), 84.81 percent of the financial planning clients surveyed identified as White. The underrepresentation of Black and Hispanic households who enlist financial planning services is alarming and could be one of the contributing factors to the wealth disparity between racial/ethnic groups in the United States (Bhutta et al. 2020).

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Elisabetta Basilico, PhD, CFA
Dr. Elisabetta Basilico is a seasoned investment professional with an expertise in "turning academic insights into investment strategies." Research is her life's work and by combing her scientific grounding in quantitative investment management with a pragmatic approach to business challenges, she’s helped several institutional investors achieve stable returns from their global wealth portfolios. Her expertise spans from asset allocation to active quantitative investment strategies. Holder of the Charter Financial Analyst since 2007 and a PhD from the University of St. Gallen in Switzerland, she has experience in teaching and research at various international universities and co-author of articles published in peer-reviewed journals. She and co-author Tommi Johnsen published a book on research-backed investment ideas, titled Smarte(er) Investing. How Academic Insights Propel the Savvy Investor. You can find additional information at Academic Insights on Investing.

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