Tapping Into Latino Wealth

Just six months ago Aracely Paredes shunned the stock market as too risky. And despite her success building a multimillion-dollar chain of Latino grocery stores in Las Vegas, the Guatemalan native had done nothing to protect her two daughters from steep estate taxes in the event of tragedy.

Today, Paredes has a growing stock portfolio. She has undertaken estate planning for the family businesses. And she has switched life insurance policies to one that makes her feel “much safer.”

Her foray into financial planning was built on a carefully tended relationship that blossomed over facials and coffee in her niece’s Los Angeles skin-care boutique. There, Paredes met Principal Financial Group agent Vilma Gonzalez, a fellow Guatemalan who shepherded her into a world of money management familiar to many non-Latinos with comparable assets.

“[My husband and I] always thought that we had to do something, but in reality we didn’t know how to position ourselves,” said Paredes, 50, whose Supermercado del Pueblo has seen revenue explode by 75% over the last two years.

If Paredes previously felt ignored by financial service providers and ignorant of personal finance matters, she had reason to.

Latinos have long been perceived as a market not worth wooing--plagued by language barriers and lower average wealth. Immigrants’ mistrust of financial institutions and reliance on family networks to support them as they age, as well as other cultural factors also have prevented Latinos from making the most of their hard-earned money.

But things are changing. The banking, insurance and securities industries are courting potential consumers like Paredes with translated materials and educational campaigns. The foot soldiers in the nascent campaign are agents like Gonzalez and a growing number of independent Latino financial advisors.

The push to tap Latino dollars indicates the growing power of the burgeoning Latino middle class. By 2005, Latinos are expected to be the nation’s largest minority. Middle-class households earning $50,000 or more are growing fastest of all.

Latinos are much less likely than the general market to have savings accounts, credit cards or life insurance, among other products, and half as likely to invest in securities. But they increasingly are ready to buy.

In the last year, the first personal finance books geared to Latinos hit the market.

Mutual fund companies have begun to pitch their wares in Spanish to boost enrollment in employer-based retirement plans.

“There is a major search to capture [both] the upscale and financial entrants in the Hispanic market,” said Isabel Valdes, president of Access Worldwide, Cultural Access Group, a Los Altos, Calif., market research and consulting firm.

And civil rights organizations such as the National Council of La Raza and Mexican American Legal Defense and Educational Fund are embracing financial literacy as key to the community’s well-being.

“The accumulation of wealth is critical to the movement of our community into middle-class life,” said MALDEF President and General Counsel Antonia Hernandez.

Though statistics vary, no one disputes that Latinos have been behind the curve when it comes to consumption of financial products.

A survey conducted this year by Virginia-based market research firm Claritas Inc. indicates that half of California Latino adults have savings accounts, compared with 68% of all California adults. Only 46% have credit cards, compared with two-thirds of the overall market. And though 40% of Californians have invested in securities, only 20% of Latinos have done so. Latinos were also a third as likely to use a brokerage service and half as likely to consult a licensed investment counselor or financial planner.

Many Latinos Say They’re Ill-Prepared for Retirement

Nationally, a 1998 survey by Simmons Market Research Bureau showed 35% of Latinos carry life insurance, compared with 55% of the overall population. And 42% of Latinos responding to a survey by the Washington-based Employee Benefit Research Institute this year felt they had not done a good job of preparing for retirement--more than any other group. Latinos also were less likely to receive information from their employer about retirement planning.

One reason for the gap: Latinos have earned less. Though median Latino household income in 1998 surged 4.8%--more than any group tracked by the Census Bureau--to $28,300, it still lagged the national average of $38,885.

Beyond income, culture has played a role. Many immigrant Latinos hail from countries where inflationary economies and corruption made financial institutions unreliable. Though many have saved frugally, they have done so largely outside the mainstream financial system--earning little on their nest egg.

Louis Barajas remembers his parents saving money in a 5-gallon Sparkletts bottle. Barajas is now a financial planner and investment manager whose firm in Commerce manages $25 million for mostly Latino clients.

“We come from an agricultural culture,” said Barajas, who is writing a book about Latino cultural attitudes toward money management. “We want our assets to be tangible.”

Furthermore, planning for death or disaster is near-taboo for many older Latinos. “They’ll say, ‘Why are you talking about this? Do you want me to die?’ ” said Hector Barreto, a Los Angeles investment advisor and broker-dealer who is chairman of the Latin Business Assn.

Nellie Armenta’s family was no exception. Her grandfather paid cash for the Boyle Heights house where they lived for decades. Her mother worked at a laundry until she was unable to continue, relying on Social Security and Medi-Cal.

“Just like sex, we never talked about finances,” said Armenta, 65, who sought help from Barajas five years ago when the sudden closure of the soap plant where she worked for 36 years left her reeling.

Like many Latinos, her introduction to finance came through participation in her employer’s 401(k) plan. Barajas helped Armenta avoid a steep tax penalty, investing her nest egg with discount brokerage Charles Schwab. She has since purchased a tidy South Pasadena condo decorated with antiques and lace and has drafted a living will.

Compounding the uncertainty of many Latinos is the financial industry’s old disinterest.

Paredes arrived in Los Angeles in 1971 with nothing. She cleaned houses, washed dishes and stitched cloth napkins before launching a blouse manufacturing business and finally the supermarket chain four years ago. The money she and her husband earned was invested in rental properties to put their daughters through college. But until she met Gonzalez, the Spanish-speaking Paredes felt there was nowhere to turn for more sophisticated products.

Even second-generation professionals have been largely overlooked.

“I’m a 41-year-old Hispanic with two degrees, and my parents were immigrants. I’m almost a prototypical example of assimilating,” said Alfonso Martinez, vice president of Hispanic emerging markets for GMAC Mortgage--General Motors’ financial services entity--and former vice president of Latino business development for Aetna Financial Services. “I’ve had money in my pocket for 20 years, and no one has ever asked me for my business before.”

Despite the slow start, industry and Latino market experts say the last few years have brought measurable change as corporations court everyone from immigrants with no banking experience to wealthy entrepreneurs.

But selling financial services to Latinos is more complex than hawking beer or diapers. Efforts to reach the market must be coupled with education, trust-building and translation of culturally centered notions of money. Spanish-speaking staff and the ability to translate complex legal jargon often are essential.

First came banks, when Bank of America introduced bilingual ATM machines in 1993. Citibank now publishes Avances, or Advances, a Spanish-language personal finance magazine that educates readers on financial concepts. And Wells Fargo has launched a Latino loan program to funnel $1 billion to Latino small-business owners. Union Bank of California’s Cash & Save program offers check-cashing in low- and moderate-income Latino neighborhoods with the aim of guiding customers into savings accounts and secured credit cards.

And Latino-owned Banco Popular, the 106-year-old Puerto Rican institution, is courting U.S. Latinos, reaching out to immigrants outside the banking system with check-cashing subsidiary Popular Cash Express. Nearly three-dozen mobile vans roam workplaces from Santa Ana to Valencia and Long Beach to Ontario, building brand recognition for the bank.

The number of U.S. Banco Popular branches has tripled to 90 in the last three years--most in Latino neighborhoods, bank representatives say. And the bank has teamed with Don Francisco, host of the top-rated Univision variety show “Sabado Gigante,” to promote its secured credit card.

Major insurance companies are targeting the market, fueling growth in an otherwise flat industry.

“I call the Hispanic population the baby boomers of the 1990s,” said Ray Celaya, Allstate Insurance Co.’s Hispanic business team leader. “The market is beginning to exhibit its wealth.”

Allstate will spend more than $10 million to advertise to Latinos this year--selling mostly auto and homeowners insurance. The company’s Latino business grew from $1 billion in 1996 to a projected $1.6 billion this year--a 60% increase in a market that overall is seeing 2% to 3% growth, Celaya said.

Metropolitan Life Insurance Co. has turned to multicultural communities “as a growth engine,” said Vice President of Marketing Shailendra Ghorpade. Last year, those markets--which include African Americans and Asians--accounted for 30% of the company’s business. And Principal Financial Group has increased its Latino personal insurance business by 153% in the last three years, representatives said.

The securities industry, too, is slowly climbing on board, translating mutual fund prospectuses and recruiting Latino brokers. The Securities Industry Assn. recently issued a wake-up call on “incontrovertible demographics. We are not predicting that diversity will be important to your future, we are stating the inevitable,” said the 1997 report, which noted the 193,000 Latino households with incomes over $100,000.

The already-strong Latino work force is predicted to grow 3.1% over the next five years, compared with 0.9% for non-Latino whites. That makes Latino recruitment into employer-based retirement plans a necessity, since the plans must maintain a certain participation level, said Marc Miller, whose San Francisco-based Crimson Language Services specializes in foreign-language translation for the securities industry. Clients include Fidelity Investments, John Hancock and T. Rowe Price.

“We’ve seen a tremendous uptick in interest,” Miller said.

Aetna Financial Services--formerly Aetna Retirement Services--is sending Spanish-speakers such as Ruben Gonzalez into the field with glossy Spanish-language materials printed this year. But explaining the plans to blue-collar Latinos takes hand-holding and cultural sensitivity that go far beyond language.

Gonzalez removes his tie. He recounts the story of his father-in-law, who lost $30,000 in an Ensenada bank when it folded. And he tells of his grandmother, forced to work until she died at 92. Most important, he returns to service the plans, meeting one-on-one with workers. Results are strong. At Ruiz Mexican Foods in Ontario, for example, plan enrollment increased 300%, he said.

Aetna has also signed an agreement with Latin Business Assn. chairman Barreto, whose TELACU/Barreto Financial Services Inc. distributes and services Aetna plans.

The power of Latino-to-Latino relationships is perhaps most striking in the story of Ronald J. Meraz, a Merrill Lynch vice president heading the Pasadena office. Meraz began mining relationships with Latino political leaders for referrals in 1992. By 1997, Meraz had invested $400 million for wealthy Latinos, who comprised more than three-fourths of his business. Until then, most had their money sitting in checking and savings accounts. “Most financial consultants are trying to get people who had assets in other firms,” he said. “I took people who had never been in the [brokerage] industry before.”

Personal Finance Seen Boosting Well-Being of Community

As the industry sets its sights on Latino money, Latinos are embracing personal finance as key to the community’s well-being.

When a Latina government official told Latino entrepreneurs at a recent convention that pamphlets on U.S. savings bonds had been placed on their chairs, she was cheered. The National Council of La Raza held its first money management panel at its annual convention last year.

New York financial advisor Charles Gonzalez, author of “Yes You Can! Si! Se Puede: Every Latino’s Guide to Building Family Wealth,” has formed two youth investment clubs in New York, stressing early education as key to breaking cultural barriers to wealth-building. And he has held investment seminars for groups of top-paid Latino attorneys.

“The longest bull market in the history of the U.S. has changed the way people think about money,” Gonzalez said. “Hispanics have accumulated wealth in the last 10 to 15 years because we work hard, but the money isn’t working for us as hard as we are.”