Culture Counts

Money-management strategies.
Magazine Contributor
4 min read

This story appears in the December 1997 issue of Entrepreneur. Subscribe »

According to a recent national survey of investors done by research firm Roper Starch Worldwide, culture can influence investment decisions. Conducted for Ariel Capital Management Inc., a black-owned and operated mutual fund company in Chicago, the study found that blacks invest more conservatively and expect larger returns in a shorter time period than do nonblacks. The study also found that while stock and mutual fund investments are at an all-time high, most blacks do not invest in them.

The reasons behind blacks' investment decisions may have to do with perception of risk. Black investors tend to be comfortable with a moderate amount of risk but typically don't want to tie up their money for a long time, says Stacy Bereck, senior project director with Roper Starch. And that, in turn, may affect the types of investments they make.

Educating employees about retirement plans could make a difference in where blacks invest, says Mellody Hobson, a senior vice president with Ariel. "Mutual funds and stocks are demonstrated wealth creators," says Hobson. "It's important to help employees understand that long-term investors have the opportunity to withstand the volatility of the stock market."

Offering a black-owned mutual fund may also increase the comfort level of black investors, speculates Hobson. There are about 12 black mutual funds, Hobson says, but Ariel is the only one listed in daily newspapers (to get listed, funds must manage at least $30 million in assets or have at least 1,000 shareholders).

To obtain a copy of Ariel's free guide to mutual fund investing, call (800) 29-ARIEL.

Plan Ahead

Employers who offer a retirement plan could be held liable if the plan loses money. "The Employee Retirement Income Security Act [ERISA] says people who are the fiduciaries or in a position of trust within a retirement plan [must] make sure the plan is administered and invested for the benefit of participants," says Mike Posey of ProFutures Capital Management Inc., an Austin, Texas., investment advisor.

Even if an outside money manager handles the fund, employers are still responsible, says Posey, because employees select stocks from employer-chosen options. "Even if employers aren't trustees of a plan, they can be held liable because [they're typically] responsible for directing trustees to pick funds."

The only way to almost completely eliminate your fiduciary responsibility is to hire a bank trust department to manage the fund. However, by doing this, you lose control of investment options.

To help mitigate your liability and still control the fund, educate your employees about their stock choices. "And if you appoint a registered investment advisor who accepts fiduciary liability in writing, the majority of liability is removed from the employer," says Posey.

But not all of it. For a 15-month period ending March 1997, the U.S. Labor Department collected more than $500 million due to ERISA violations.

Great Expectations

Investment attitudes differ among cultures.

Returns Expected When Expected

Black investors 14.6 percent 6 years

Nonblack investors 11.2 percent 7.3 years

Source: Roper Starch Worldwide

By The Book

Not sure how the Taxpayer Relief Act of 1997 will affect your business? KPMG Peat Marwick LLP has compiled a book, accessible at , that outlines many of the changes. Topics range from capital gains and estate taxes to the alternative minimum tax and health insurance deductibility.

What makes this book so helpful is that it goes beyond merely listing the old and new provisions--it also offers examples of how the changes could impact you. Under the section discussing changes in 401(k) matching contributions for self-employed individuals, for instance, KPMG explains why the new change is expected to encourage partnerships to adopt retirement plans.

But keep in mind, the book is just an overview of the basics, says Evan Liddiard, associate national director of legislative support services for KPMG in Washington, DC. After reviewing the sections that apply to you, consult your tax advisor for more detailed information.

Contact Sources

Ariel Capital Management Inc., 307 N. Michigan Ave., Chicago, IL 60601

KPMG Peat Marwick LLP, (201) 505-3400

ProFutures Capital Management Inc., 1310 Hwy. 620 S., #200, Austin, TX 78734, (888) 890-7264

Roper Starch Worldwide, (212) 599-0700,


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