U.S.-based asset managers may be required to strengthen their diversity practices, under legislation introduced in the House and Senate Wednesday.

U.S. Senators Tim Kaine and Cory Booker introduced the Too Narrow to Succeed Act which, if passed, would instruct the Department of Labor (DOL) to conduct a survey of best practices for increasing diversity in the asset management sector.

Specifically, the new legislation would increase transparency by requiring federally-controlled trusts and retirement plans that utilize externally managed funds to report annually on the usage of diverse-owned and run asset management firms.

The DOL would be required to conduct a survey of best practices for expanding diversity and issue a report to implement strategies to improve access to diverse-owned asset management firms.

The Employee Retirement Income Security Act (ERISA) Advisory Council would also be required to consider “barriers to usage” of diverse asset management firms and methods to overcome such barriers.

“The most basic financial advice given to people is this – diversify your portfolio,” said Senator Kaine in a press release. “Diversification mitigates risk and improves long-term returns. But so often, our financial firms are not diverse in who is making investment decisions. If you have too narrow a perspective, you endanger the financial success of your clients. This commonsense legislation will help ensure a safer financial future for workers and their families.”

A 2021 report from the John S. and James L. Knight Foundation found that minority and women-owned firms manage just 1.4% of the sector’s $82 trillion in assets under management.

Asset managers, including the likes of BlackRock and State Street Global Advisors (SSGA), have testified about their diversity practices in the process of producing this legislation.

The New America Alliance, the Diverse Asset Managers Initiative, the National Association of Investment Companies, the National Association of Securities Professionals, and the United States Hispanic Chamber of Commerce have voiced support for the legislation.