Women and Wealth: Why Financial Advisers Need to Work (Much) Harder to Close the Gender Gap

Judging by the number of research reports, studies and articles I have come across in the past few months, women and their wealth are a hot topic. Prudential’s 2012–2013 Research Study, “Financial Experience & Behaviors Among Women” found that while women are more in control of their finances than ever before, they face significant challenges with financial decision making, and a study on the gender gap in financial literacy concluded that women are falling further behind in many key areas of financial planning, most notably in two critical areas: money management, which is the foundation of all financial planning, and investing, which is crucial to women being able to build wealth.” Meanwhile, in a June research note, Nicholas Colas of ConvergEx said that empirical data and psychological studies point to subtle — but notable — differences in how men and women consider the classic risk-reward trade-off inherent in the challenge of investing. (The research report itself has lots of links to even more studies and articles and is a great resource.)

So why all of this attention to gender differences? For starters, in the United States alone, women control $8 trillion in investable assets and are expected to control $22 trillion by 2020, according to TD Ameritrade Institutional. Yet they remain an underserved and oftentimes ignored market.

If that is not a sufficiently compelling reason to think strategically about your current and prospective female clients, consider just two of the results of a 2011 study called “Wealthy Women Investors” from Spectrem Group:

• Women are much more likely than men to feel they need financial advice. Nearly half of the ultra-high-net-worth women surveyed indicated they wanted adequate help to meet their financial goals compared with only a third of UHNW men.
• Wealthy women are more likely than not to use a financial adviser of some type (only 5% of UHNW women claimed to not use an adviser).

While one should always treat sweeping gender generalizations with caution, plenty of studies (and anecdotal evidence) suggest that there are indeed differences in how women and men approach financial issues. For starters: risk tolerance. As you can probably guess, women are generally more risk-averse than men when it comes to investment decisions but have also shown themselves to be more prudent (this could have something to do with men and overconfidence). And when it comes to financial literacy, women are generally less knowledgeable and interested investors than men, but make fewer mistakes. (See, for example, this 2005 study on the influence of gender on investing behavior.)

Women also tend to trade stocks less frequently than men. (A 2001 study, “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment,” showed that all else being equal, men traded stocks nearly 50% more often than women.)

Interestingly, a recent Barron’s article on whether women make better advisers noted that a study by Barclays Wealth and Ledbury Research, released last year, suggested that female psychology is better suited to investing than male psychology. “Female investors, the study found, are more likely to enjoy long-term success because they are more conservative and disciplined, and thus likelier to embrace buy-and-hold investing and to shy away from excessive risk,” according to the article.

With women’s share of investable assets growing, should advisers take gender differences into account? The answer: Absolutely. Yes. A recent Pershing report aptly summed up the prospect for advisers: “Women are not a ‘niche’ market. They are a significant business opportunity.” The report, based on the findings from the Sullivan Trust Study, warned that advisers who do not develop successful approaches for serving women clients are at a clear disadvantage and “may be left in the dust in coming years.”

The report also pointed out that with so much recent media coverage about the country’s economic woes, it was easy to miss news about trends that signal the emergence of women as “a primary economic force and a major growth opportunity for financial professionals.” Women, it said, comprise nearly two-thirds of the U.S. workforce, and more than half of married women with business-related degrees out-earn their husbands.

The report suggested five initiatives that financial advisers could undertake to broaden their appeal to women who are part of existing “couple” clients:

• Request that both spouses attend your next meeting;
• Treat women as equal partners in the relationship;
• Listen to each voice;
• Host couple-friendly events or workshops to signal your interest in the well-being of both partners; and
• Ask for the female client’s email address to send her newsletters, notifications, and updates directly.

Since women are very different from men when it comes to money, winning their business requires a unique strategy. For starters, advisers need to recognize the differences as many apparently often miss gender distinctions.

Finally, the report offers several “action steps” for serving women clients. Here are two to consider:

• Offer education on relevant topics such as divorce and bereavement; and
• Host lifestyle events, perhaps featuring luxury products and services.

If you would like to attract more women (single or married) to your practice, take heed of the report’s conclusion: “If you choose to make women investors a part of your growth strategy, it will require that you set aside stereotypes, focus on the individual needs of each woman investor and become an outstanding listener and teacher.”

For more information on advising women, see “Bridging the Gender Gap” in the May/June 2011 edition of CFA Magazine.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.