Why are so many of the messages about women and money negative?
Take this New York Times article: “The real issue, experts say, is that many women, despite strides in education and in the workplace, simply aren’t as confident and knowledgeable about financial matters as men.” Says who? And why? And what if I asked different questions? Would this lead to more positive stories?
Begin by asking different questions.
Over the last seven years I have interviewed over 400 smart women and men around the world. I have learned that asking different questions matters.
I started “Rich Thinking” research in 2011 because I knew that the subject of women and finance was not being portrayed accurately by the media or in the financial industry. In my daily dealings as a portfolio manager, I work with many strong, capable, female clients, but this type of woman is not being shown.
What does diversity mean in the context of the financial industry?
Some people view the term “diversity” in a negative way. It has also become highly politicized. By definition, diversity means “being composed of differing elements or qualities.”
How does this apply to the financial industry?
Jason Voss, CFA, put it this way:
“We’re talking about laws of nature here. This shouldn’t be at all controversial. When we look at an ecosystem (such as the plant and animal life in wetlands, alpine, or desert) we consistently find that more diversity leads to a BETTER ecosystem. More diversity creates a biological environment which is more responsive, adaptive, and handles shocks or changes better. Those are great things in a habitat like the desert . . . they are also great things in our workplaces!
“The diversity that we each have as part of our background and experience lends different perspectives and experiences, and it is these differences that lead to more robust outcomes in business.”
When we look at the topic of diversity, here are some key issues to consider:
1. What do the words “masculine” and “feminine” really mean anyway?
Throughout my interviews, I realized that people use specific terms when talking about men and women and the differences between them: their communication styles, their behaviors in the workplace, and their personalities.
Everyone I spoke with, however, acknowledged that society’s categories for what are masculine and feminine qualities are broad generalizations.
Sociology professor Candace Kruttschnitt of the University of Toronto provided her fascinating perspective on diversity: “There is more variation within each gender than between genders.” And perhaps more importantly, “We may show different traits at different times.”
What does Kruttschnitt think about the issue of gender diversity in the financial industry?
“The salience of gender in any given context can be linked to stereotypes about the ability of one gender or the other to perform in that context. If we were to wave a magic wand and remove the stereotypical thinking in the world of finance, we may find that women offer a real competitive advantage with skill sets that include risk management and strategic perspective.”
Clearly, when it comes to financial behaviors we can’t simply lump everyone into one of two categories: male or female. Also, we should not continue to perpetuate tiresome myths such as “women are risk averse” when describing female financial behavior.
2. Women are risk aware, not risk averse, so ask questions that matter.
In the investment industry, the most pervasive question is “what is your risk tolerance?” Most investors take all of two seconds to check a box describing their risk tolerance as being something similar to “conservative” or “moderate.” And presto! A few colored graphs and charts later, they are magically handed an asset-mix portfolio recommendation. Usually, but not always, it looks oddly similar to the whole “equity allocation equals 100 minus your age.”
But who does this question really serve? And what if we asked more personal questions, such as, “When do you feel most comfortable taking on risk and why? In life and with your investments? Tell me about this in detail.”
To understand risk tolerance, we need to look beyond the traditional asset mix. My research has shown that women invest a sizable amount of their assets outside of their portfolios because they prefer to invest in causes and concerns that matter to them, and they don’t think they can do so through the usual stocks and bonds.
The big opportunity for the financial industry is to demonstrate to women that a) these value preferences are understood; and b) how they can allocate at least some of their “meaningful investments” via traditional equity markets.
3. Why is diversity important for every industry?
One of the major themes in my most recent white paper is that every industry is the financial industry in 2016.
What do I mean by that? Almost every sector is being transformed by digital. Workers who know how digital and technology work have a huge advantage over those who don’t, whether they work in retail, banking, or manufacturing.
My research suggests that a deep knowledge of finance is an equally useful form of competitive differentiation. It used to be that only people working for an investment bank or a financial firm needed such knowledge, but today every industry requires that expertise.
We can learn from global leaders who are stepping up and acting as corporate role models on the topic of diversity. They recognize the business case for it and are paving the way forward.
From Per Eriksson, CEO of NetEnt in Stockholm:
“We are in game development which is a typical male-dominated business. We are doing everything we can to attract female engineers to come work with us. We encourage female university students to choose a path within programming — our goal is to have a 50/50 gender balance by 2020. . . . And by this I mean on each team in the company. It is easy to fill up certain departments, such as HR or office services with women, but we are absolutely pushing to get women into the really techie areas as well. This is a bit of a challenge and takes somewhat more time, but it is worth it — the dynamic is amazing. . . . For example, I have entered meetings with my mind set on certain decisions, when suddenly someone will ask ‘but why?’ We begin discussing and everyone brings different perspectives to the issue. We learn from each other and see things from a new angle which leads to smarter decision making.”
4. Diversity + Digital = Business Opportunities for the Financial Industry
Given that the financial industry largely evolved when traditionally male behaviors and traits were dominant, incorporating more behaviors and traits seen as traditionally female is both a challenge and an opportunity for financial services firms.
Digital disruption didn’t wait for approval from the patriarchy.
Most of the new technologies are more likely to be “game changers” for women than they are for men when it comes to financial behavior. Want some examples?
- In 2015, US women are almost as likely as men to own a PC or a smartphone, and more likely to own a tablet.
- The social media revolution is driving change, and women are more likely to be on social networks and to spend more time per day on them.
- The power of the crowd? According to Forbes, “’Crowdfunding Is a Female Founder’s Best Friend’ . . . Women outperform men when raising money for their companies through rewards-based crowdfunding.”
But not all new technologies are as welcoming to women. Fintech is growing and attracting both investment dollars and generating actual revenues. But, as an article in American Banker asked, “What’s Missing in Fintech? Oh Yeah, Women.” That presents a problem as well as an opportunity for the financial industry.
The shift to digital gives rise to new questions, such as:
- How do women prefer to inform themselves about stocks and bonds?
- How do you deal with the rise of the financially confident woman?
- Is mobile the best way to communicate with your female clients?
- Should you hire more advisers with higher emotional intelligence quotients?
Asking different questions matters. So does diversity in finance.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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