By 2030, women will control most of the $30 trillion that is transferred from the baby boomers. Unfortunately, our industry has often dismissed the financial needs of female customers. Failure to adequately address the unique needs of this key demographic will have significant consequences for clients and financial advisors seeking to grow their businesses.
Less than 32% of financial advisors in the USA they are women. This gender imbalance contributes to female investors' dissatisfaction with the customer experience. Fidelity 2022 Investor Insights Study found that women had 24% fewer interactions with their financial advisors than men over the course of a year. Consequently, female respondents reported less knowledge about key aspects of their financial plan, including fee structure, investments in their portfolios, and performance.
This disconnect feeds the dangerous stereotype that women don't care about their finances. This is patently false, but our male-dominated industry may be ill-equipped to serve the recipients of this multi-trillion dollar generational transfer of wealth – happening right now. with 84 trillion dollars set to transition from boomers to Gen X, Millennials and Gen Z by 2045, the stakes are too high to fail due to longstanding gender disparities.
There are tangible changes counselors can make today to better serve their female clients.
Engage in meaningful dialogue
Above all, female customers want to see that you care by understanding and empathizing with their needs and concerns. Have more honest conversations to learn and truly understand their unique challenges and financial goals. Women, as a group, are used to being ignored or ignored when it comes to discussions about money. You need to work harder to gain and maintain trust with female customers. Consider a different approach, asking questions such as: What is important to you when it comes to money? What keeps you up at night? What do you want this money to do for you? What has been your previous experience with investing? Can you share a positive and negative experience? What does retirement look like to you? Are there any significant expenses on the horizon? What does a great relationship with your advisor look like to you?
Effective communication and collaboration from the start will help foster long-term trust in the relationship. Women want to be part of the decision-making process. These conversations should not take place in a vacuum. Engage with your female customers regularly and give them respect and space to be heard. Your communication should be clear and concise while addressing the non-financial aspects of money that allow them to live a more meaningful life for them.
Cooperate and be receptive
Meet your clients wherever they are in their understanding of money, while being honest about any biases or assumptions you may have about women's investment knowledge. Several studies found that many female fund managers historically outperformed their male counterparts. Looking at a particularly challenging time for the markets (March-August 2020), a Goldman Sachs analysis found that 48% of hedge funds led by women outperformed the market versus just 37% of funds led by men. Why?
Inherent psychological and behavioral differences play a role in how men and women approach the investment process. A team of researchers led by Terrence Odean at the Haas School of Business, University of California, Berkeley, conducted extensive research on these differences. For example, researchers found that excessive confidence in men it can lead to more frequent trades, which ultimately hurts returns. Women, on the other hand, tend to take a committee approach to decision-making, seeking input from others and conducting extensive research and due diligence before moving forward.
With this understanding in mind, take a process-oriented approach to working with your female clients. First, understand what is most important to them about money, taking into account any fears or other obstacles they may have to overcome. Ask questions that best address their goals for their finances. For example, get to the bottom of the goals they have and help them articulate the specifics: 1) Improve lifestyle; 2) They have more time with their family; and 3) Educate their children/grandchildren.
Clearly explain your methodology for constructing an investment portfolio, highlighting the factors that influence the choice of asset allocation, sector weighting and diversification strategies. As market conditions and macroeconomic factors affect the markets, review the process with your client. Clarify and consult with him about decisions about when and why you might make portfolio changes.
Lead with a solution
After taking a consultative approach, lead with solutions that align with their risk appetite while helping them achieve their specific goals. Women tend to be more anxious about investing and invest more conservatively than men. According to one 2021 survey by BNY Mellon, 45% of women surveyed said that investing money in the stock market is too risky for them. This common fear should be a key point of discussion and consideration in your approach to the financial planning process with your female clients.
Instead of simply dictating how the investment portfolio will be constructed, address your client's concerns and broader financial goals. Refer to their goals and make a comparison of why this solution will help solve a concern. For example, explain how diversification and certain investment vehicles can reduce some of the risk of investing in growth sectors that may have higher risk but also offer a greater potential to meet their funding objective. pension.
Starting with the end goal in mind helps advisors bridge the trust gap and empower women investors. This includes not only recognizing their unique challenges, but also designing strategies that align with their charitable goals, education funding, retirement, risk tolerance, and financial goals.
Women are inextricably linked to the billions of dollars of wealth transfer already in motion. It is important that their unique skills and financial knowledge be respected – not ignored. Female investors have been telling the industry for years exactly what they value in the advisor-client relationship, quietly breaking away from advisors who don't respect the approach they need. With so much wealth at stake, is the industry willing to listen?
Kathleen Grace is the CEO of Family Fiduciary Office.