Women are an important financial demographic, and increasingly so when it comes to asset management, investing and wealth planning. It is clear that they also look at these activities in a different way. With the growing financial influence of women due to wealth transfer, increasing numbers of women leaders and more women taking charge of their finances, wealth management needs to adapt.
Risk is a necessary part of our financial lives, especially when it comes to investing and wealth management. The way we choose to deal with that risk, however, is not set in stone. As the demographics of wealth continue to shift and more women take control of wealth, start businesses and assume leadership positions, established notions of risk are coming under increasingly close scrutiny too.
Women have long been underserved by the wealth management industry, but that will have to change over the coming years. The next few decades will see women control a greater share of the world’s wealth, with BCG analysis finding they are adding $5 trillion1 to the global wealth pool annually. Many are choosing to invest their wealth in order to reach their financial goals and are beginning to push against the boundaries of established wisdom and ingrained patterns of behaviour.
The wealth management is beginning to recognise the necessity and opportunity of changing its approach. Many banks and firms now offer products specifically targeted at women. The important question here is whether the industry really understands the ways that gender influences wealth decisions. One central factor here is the approach women tend to take towards risk.
A different approach to risk
It is becoming clear that as a general trend, women’s investment priorities differ from men’s in a number of interesting ways. An increasing number of studies and pieces of research show that women predominantly see wealth as a means to an end rather than an end itself and this influences the way they approach investing and dealing with risk. The high level takeaway from this is that women tend to be more risk averse than their male peers, but as always the truth is much more detailed.
The approach we all take to risk depends on the context that our decisions take place in. On average, women tend to have several distinct financial challenges to address with their wealth management strategies. As well as the gender pay gap and maternity, retirement tends to be different between men and women. According to the WealthiHer Network2 , women’s pension pots tend to be two-thirds lower than men of the same age. This is because they often start saving later in life to prioritise their children’s care and education and take more breaks from employment. Combined with their longer average lifespan and holdings that tend to feature significant portions of slower-growing assets1 , the threat of experiencing a wealth deficit in retirement is a significant one for women. This need to think to the future is reflected in WealthiHer research showing that 89%2 of surveyed women said investments should be used to create a better tomorrow by being made in socially responsible areas.
This context leads many women to approach investing in a more long-term way. The conception of risk used here is often broader than the one often used by the investment industry. According to the Harvard Business Review, social risk is important to women. Social risk is defined as decisions that have important human or social impacts as well as financial ones. This means addressing social problems but also investing in entrepreneurship and putting faith in people.
One effect of this is that women investors tend to be more deliberative and less willing to accept uncertainty to gain potentially higher returns. Once they have the data they need to make a facts-based decision though, women’s investment portfolios tend to look broadly similar to men’s. There are benefits to a more measured approach. Research from Fidelity Investments3 show women earned an average of one percentage point then men annually, while Warwick Business School4 show that women’s overall returns are 2% higher. While women trade less frequently, they are less likely to sell in a market dip1 and a more diversified approach with a better-balanced risk profile often means lower losses5.
Updating the approach
When combined, it is clear that many women are taking a more goals-based approach to investing. Whether the goal is endowing a family business, making a social impact, leaving a legacy or supporting a certain level of lifestyle in retirement, investing is a means to an end. The focus is less on pure performance and more on sustainable, predictable returns.
Millennial women are also more financially literate then older generations, which is helping them operate with more confidence. This means that they increasingly want to be provided the information, tools and support they need to make their own decisions. It is important that the wealth management industry recognises that the solution here is not gender-specific products, but a generally more personalised approach that focuses on individual goals.
A welcome change
With different mindsets and motivations, female entrepreneurs and investors need tailored financial advice. They are more likely to take a goals-based approach to wealth management, which requires long-term flexibility and adaptability from the tools they utilise.
Moving away from a narrow product-led idea of wealth management means focusing on the whole person and shifting to a goal-based and flexible advisory approach. Flexible tools which can adapt to their needs will help them achieve their goals.
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