Thursday, July 18, 2024

A New Approach to Serve Female Investors -Dlight News

By 2030, women are set to control the majority of the $30 trillion being transferred from the baby boomer generation. Unfortunately, our industry has often dismissed the financial needs of female clients. Failure to adequately address the unique needs of this key demographic will have significant repercussions for clients and financial advisors looking to grow their businesses.

Less than 32% of financial advisors in the U.S. are women. This gender imbalance contributes to female investors’ dissatisfaction with the client experience. Fidelity’s 2022 Investor Insights Study found that women had 24% fewer interactions with their financial advisors than men throughout the course of a year. Consequently, female respondents reported less knowledge of key aspects of their financial plan, including fee structure, investments in their portfolios and performance.

This disconnect feeds the dangerous stereotype that women are not interested in their finances. That is demonstrably false, but our predominantly male industry may be unprepared to serve the recipients of this multi-trillion-dollar generational wealth transfer—that is happening now.  With $84 trillion set to pass from boomers to Gen X, Millennials and Gen Z by 2045, the stakes are too high to fail because of long-standing gender disparities.

There are tangible changes advisors can make today to better serve their female clients.

Engage in Meaningful Dialogue

Above all else, female clients want to see that you care by understanding and empathizing with their needs and concerns.  Have more sincere conversations to learn and truly understand their unique challenges and financial goals.  Women, as a cohort, are used to being ignored or disregarded when it comes to discussions around money.  You need to work harder to earn and maintain trust with female clients.  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 your previous experience been 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 process. These conversations shouldn’t take place in a vacuum.  Engage with your female clients regularly and give them the respect and space to be heard. Your communication should be clear and concise while concurrently addressing the non-financial aspects of money that allow them to live a life most meaningful to them.

Collaborate and Be Receptive

Meet your clients wherever they are in their understanding of money while simultaneously being honest about any biases or assumptions you may have about women’s knowledge of investments. 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 revealed that 48% of women-led hedge funds outperformed the market versus just 37% of male-led funds.  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 into these differences. As an example, the researchers found that overconfidence in men can lead to more frequent trading, which ultimately harms returns.  On the other hand, women tend to take a committee approach to decision-making, soliciting other’s feedback and conducting extensive research and due diligence before moving forward.

With this understanding in mind, take a process-oriented approach in working with your female clients.  First, understand what is most important to them about money, taking into consideration any fears or other obstacles they may have to work through.  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) 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 impact selecting an asset allocation, sector weightings and diversification strategies. As market conditions and macroeconomic factors impact markets, revisit the process with your client. Clarify and consult with her on decisions about when and why you might make changes to the portfolio.

Lead with a Solution

Once you have taken a consultative approach, lead with solutions that are in line with their appetite for risk and concurrently help them achieve their specific goals. Women tend to be more apprehensive about investing and invest more conservatively than men. According to a 2021 survey from BNY Mellon, 45% of female respondents said that investing money in the stock market is too risky for them.  This common fear should be a key discussion point and consideration in your approach to the financial planning process with your female clients.

Rather than simply dictating how the investment portfolio will be constructed, address your client’s concerns and broader financial goals.  Refer back to their goals and draw a comparison as to why this solution will help solve a worry.  For example, explain how diversification and certain investment vehicles may reduce some of the risks of investing in growth sectors that may have higher risk but also offer a greater potential to meet their retirement funding goal.

Beginning with the end goal in mind helps advisors bridge the confidence gap and empower women investors. This involves not only recognizing their unique challenges but also crafting strategies that align with their charitable goals, education funding, retirement, risk tolerance and financial goals.

Women are inextricably linked to the trillions of dollars of wealth transfer already in motion. It’s important that their unique skills and financial insights are respected—not disregarded. Female investors have told this industry for years exactly what they value in the advisor-client relationship by quietly disengaging with advisors who don’t respect the approach they need. With so much wealth at stake, is the industry willing to listen?

Kathleen Grace is CEO of Fiduciary Family Office.

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