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Guest Feature: The Women’s Economy Has Arrived

Dr Lilli Friedland

27 August 2013

The time has come. The Women’s Economy has arrived. And it’s important - particularly for the members of the financial services industry, for several reasons. Today, women represent the largest emerging market for financial advisors, and even greater than China or India. In the US alone, women control $8 trillion and are expected to control $22 trillion by 2020.

American women are the primary retirement planners in 76 per cent of households, and they represent the majority of the workforce. Women are increasingly the primary breadwinners of their households, and own 40 per cent of the US privately-owned businesses. As such, understanding some of the distinctive needs and preferences that women have of their financial advisors can yield tremendous gains for leading financial institutions.

The distinctive characteristics of this new Women’s Economy requires a deep knowledge of the attitudes, concerns, investment styles and goals that differentiate female clients from their male counterparts, as well as the differences among women themselves.

The vast majority of women still do not feel financially savvy, yet they represent the largest consumer market in the world, controlling more than 80 per cent of the purchases in the US and owning 30 per cent of all US companies.

There is no greater demographic trend that impacts business than the growing wealth of women. As a result, many businesses have realized that it is necessary to focus on this emerging demographic as they change the way they conduct business with different types of female consumers, particularly those of great wealth.

Prevailing attitude of women towards financial services

Across the globe, women report they are extremely disappointed with the quality of services and breadth of tailored products provided by the financial services industry. In fact, women rank financial services as one of the two sectors with which they are most unhappy : women do not feel like they are treated as equals to their male counterparts nor do they feel that their time is respected.

Women report that financial advising is male-oriented and financial advisors do not proactively listen nor consider their deepest concerns. As a result, women are very willing to switch to financial service providers that understand them better. Fidelity found that 70 per cent of women leave their advisors when they inherit assets.

Women want financial collaboration, not to delegate financial decisions to others 

Historically, women were rarely involved in financial decisions and did not have the same opportunities as men in the business world. This reality shaped how women learned – or did not learn – about financial decision making.

Traditionally, many women became wealthy when they received significant sums of money through divorce or inheritance. Today, over 40 per cent of high net worth women have earned their own money. Additionally, women continue to live longer and therefore will inherit more from their husbands/families. The trends have changed in favor of women.

Today’s women are taking it upon themselves to learn about finance. Although women rate themselves as less – or not at all – knowledgeable about financial products or investing, they want to become highly educated about their financial alternatives. Interestingly, 65 per cent of women do not use financial advisors; yet those who do rely on their advisors more so than their male counterparts.

Women report less confidence in their financial expertise, but they do not want to entirely delegate financial decisions to others. As such, most high net worth women want to partner or collaborate with their financial advisors, but make the ultimate decisions themselves.

Today, women self-educate themselves about managing their wealth, usually from family and friends. There are differences among women in terms of age, ethnicity, and type of financial decision affecting whether and with whom they consult. Importantly, women’s use of financial advisors increases with their wealth – 64 per cent of female millionaires and 82 per cent of ultra high net worth use financial advisors.

Women have different emotional reactions to money

An individual woman’s relationship with money is primarily influenced by her attitude, values, education and experiences. Risk-taking attitudes affect investment strategies.

In general, women are more risk averse than men: only 31 per cent of women are prepared to take higher risks for higher investment gains. This aversion to risk taking may be related to personal and family concerns that generally drive women’s financial decisions. On the other hand, a recent study found some women were frustrated when their advisors assumed they had a low risk tolerance, providing them with only a narrow range of investment alternatives. Therefore, it is important to learn the attitudes and preferences of each individual woman.

Behavioral scientists have suggested that women are more prone than men to experience fear when making financial decisions, which can indicate the downside of risk is more threatening to women. One of the primary manifestations of fear is the common finding that women, regardless of income, tend to be concerned that they will not have sufficient funds for retirement.

Additionally, investment strategies differ between men and women. Women typically take more time to plan, often invest for the long-term, and prefer safer investments . Women commonly exhibit a “buy and hold” strategy, rather than trying to “time the market.” Research has shown that although men are more likely to be self-confident and take greater risks, they are less accurate in their investment decisions than women.

When women make emotional choices about money, they often consciously or subconsciously use self-control strategies. For example, women - more than frequently than men - purchase illiquid investments such as homes, real estate and jewelry to prevent themselves from emotional trading . Some women exercise financial discipline by using rules and financial self-control strategies. For example, some women wait a few days after making a big financial decision before executing on it.

There are also relevant generational differences in attitudes toward money. Women near retirement have different life experiences and expectations than those in their twenties or thirties. Whether she is married, has children, inherits assets or receives a divorce settlement, or earns the money herself affects the anxieties, expectations and risk-taking strategies of the particular woman. All of these factors shape the individual woman’s financial life’s picture.

Each woman wants an advisor to understand her unique vision or life’s picture. It is prudent for financial advisors to connect with women by acknowledging the emotional factors involved in their decision-making processes. Financial advisors need to show their understanding of the emotions that drive the individual woman’s financial objectives .

By communicating an understanding of the unique client’s needs and underlying emotions, financial advisors can demonstrate empathy and earn the trust needed to develop actionable financial plans for the female clients. When women trust their financial advisors, they tend to be loyal and stay with the advisors more frequently than men, often irrespective of their financial performance.

Women have different views about wealth

Women tend to view wealth as an important source of security – to provide peace of mind for themselves and their family – not as an opportunity for investment.

For most women, financial investing is a tool for reaching life and family goals: they tend to view wealth as a means to ends . For women, their financial legacy is often tied to their values legacy. They are more inclined than men to engage in philanthropy and non-profits causes, and frequently want to involve their children in charitable causes as a central family value. These personal concerns generally drive their financial decisions.

Most women want to be involved in making financial decisions with their husbands. Even if the man makes most of the decisions about the family’s finances, it is wise for the financial advisor to ask and respond to the woman’s priorities, as studies report 70 per cent of women say they change their financial advisors after the death of the spouse.

Women are the new emerging market

Financial advisors can earn the trust and loyalty of their female clients by listening to her wants and understanding her goals.

Sixty-four per cent of the women who use financial advisors are much more willing to take risks. Also, women who use advisors feel they are on the right track to meeting their financial goals and feel more confident about not outliving their savings.

Today, women are earning more money and have access to more money more than ever before. In one-third of dual-income households, women earn more money than their spouses. Women already represent most of the college graduates and the majority graduating from graduate programs. As such, women represent more of the future self-made wealthy population. 

Whether she has earned the money herself, inherited it, or received it through a divorce settlement, 90 per cent of adult women will spend some time living alone in their life, making their own financial decisions.

Women’s economic empowerment is described as the biggest social change of our time. For financial advisors to succeed and take advantage of the new Women’s Economy, thoughtful engagement with women, including understanding their needs and unique goals, is essential.