How to be a female-friendly advisor: Get the risk right

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Global finance culture is changing quickly as financial institutions rapidly realize that wealthy women represent a lucrative business opportunity. Indeed, they are becoming today’s largest, most important and most under-served target market.

Traditionally, both male and female advisors sold to and forged relationships with men, even if a husband and wife were theoretically equal clients. The man was the main point of contact and the decision maker.

Today, advisors of both genders need to learn a new language and style, because, on average, women learn, communicate and buy differently than men.

I spent the last 13 years travelling around the world and conducting more than 1,200 qualitative interviews with highly accomplished women in diverse industries and professions. This is the first of a five-part series in which I will share my most relevant research findings for advisors who want to become more female-friendly.

In this first article, I address three critical findings about women and risk.

Finding No. 1: Risk assessment is a risky business

In the world of investing, standardized risk questionnaires are still the norm. The most pervasive question is, “What is your risk tolerance?” Most investors check a box describing their risk tolerance as conservative, moderate, aggressive or their equivalents.

But what exactly is the risk that the investor is tolerating? The assumption is that it’s short-term market volatility. But the really risky scenario is when longer-term objectives are not met, especially for women.

We know that, on average, women live nearly five years longer than men. That means the average female retiree needs to save and invest at least $100,000 more than the average man. If our female clients don’t take on enough risk, and they keep too much money in cash, they will certainly not meet their long term objectives.

Risk is a moving target, and so is risk assessment. To properly assess investment risk, advisors need to look at a client’s investment portfolio as a whole and in the context of their life goals. This isn’t about ticking boxes. What are the implications for a woman’s overall life and welfare if she takes different amounts of risk? More importantly, what are the implications if she doesn’t take enough risk?

A financial plan is an excellent tool to use for these types of discussions. Run a wide variety of scenarios using a wide variety of input assumptions. Talk about the numbers in great detail but always in the context of a client’s life and her unique preferences.

Finding No. 2: Propensity for risk-taking rises with value alignment

Whether it’s investing in a new venture or the stock market, as long as a woman is interested and an opportunity is aligned with her personal causes and concerns, she will be motivated to take a risk.

“Women are more altruistic in terms of how they want to invest,” an auditor in Stockholm told me. “We need advice as to how we can invest in ways that are aligned with our values.”

Here’s what two other interviewees said:

• “I always have business ideas. I try to move the world forward and ‘do business for good.’ I like to support the environment, gender equality and children. In the back of my head I always like to think about making responsible investment decisions. I would rather invest in health care or new media rather than palm oil, for example.” – Entrepreneur, Copenhagen
• “For me and for many of the women in my life, money and meaning cannot be separated. I work to take a socially responsible lens to my portfolio and prioritize investments that have low carbon emissions, advance cleantech innovation, or support gender equality. I know that companies with a moral compass bring more value, both financial and otherwise, and I suspect that financial advisors will see this trend growing exponentially among female millennial investors.” – Corporate strategist, Toronto

Finding No. 3: Women aren’t risk-averse, they are risk-aware

Risk tolerance varies, but not because of gender.

“My former husband and I had the same advisor and met with him twice a year for portfolio discussions. Because I was always less risk-averse than my husband we had separate investment accounts with separate objectives,” a marketing executive from Toronto told me. “My portfolio grew at a much faster rate – around 10 per cent to 12 per cent on average annually – because of my higher risk tolerance. And more importantly, I paid attention to what was going on with markets and the economy in between those biannual meetings with our advisor.”

Indeed, how much risk anyone will take is based on how aware they are of all of their options in any given context. Risk tolerance is shaped more by life experience, personality, education and situational factors than by gender.

Tolerance for risk, a survey of 203 women from around the world: Results of Barbara Stewart’s Rich Thinking Quantitative Survey, 2019:

If it was ever true that women were excessively fearful about risk, it’s not true anymore. In my global Rich Thinking 2019 Quantitative Survey, fewer than one in 10 women said they were risk-averse, while nearly three-quarters said they were risk-aware, not risk-averse. About 16 per cent self-identified as risk takers and said they had no problem with risk at all.

Women do their homework, then take calculated risks

A woman might take more time to make an investment decision, but that’s because she does her homework. Once she has delved into the details to her satisfaction, she will take calculated risks and invest.

Here’s what a couple of my interviewees said:

• “My approach is to be very diligent – I do my homework. I start with a lot of broad-brush exploration and I keep my options open, then I put together a detailed spreadsheet analysis. I make an investment decision when I am happy with the information from my analysis, my emotions and my intuition. I am never fearful because I have gathered all of the information that I need and I always know why I invest.” – Corporate consultant, Vancouver
• “I’m comfortable doing my own investing because I do my homework. I research before making any investment. This isn’t about just looking at charts – I want to understand the business, the industry, the country and the culture.” – Engineer, Vienna

Perpetuating false stereotypes is dangerous

Critically, advisors today need to ignore old myths about women and risk. If a woman’s financial advisor relies on inaccurate judgments about women and risk, that advisor will end up guiding that client to the wrong financial future.

“I did my Masters in Business and I worked for 25 years in the IT industry. I was a CEO for a couple of years. I understand how businesses operate, so these days I invest for our holding company,” a board director in Oslo told me. “When it comes to dealing with my bank I would like them to have respect for my financial comfort zone. For example, when I tell my banker that I am not interested in hedge funds this does not mean that I need him to explain them to me and it doesn’t mean that I am ‘scared.’ I don’t want to be made to feel stupid, and I don’t want to have to waste my time explaining why I don’t want to invest in hedge funds.”

Perhaps the biggest risk most female clients will ever face is being pigeonholed into the wrong asset allocations due to inaccurate stereotypes.

Writer Barbara Stewart is a Chartered Financial Analyst (CFA) with 30 years of investment industry experience. She spent five years as a foreign currency trader, more than two decades as a portfolio manager for high-net-worth entrepreneurs, and for the past six years she has been performing interview-driven research for financial institutions around the world.  Barbara is a keynote speaker for CFA Societies, banks, stock exchanges and industry conferences globally, and she is a columnist for CFA Institute and Canadian Money Saver magazine. She is on the advisory board of Kensington Capital Partners and also is the Ambassador for the Kensington Women’s Forum. In addition, 13 years ago Barbara saw a need to challenge outdated financial industry stereotypes and share positive messages about women and money. Today, Barbara is recognized worldwide as one of the leading researchers in women and finance. Her Rich Thinking® global research papers quote smart women and men of all ages, professions and countries and are released annually on International Women’s Day, March 8. To find out more about Barbara’s research, visit www.barbarastewart.ca.

More from Canadian Family Offices:

• If you want to leave Canada (and its taxes) behind, prepare for a very long goodbye
• How to serve and build lasting relationships with HNW clients
• Eight ways advisors can better connect with high-net-worth clients

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