For Advisors, Big Opportunity Looms with Female Clients

First things first. That headline shouldn't be taken to mean anything demeaning, nefarious or any other negative connotation.

With that disclaimer out of the way, astute advisors know that male and female clients have different needs and objectives and that's true even when dealing with a couple. I'll leave to advisors to decide, but a case can be made that working with female clients is perhaps more rewarding.

Various studies prove that women are, in aggregate, better investors than men and superior savers. That holds true regardless of the account – cash savings, IRA or 401(K). Women are also, usually, more conservative in their investment decisions than men and that's where opportunity for advisors to add value comes in.

First, it's vital to understand the reasons why women are more apt to be risk-averse than men. An obvious is that there's still a significant gender pay gap in this country, meaning some women may be letting their compensation dictate investment decisions. Second, many women have gaps in their working lives to raise children or for other reasons.

The coronavirus pandemic is a reminder of that second scenario because job loss among women is alarmingly high.

Understanding Risk Aversion Among Female Clients

Something that's truly interesting is that when controlling for income, women do invest as much of their income and as much of it in equities as do men. Still, women have the reputation of being notably less aggressive investors than men.

In simple terms, an advisor may encounter a male client who consistently asks about growth stocks or the latest hot investment trend while also meeting a female client that likes dividend stocks and very basic index funds.

“Moreover, numerous factors may influence investment decisions: income, education level, marital status, age, and gender, to name some of the key ones. That makes it difficult to untangle what role gender plays in investment decision-making,” writes Morningstar's Christine Benz.

A 1996 study by Vickie L. Bajtelsmit and Jack L. VanDerHei confirms that women are more restrained in investment choices than men.

“After examining investment choices for 20,000 management employees at a large U.S. employer, the researchers found that women were more likely to invest in fixed-income investments than their male counterparts and less likely to invest in employer stock,” notes Benz. “At the same time, the study’s authors pointed out that they were missing information on the household’s wealth and marital status, which could be contributing factors to the participant’s allocation choices.”

The bit about fixed income allocations is particularly instructive and meaningful right now. As advisors know, Treasury yields are spiking, inflation is climbing and the Federal Reserve cannot hold rates near zero into perpetuity. Each of those scenarios imply that any client, regardless of gender, too heavily allocated to bonds today could face disappointing outcomes down the road.

Good News for Advisors

Citing a Vanguard study, Benz points out the women are MORE likely to seek financial advice than men. Talk about opportunity knocking for advisors. Other studies draw the same conclusion and while the percentage difference in advice-seeking isn't staggering, it does indicate women want the assistance of an investment professional.

One more thing: Advisors shouldn't assume than women are “wired” to take less risk than men.

“Finally, the research suggests that financial advisors shouldn’t assume that their female clients are more risk-averse than their male clients,” says Benz. “A 2005 study suggested that financial advisors often did just that, even for male and female clients with the same levels of wealth. Based on the data, such an approach doesn't appear to be warranted.”

Bottom line: Between women perhaps over-allocating to bonds and the fact that many want to take more equity risk, advisors have a lot to work with in terms of cultivating long-lasting, rewarding relationships with female clients.

Related: Advisors: Here's a Great Conversation to Have with Female Clients