Advice falls short for the female investor

Investors are now more sophisticated, more demanding – and more likely to be female.

We paint female investors with a broad brush – treating them more often than not as a market niche, and defining them as indecisive, self-doubting and overly emotional. This is far from the truth.

Female investors are more detail-oriented, risk-aware and long-sighted, both with their investments and their relationships with their adviser.

Women control US$40 trillion in investable assets, and more than 70 per cent of consumer purchases worldwide. Over fifty per cent of women in the US are responsible for investment decisions in their household; and at some point in their lives nine out of every 10 women will find themselves in the role of household CFO.

And yet new research from SPDR ETFs suggests that the way our industry meets her needs does not match her great influence – only 39 percent of women feel understood by the investment industry. With women ranking financial services near the bottom of their list among providers they engage with, we clearly have work to do.

Progress needs to be made towards understanding the needs of individual investors. For financial advisers, this means understanding the ways in which biological and environmental components influence each client’s decision making process, how they view money and their short and long-term goals.

When factoring in gender to the advice process it is important to consider how differences in brain function may impact the decision-making process. Namely, we see this in three key areas: communication, risk and emotion.

Firstly, we know that women are more likely to place a higher value on communication that supports their decision making and because they are also skilled at processing additional information they can interpret even contradictory information. On the other end of the spectrum men are often more likely to follow a more straightforward decision-making process, choosing to disregard information that conflicts with their basic views.

Secondly, we know that men are more likely to be motivated by short-term goals, leading them to take risks to achieve those goals. While generally men think short-term and tactical, women, on the other hand, tend to be more altruistic and are motivated to avoid risk. Her investment time horizon is geared towards achieving longer-term goals.

Thirdly, we know that both men and women are subject to emotional influences that can have positive or negative implications for their investing habits. This is not necessarily a predictor of investor success or failure – but what it does tell us is that the outcome depends on many factors, especially an investor’s self-awareness of their emotional influences.

So, with these observations in mind, what do we need to consider when working with female investors?

Her mindset towards risk

Advisers should focus on the risks that count to empower decision making. Women investors tend to make financial decisions that are geared towards building security. As such, they are often better informed and less impulsive.

The decision-making framework should highlight the elements of the process that are within her control; discuss the downside risk of an investment option separately from overall volatility. Advisers can also proactively help her manage loss aversion by making objective and quantitative comparisons between investment choices.

Her communication preferences

Female investors want the facts in order to draw their own conclusions, and investment professionals need to be prepared to answer all the questions she may ask to help her feel well-informed.

How can they do this? Firstly, have a conversation. Secondly, work to be a collaborator. And finally, listen to her ideas. Support her in making better decisions when trade-offs are necessary. Look for ways to build upon success – by presenting options and information, she will feel and be more involved.

Her outlook on investing

Performance matters, but advisers also need to remember that her outlook is about the big financial picture. As we noted, the female investor is more focused on achieving long-term goals, rather than simply beating a benchmark. Nearly half focus beyond a five-year timeframe when they think about their investments.

On this front, advisers need to be a sounding board for gaining all the information she needs. Understand her perspective by knowing her past investment experience and what motivates her. And of course, actively listen and explain how you are arriving at your recommendation

Less than a generation ago, women were undeniably in the minority of investment decision makers. Now, women are more likely to bear the responsibility for the household investment portfolio. While we believe that gender does play a role in shaping the investor, it is important to note, first and foremost, that people are individuals and not types. It’s the common strengths of successful long-term investors that matter most: they save more, they stick to long-term goals, they manage their emotional biases and they never stop learning.

In an industry often accused of pursuing short-term goals, the female investor may be our catalyst for taking a longer-term approach in a new client-centric era.

Brie Williams is a vice president of State Street Global Advisors and the head of practice management.