Wealth managers have not historically prioritised female investors. Common societal reasons for this include the fact women have typically held less wealth, and that they have more complex investment cycles due to a higher proportion taking extended time off work for family and childcare responsibilities. Additionally, when it comes to investment within wealth management portfolios, female investors have traditionally taken more conservative, longer-term approaches, which can result in lower returns than with their male counterparts. However, this is rapidly changing, and wealth managers should start preparing to reflect the increasing importance of female clients.
In recent years, women have begun taking greater control over their finances, with 75% of women under the age of 45 now managing their own money. Furthermore, young women are becoming increasingly more financially aware, with women aged 18-34 almost twice as likely as men to have a stocks and shares ISA (Fidelity International, 2019).
Women are expected to inherit 70% of the wealth passed down over the next two generations and control two-thirds of household wealth by 2030.Investment News, 2019
Recent market reports indicate that in order to unlock this opportunity, wealth firms will need to empower more women within their own teams. Given that women are expected to inherit 70% of the wealth passed down over the next two generations and control two-thirds of household wealth by 2030 (Investment News, 2019), this could present a real differentiation opportunity for Wealth Management firms.
Empowering Women to Generate Higher Wealth Manager Returns
A recent Merrill report found that on average, women rated their financial knowledge and understanding higher when engaging with a female financial adviser, and as a result were around 2.5 times more likely to say they were ‘very comfortable’ taking investment risks (2020, Merrill Bank of America).
Based on this finding, in order to engage effectively with these women and grasp the opportunity, Wealth Managers must look to hire, train and empower more female advisers.
This could be challenging initially, as female talent only makes up approximately 15-20% of the sector. To future-proof their businesses, wealth managers must look to diversify their talent pipelines. It is expected that two-thirds of advisers will leave the sector in the next 10 years, primarily due to retirement or career changes. Wealth managers should use active recruiting to capitalise on this opportunity and ensure their future pipeline is more representative of the population they will service in the future. Wealth managers should use active recruiting to capitalise on this opportunity and ensure their future pipeline is more representative of the population they will service in the future.
The confidence gap cuts both ways
The confidence gap associated with an adviser of the opposite gender is not only observed in female investors. A recent study showed that 31% of men rated themselves as ‘very confident’ making financial decisions when with a male financial adviser, but only 16% of men rated themselves at the same level when with a female counterpart (2020, Merrill Bank of America). Of course, this element of the trend is less easily observed in the market due to the higher representation of male advisers, meaning it is much more likely a male investor would be paired with a male adviser.
It seems, regardless of gender, clients feel more confident investing when paired with a financial adviser they can more closely relate to. This should be no surprise given building strong relationships is at the core of the wealth management sector. As such, firms must ensure the demographic of their future client facing talent pipelines is reflective of their customer base.
The UK regulator weighs in
During the writing of this article, the UK regulator has released a statement encouraging financial services firms to ‘act quickly’ on improving diversity within their firms. Jonathon Davidson, executive director of supervision at the FCA, highlighted that ‘it’s clear that effective action needs to be taken quickly for financial services to become an industry that is truly reflective of the people it serves’. With the FCA declaring that this will remain a ‘key area of focus’ for them in the future, it seems that in addition to benefiting management returns, improving diversity throughout wealth firms could also keep you in the regulators ‘good books’ going forwards.
It’s clear that effective action needs to be taken quickly for financial services to become an industry that is truly reflective of the people it serves.Jonathon Davidson, FCA
How can Alpha help?
Alpha’s experience of working with clients across the industry gives us an unparalleled understanding of wealth manager operating models, as well as best practice approaches to client management, marketing and sales functions. Additionally, our involvement with cultural change and talent management initiatives makes us uniquely placed to help you on such a journey.
For more information, please reach out to Emily Stapleton, Manager and UK Head of Alpha’s Gender Equality Committee.