What Women Investors Want From Advisors

More and more women are deciding how to spend and invest money, and many advisors are blind to the opportunity and need for change.

Reviewed by: Cinthia Murphy
Edited by: Cinthia Murphy

[This article originally appeared in our August issue of ETF Report.]

Women control more than $14 trillion in personal wealth. That number is projected to hit $22 trillion by 2021, and just about every woman—95% of women, to be exact—will at some point be the primary financial decision-makers in their families.

These are some of the astonishing statistics Heather Ettinger, managing partner at Fairport Asset Management, and Eileen O'Connor, vice president at McLean Asset Management, uncovered in a comprehensive 2011 study on the issue of women and investing.

"Women Of Wealth: Why Does the Financial Services Industry Still Not Hear Them?" is an eye-opening document about the opportunity women as investors represent, and the disconnect between what they seek and what the financial industry is willing to offer them.

"Women are the largest emerging market on the planet," Ettinger told us. "They are already the breadwinners or co-breadwinners in two-thirds of American households."

Ignore At Your Peril
"This is one of those markets that, if you don't pay attention, it's going to run you right over," she said. "It's not going away. If anything, it's growing."

Much like race, gender is a topic most find best avoided altogether. But in an era where the traditional advisory business model is increasingly challenged by new technologies and generational shifts in financial advice needs, neglecting to talk about gender differences—and to cater to this massive market—is just plain bad business.

There's no sugarcoating this: Seven out of 10 women today say they are dissatisfied with their financial advisor and the advice they get. Most women say they feel disrespected and talked down to by their financial professional based on their gender alone. The majority of women change advisors in the event of a spouse's death.

And yet, by 2030, women will control as much as two-thirds of the nation's wealth, according to Ettinger and O'Connor's study. They are earning the money; they are deciding how it is invested and spent; and women are starting to demand change.

The Differences: Fact or Fiction?
What needs to change? Assumptions, perhaps, are a good place to start. Women are different from men when it comes to investing, but as Ettinger jokingly puts it, it will take more to connect with a woman investor than merely "printing initiatives in pink ink."

Consider some of these often-heard assumptions about women as investors, and whether they hold water:

Women are less risk-tolerant than men when it comes to investing. They are more conservative.

Research shows that that's not entirely true, although it's not totally false either.

In a recent study looking at gender and investing, Julia Johnston-Ketterer, senior director at Cogent Reports, found that when compared with male counterparts, women who are primary decision-makers on their investments are just as risk-tolerant. They choose similar types of financial instruments; they show similar appetite for risk.

"We weren't expecting to have that outcome," Johnston-Ketterer told us. "Women investors who are on their own in terms of making financial decisions in many ways act like male counterparts who are primary decision-makers."

That tolerance for risk diminishes among women who share the decision-making responsibility with a partner. In a pair, they are more likely to be more conservative, she notes.

Source: Market Strategies International. Cogent Reports. Cogent Beat Investor, January-May 2015.

Women Do Not Invest Alike
But the debate about women's tolerance for risk isn't complete without taking into account the different segments within this group.

"Most of the studies in the industry look at women versus men, but statistically you cannot treat divorcees, executive women, widows and a married spouse the same because they have different priorities, different objectives, different interests," Ettinger said. "You've got to segment the market."

A segmented look, she says, will show that a lot of women who are going through a transition—say, getting a divorce or recently becoming widowed—are suddenly having to control money at a time that's not only emotional, but already busy to begin with.

Their attitude toward investing might be different from that of other women.

What's common among women—including breadwinners who lead decision-making when it comes to money—is that they generally have little time to think about investing.

"What's happening is that the default is a more conservative allocation than they probably should have," Ettinger said. "It's not that they're intentionally saying 'I want to be more conservative,' it's that they don't have an advisor who's coming in and redoing their 401(k) plan, saying, 'It's likely you're going to live to 90 and you need to have a more aggressive allocation.'"

Women, as a group, might not necessarily be more risk averse than men, but they're less likely to trade regularly or tinker with their investments. They are less likely to make random bets. That, too, is directly linked to the fact that women have to juggle multiple priorities in the family.

Women are more likely to ask for help from an advisor than men are.
Indeed, research shows that women are far more likely to seek help with their investing needs than men. They're also better at asking questions, and they're more vocal about what they don't know.

To advisors, the importance of this reality is that when they're dealing with a couple, they need to make sure to address both parties in that couple, Johnston-Ketterer says. Consider that some 80% of men die married, and 80% of women die single or widowed. Chances are if the advisor is working with a couple, he or she might at some point have to work with the woman alone.

Where The Trouble Starts
That's when the troubled relationship between women and advisors surfaces. Today nearly 70% of women say they don't trust the financial services industry; 35% of women breadwinners don't have financial advisors; and about a third of these women who earn at least 50% of the family income say they don't have an advisor that does comprehensive financial planning, according to data Ettinger uncovered.

Most women change advisors when a spouse dies.
Women are more likely to seek help, but that doesn't mean that they're finding it.

"They like somebody who can be kind of a quarterback and help them with financial planning and tax planning and charitable gift planning, estate planning—all those different aspects rather than just investments," Ettinger said.

Women want to preserve their lifestyle more than they care to beat a benchmark.
Women look at investing completely differently than men? Oh, so true.

In financial circles, numbers are king. Advisors often like to focus on performance data—look at how great this portfolio is doing relative to the broader market. But that message doesn't resonate with women clients in general.

Source: Market Strategies International

Women relate better to stories. They like anecdotes far more than performance statistics, Marie Dzanis, head of inter-mediary sales for Northern Trust, and someone who spends a lot of time educating advisors on gender issues, told us.

"Women tend to see investing in terms of lifestyle. Men tend to think of it in terms of winning," Dzanis said. To her, when dealing with a couple, it might even make sense to interview the clients separately to get a better picture of what each wants to get out of their investments.

Getting that message right matters, because more than 50% of stock ownership today and 85% of consumer purchases are controlled by women, Dzanis says. These are just some of the numbers that point to the growing footprint women have on the investing landscape.

Advisors Slow To Change
But changing an approach can be difficult, and tailoring communication styles to different types of clients is no small challenge. Some 70% of widows change advisors within the first year of their spouse's death, for a simple reason: The advisor got used to talking to the man in the couple about just investment performance.

"If you look at CNBC, it looks like ESPN," Ettinger said. "Women are much happier focusing on how they are doing versus their goal rather than versus a benchmark."

"When the husband dies, the advisor calls up the widow and starts talking about investment performance, and what to buy and sell. And she's saying, 'Wait; am I going to be OK?" Ettinger said. "'I thought that was your job to figure out what I'm supposed to be in based on my goals. I don't want to get into that detail. I want to know that you're taking care of me.'"

The advisor has to understand what's unique about that client and her situation, and adjust his approach. As Dzanis put it, "The financial advisor has got to learn to flex their style."

Tips courtesy of Marie Dzanis, senior VP and head of intermediary sales for Northern Trust

Women Are More Cost-Sensitive Than Men
Women are generally more aware of fees, but not all of them. And that sensitivity to price tags doesn't apply to financial advice as much as it does to products.

"The most fee sensitivity I see is among divorcees and widows," Ettinger said. "The breadwinners that have more assets are actually less fee-sensitive, but they're more willing to pay for advice than investment product."

That focus on product pricing is why ETFs are hugely popular with women, and in Ettinger's practice, a widely used vehicle. Low-cost models appeal to women investors. ETFs are also transparent, and easy to use—all traits that resonate with women.

All of that matters, but to advisors, the pressure to have a value proposition is real, if not increasing, in the face of the proliferation of low-cost platforms such as robo advisors. Fee sensitivity seems to be on the rise.

"If you want to be successful in this business, you've got to be moving toward the advice side and understanding what client you want to serve and what's going to be your unique value proposition in serving that client base," Ettinger noted. "Segmentation is critical to success."

Contact Cinthia Murphy at [email protected].

Cinthia Murphy is head of digital experience, advocating for the user in all that etf.com does. She previously served as managing editor and writer for etf.com, specializing in ETF content and multimedia. Cinthia’s experience includes time at Dow Jones and former BridgeNews, covering commodity futures markets in Chicago and Brazil equities in Sao Paulo. She has a bachelor’s degree in journalism from the University of Missouri-Columbia.