Researcher Dr Baeckstrom based her research on interviews with 129 experienced UK-based investment advisers specialising in millionaire clients. Using a scoring system out of five, she found that women advisers scored female client control or client confidence, at 3.08 out of 5, compared with male advisers who scored female client confidence at 3.27 out of 5 respectively.
Baeckstrom explains that the ramifications for female investors could be “significant”, since they were more likely to be siloed into low-risk portfolios, contributing to pension pots that, for today’s 20 years olds, are projected to be 11% smaller than those of male savers.
She explained that she was initially surprised at the findings: “I expected male advisers would recommend a much lower risk portfolio for women than female advisers, when it was actually women advisers doing this.”
“I suspect there is some mirroring going on,” she continued. “Female advisers traditionally have a lower risk tolerance than male colleagues, and women in general are more conservative investors.”
She added: “Taking a broad view, this risk aversion on behalf of female adviser and client is unsurprising since finance, money, and maths are traditionally a male domain. Women have only been running money for 45 years or so.”
Reflecting real differences?
Harvey Nigel, an expert on behavioural decision making from UCL, said: “We have to question whether the difference is a bias or whether it accurately reflects a difference in the preferences of male and female clients.”
He added: “Presumably the interaction arises because female advisers can empathise more with the risk preferences of their female clients. People tend to make decisions for other people like the decisions they would make for themselves when those people are similar to them.”
Nigel didn’t think this was necessarily a problem for the industry though, he said: “It is possible that the advisers are not so much showing a bias as taking into account population-level data as well as individual-level data. If the latter is not fully reliable (because of the way it is elicited), one could argue that advisors are doing the right thing.”
Advisers should be thinking beyond stereotypes
Independent women wealth planner Julie Mitchell adamantly disagreed with Nigel. She stated “It is the job of an adviser to work out what makes a client tick outside of a stereotype.”
“That said”, she continued, “a women would never say ‘make me a millionaire overnight,’ but you sometimes get that from a man. Women tend to have more defined goals such as security, options and control, and so I do have some gender preconceptions based on past experience.”
Mitchell explained that it is important not to choose a risk profile based just on a client conversation (she uses profiling tool Finametrica). “If a female client is very cautious, we talk through the fact that their capacity for gains is decidedly reduced as a result of being risk averse. If they’re investing over the longer term, we’ll explain that they have the time to withstand recession, and dips.”
She continued: “In addition, clients like to know what other people are doing. If the majority of other similar investors are choosing a balanced approach, they are more likely to do the same. Sharing this information is another way to increase their appetite for risk.
“Retirement planning needs to be thorough and it is essential that advisers buck stereotypes and make sure their clients are taking sufficient risk to get the rewards they need.”
Mitchell’s bid to increase knowledge was backed by Baeckstrom who argued that education and experience is key: “speaking for myself, if I have a high level of knowledge about a particular area, I’ll feel confident practicing it. Running an investment portfolio needs to become the norm for women, this will boost their confidence and their appetite for risk.”