Like in so many industries that are predominantly male-led, the financial services sector has largely neglected the female perspective in finance. Women control a little over half U.S. personal wealth, and by the end of the decade are expected to control an additional $30 trillion. Yet, women remain the largest underserved group of investors, which means financial advisors who are ill-prepared to serve women are leaving a $700 billion opportunity.
What the Industry Is Doing
Recognizing the size of that revenue opportunity, endless companies and institutions are researching how to better understand women’s attitudes and behaviors when it comes to managing their finances. While research delivers helpful insights, we as a profession have been slow to change our approach when interacting with women. We need to stop treating women like male decision makers and do more to understand the role they play in their financial lives and how that evolves over time.
Here are four steps financial advisors can take to improve financial literacy for women:
Create a Connection to Their Money – and You
Begin by acquiring deeper insights into a woman’s comprehension of her financial situation, attitudes, behaviors, concerns and areas of interest. Acknowledge the impact of personal experiences with money on shaping a woman’s relationship with it. Work together to expand her understanding and identify what would instill the most confidence in her ability to navigate her financial life.
Developing a deeper level of engagement will foster a stronger personal connection. Compared to men, women are more likely seek a financial advisor who is a good personality match. With this understanding, genuinely get to know women as individuals, align with their values, and invest in their success. Women seek an advisor who will engage them in the process and guide them with respect, rather than simply relying on the “trust me” approach.
Women don’t want to be passive recipients of a financial plan; they desire a comprehensive understanding of its various components and active involvement in every stage of the process. This trend is reinforced by research, which indicates that an increasing number of women are assuming control over their finances, with 67% investing of retirement plans – up from 44% in 2018. Women are also being more active about seeking advice, with 77% of women stating they feel more confident about their future when a financial advisor is helping them invest.
Plan for the Journey, not Just the Destination
With the increasing trend of women actively engaging in their finances, acknowledge the dynamic nature of their financial needs. Throughout their lives, women may assume various roles, such as being a single breadwinner, a married breadwinner, a married contributor, or facing unexpected circumstances like divorce or tragic events. These significant life changes necessitate a reassessment of discussions and a return to the initial stages of the financial planning process, as women’s financial needs evolve.
Address the unique challenges that women may encounter not only during retirement but also throughout the different stages of life. Ask them what worries them about their finances and their future, and use the plan to address those concerns and build trust. Avoid using fear tactics. Instead, provide peace of mind by actively listening to their specific situation and customizing a financial plan to meet their needs.
Women understand that life will take unexpected turns. Use the planning process to map out different scenarios and possible outcomes, highlighting opportunities and risks. Women want to have clarity around the financial process, with 71% of women more confident once they have a financial plan in place.
Encourage Natural Investment Traits
Women who have confidence in their financial circumstances and engage in investing feel more secure and empowered to enhance their financial success. Research suggests that women possess innate instincts that make them effective investors, outperforming men by 40 basis points in an analysis of over five million customers spanning a decade. Encouraging your female clients to acknowledge their strengths and how these qualities assist them in the realm of investing can be highly beneficial:
- Patience and discipline: Women tend to be more patient and disciplined in their investment decisions, which can help them avoid impulsive or emotionally driven investing.
- Long-term focus: Women often have a longer-term focus and are more likely to prioritize financial goals that extend beyond short-term gains. This can lead to a more strategic and balanced investment approach.
- Attention to detail: Women tend to be more detail-oriented and may conduct more thorough research before making investment decisions. This can result in a more informed and well-rounded investment strategy.
- Risk awareness: Women may be more risk-aware and risk-averse than men, which can help them avoid overly risky investments and maintain a diversified portfolio.
- Collaborative decision-making: Women may be more likely to seek out advice and collaborate with others when making investment decisions. This can lead to a more comprehensive approach to wealth management.
Knowledge is Power
Remove the cloak of secrecy surrounding financial planning and investing by giving women the knowledge that enables them to ask the right questions. Going beyond financial market advice, establish an ongoing education plan that helps with broader topics like estate and legacy planning, tax planning, insurance, ESG investing, and more. Far more than just a value-add, creating an educated client will enable advisors to do their job more effectively.
When it comes to serving women, advisors need to understand that communication is key. Understand what works with your clients’ lifestyles, how they process information, and make it clear what communication they need to pay attention to. Meet your female clients where they are by creating easily digestible content (podcasts, videos, blogs) that engages as well as educates. Taking these extra steps to create real, human connections with female clients isn’t just the right thing to do – it’s smart business.
Lindsey McKay, CFP®, CSSCS, is the owner of McKay Wealth Management.
This article was originally published on Advisor Perspectives on July 3, 2023.
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