Female investors and the confidence conundrum

Women investors confidence compass

The “rise of female investors” is nothing new at this point. We all know that as a demographic group, women in the United States represent a very significant economic force. In the past, it was quite common for us to hear from advisors who struggled with the best way to involve male and female clients equally in financial planning conversations. Some even voiced an assumption that “my female clients are less interested in investment decisions.” Today women in the U.S. control $8 trillion in assets, and by 2020, that figure will increase to $22 trillion.1

But the tide is shifting rapidly and undeniably. In a study we recently released, more than half of women investors in two age groups (“Generation X” or ages 32-47 and the “Silent Generation” or ages 67-80) who work with advisors said they share the responsibility for managing their savings and investments with their partner or spouse. Nearly one third of Generation X and one quarter of the Silent Generation women have even more responsibility than their partners. This supports a string of recent data that suggests women are taking an increasingly active role in their households’ financial decision-making and we think this has powerful implications for investors and advisors.

The confidence conundrum

Yet participating in financial decision-making and participating confidently are not the same. In striking contrast to the increased participation of female investors, we found that these same women surveyed lack confidence in their investing knowledge and abilities. Over one half of Generation X and one third of the Silent Generation women stated they are “a little” or “not at all” knowledgeable about investing.

Across the board, we also found that women think men are more knowledgeable about investing. Less than one in ten women in either age group said they were very knowledgeable about selecting and managing investments, but at least twice as many felt their spouse (most of whom were men in this study sample) was very knowledgeable. The women we surveyed also said they consistently turn to the men in their lives for financial advice (choosing fathers over mothers, adult sons over daughters, brothers over sisters).

It goes without saying that women have the same aptitude to be knowledgeable investors as their male counterparts. In fact, much research suggests that many women possess hard-wired behavioral traits that can make them excellent investors – from being more realistic in their expectations to being averse to extreme risk.2 Women also value a longer-term view of financial planning. In our research, well over half of advisors said they believe their female clients have a longer-range perspective in planning than men. Only 5 percent of advisors said that their male clients have a longer-term perspective than their female clients.

Despite this, we see that many women investors are not participating in financial decision-making with confidence. And as you well know, a sense of confidence can be very important to an investor’s ability to fully engage in the financial planning process.

Help your female clients be the family CIO, not just the CFO

In our industry, it is the Chief Investment Officer (CIO) who understands, manages and guides a company’s investment process and portfolio. In my travels across the nation speaking to advisors and the clients they serve, I have found that many women readily identify themselves as the Chief Financial Officer (CFO) of their households. They are comfortable managing day-to-day budgets, paying bills and making most major consumer decisions.

But confidence wanes when investments enter the scene. How powerful would it be to hear women confidently say that they are the CIO of their families’ finances, in addition to or instead of the CFO? What can you do to address the lack of investment confidence that could be hindering some of your female clients’ abilities to engage in the financial planning process?

The bottom line

There is an opportunity for our industry to help female investors to be knowledgeable, confident and fully engaged in creating financial security for themselves and their families. Seek out female clients who may not be as involved in financial decision making as they could be. Understand what drives them and connect that to their investment goals. Engage your clients and the next generation of female investors in building the investment knowledge and confidence they need to manage their progress toward financial goals.

In future posts, we will share more of our ideas on this topic and ways you can foster better conversations and better relationships with the women you serve. To read more findings from our recent study, download the What really matters to women investors report.

1 Source: “Clients From Venus,” Ruthie Ackerman, Wall Street Journal, http://online.wsj.com/article/SB10001424052970204190504577040402069714264.html

2 Source: John Watson & Mark McNaughton, Gender Differences in Risk Aversion and Expected Retirement Benefits, Financial Analysts Journal, July/Aug 2007.

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