One of the more interesting facts to cross the Atlantic recently is that in the US, 50% of high net worth individuals are women, but by 2020, in just four years’ time, they will account for 67% of the total. So says Sally Krawcheck, one time Chief Financial Officer for Citigroup and now Co-Founder of Ellevest, a digital investment advisor targeted at women.
The change is not just down to growing numbers of female entrepreneurs and executives and households where both men and women work. The main reason for the skew is because women outlive men, and what was once shared between a couple becomes wholly hers when the man dies first. Apparently, four out of five men are married when they die; four out of five women are single or widowed.
The intriguing issue from a financial services standpoint is how ill-adjusted the industry is for this demographic change. Boston Consulting Group’s (BCG)
Women want more (in financial services) report, which outlines findings from the group's
Global inquiry into women and consumerism survey, to which a total of 12,000 women from 21 countries responded, found seven out of ten were dissatisfied with their financial adviser. This is particularly acute when they have inherited an advisory relationship from a deceased husband and, not surprisingly, some three quarters of them change advisers within 12 months.
The BCG research also highlights the more challenging issue that women have different investment priorities from men, and that this can translate into a quite different investment approach.
Almost all financial advice is designed by men, which statistically suggests that it is centred around performance and looking for quick results. But
surveys show that not only do women put a much greater emphasis on security rather than performance, they are also much more inclined towards social investments – like investment bonds that finance programmes for disadvantaged children or provide seed funding for inner city entrepreneurs – where their money is used to better other people’s lives as well as hopefully making a return.
In general, it appears from the BCG survey and
other work in this area that men see investment in terms of winning, often for its own sake, which is why even when they have more money than they can possibly burn through in one lifetime, they are nevertheless often to be found chasing after more. In contrast, women see investment much more in terms of lifestyle and the achievement of predetermined goals. Provided those goals are reached, it does not matter if with hindsight the chosen route turns out not to have been the most direct. Psychologists say women like to explore different ways to achieve a desired outcome, whereas men opt for one, put their heads down and charge in a straight line.
"Robo-advisers should be better because computers don’t panic, don’t get bored and don’t fall prey to the latest investment fashion or fad"Obviously, one way to address this issue is to have more women as financial advisers. But this will take a long time and one wonders too how effective it will be unless the whole culture of the advisory firms undergoes a shift. It is increasingly understood in this context that the strong macho culture that still predominates in a lot of firms inside and outside financial services is a major reason why fewer women in their thirties progress from middle to senior management.
It might therefore be that technology will provide a better answer. Currently the wealth management and advisory industries are looking nervously at what are known as robo-advisers. The blanket term covers a variety of applications in what is still a very undeveloped science, but the basic idea is to harness artificial intelligence for fund management. The idea is that a properly programmed computer, necessarily devoid of emotion or bias, will be better than a human in matching a client to his or her optimum strategy and then implementing that strategy in the markets. The outcome should be better because computers don’t panic, don’t get bored and don’t fall prey to the latest investment fashion or fad.
But even this could encounter problems. Writing recently in the
Financial Times, Martha Lane Fox, one of Britain’s best-known entrepreneurs, bemoaned the gender imbalance in the internet economy. Women occupy just 17% of the tech jobs in the UK, she said, a number unchanged in five years, and worse, fewer than one in ten of these women are in leadership positions in the sector.
Her point is that products and services that are not founded on diverse thinking will never be as competitive or as useful as those created by gender-balanced teams. And to prove the point, she said that when Apple launched its health app in 2014, touted as a monitoring system for all aspects of physical wellbeing, there was no capacity to track the menstrual cycle or menopause. This, she says, was perhaps unsurprising because there were no women on the development team.
If this can happen – and it obviously did – then there is a distinct possibility that robo-advisers will similarly be written by men and reflect male approaches to investment. Thus we don’t just need female financial advisers, we also need a surge in the numbers of female software engineers if women are to get investment services that meet their needs.
Look out for Anthony Hilton's First Person column in the March 2016 print edition of the Review.