Friday, November 12, 2010

What Women Investors Want, and Don't Want

by Robert B. Garey, Ph.D.

Women control 33% of the investment assets in America, but when it comes to getting good financial advice, many feel like second class citizens. Women investors often feel that financial advisors and planners pay more attention to men, value and respect men more, and give men better advice and more investment options.1

Many advisors seem to relate to their male clients on an almost primal level, where investing “is conveyed as an aggressive, even belligerent sport, with terms such as ‘winning,’ ‘losing,’ ‘beating the market,’ ‘running of the bulls,’ ‘swimming with the sharks.’” While these images may appeal to the competitive nature of men, they turn most women off.2

Women tend to approach investing differently. They’re more likely than men to set long term goals, often because of (or in preparation for) “major life changes, such as marriage or divorce, the birth of a child, or death of a spouse”3 or eventual retirement. They want their investment decisions to be in pursuit of those goals and their overall financial security, rather than chase short term performance objectives like beating the S&P 500 in the current quarter.

Women investors want their advisors to understand and be empathetic to what’s going on in their lives, and what they’re trying to achieve by investing. They want clear and meaningful explanations and advice, and sometimes want to be educated, but not talked down to. Most important of all, they want to be able to trust their advisors. Of course, trust has to be built—on respect, empathy, and a true effort to by the advisor to understand them, and of course, honesty.

Unfortunately, far too many financial advisors see women investors through the lens of their own gender biases and stereotypes. Worth.com describes a few4:

  • Advisors “may be uncomfortable talking to women about personal matters”;

  • Advisors “may believe that women have limited financial knowledge, so they provide fewer investment options and reduced reporting”;

  • And the most annoying of all: “assuming husbands are the decision makers, they ignore wives.”

So, what should women investors look for when selecting an advisor? Don’t place too much value on establishing immediate rapport with an advisor. Some of the worst are great salesmen with winning personalities. I think the following qualities are very important, although this isn’t a comprehensive list:


  • First, make sure that the advisor has a fiduciary responsibility to act in your best interest. Registered investment advisors (and their representatives) have that obligation. Brokers and insurance agents do not.

  • The advisor should strive to gain an understanding of your life and financial goals, and what’s important to you. This includes learning about your family dynamics and the important people in your life, your worries and concerns about money, the objective financial needs and risks in your life, and anything else that’s relevant.

  • The advisor’s recommendations should all be related to your investment goals. Be wary of investments that are touted because they “beat the market” over some recent period. This is a sales tactic designed to impress you so you’ll buy the product. As you’ve heard many times, past performance is no guarantee of future success.

  • The advisor should put all of his or her recommendations to you in a written investment plan that ties everything to your goals. The plan shouldn’t be boilerplate. It should be tailored for your needs, logical, and written in English without unexplained jargon.

  • The advisor should be able to explain everything he or she is recommending in a way that you, as an intelligent person (but not a financial expert), can understand.

  • Before you hire an advisor, find out who you are going to be working with after you initially invest. Will you have access to the advisor for reviews and to answer important questions, or will you be assigned to a staff member or junior advisor?

  • How much will it cost you? Investment advice isn’t free, but costs should be low. Avoid advisors who charge or receive commissions. When you think about it, commissions give the advisor financial rewards for selling products to you, and create a direct conflict of interest with giving you objective advice that’s designed for your best interest. A fee-only investment advisor who charges by the hour or as a percentage of your investment assets avoids the conflict of interest of commissions.

My experience has been that women make great investors. In general, they know very well the importance of money and becoming financially secure, and are usually very serious about investment decisions. No woman (or man) should hire or keep a financial advisor (or a CPA, attorney, or doctor, for that matter) who doesn’t take her seriously or work for her best interest. Demand excellence from the people who work for you.
_____________________________
1 The Boston Consulting Group, "Leveling the Playing Field: Upgrading the Wealth Management Experience for Women", July, 2010.
2 Eleanor Blayney, "Empowering, Educating, and Engaging Women Clients", Journal of Financial Planning, October 2010.
3 The Boston Consulting Group, op cit.
4 Worth.com, "What Women Want", http://www.worth.com/index.php/component/content/article/3-grow/1566-what-womenwant