Advising a woman: why a man’s plan won’t fit

According to the CFA institute, the global income of women will grow from $13 trillion to $18 trillion over the next five years. That’s more than the GDP growth of China and India combined over the same period. Yet research shows most women do not have a financial adviser.

According to a senior marketing executive that Ernst & Young interviewed at a large wealth management firm, 60% of financial advisers believe women should be served no differently from men. But Ernst & Young LLP’s research shows this might not be a sound approach.

Women typically do more research before they invest, they have a longer sales cycle and choose financial advisers based on relationship, brand affinity and trust. Men, on the other hand, have a more competitive approach to investing and therefore tend to choose an adviser based on the investment product and investment performance. For women, reaching their investment goals with a high degree of certainty is more important than the comparative product performance.

Savvy advisers in large wealth management firms are therefore using goals-based planning very successfully to attract women clients and build long-term relationships.

Longer lives

According to the World Health Organisation (WHO) boys born in 2015 can expect to live to 69.1 years and girls to 73.8 years. That’s nearly five years more that a woman needs to provide for herself financially. Or, if she relies on an insurer for an annuity income, that’s five years longer that the insurer will need to pay out an annuity.

Therefore, when it comes to their financial plans, women need to face the fact that they will need to earn an income for as long as possible, long after the traditional retirement age of 60. They also need to make peace with the fact that insurers will pay a woman aged 60 a smaller guaranteed annuity income than a man aged 60, for every R1 million rand invested with the insurer. There is no gender equality for the gender blessed with longevity.

With a longer investment horizon, women can afford to take on more risk for longer – both in their pre-retirement products and in their living annuities, once retired, if they choose this above a guaranteed life annuity. Advisers therefore need to coach women who are not comfortable with the risks of the stock market to make them more familiar with portfolios that could potentially yield higher returns than cash and property.

Lower pay

Unfortunately, the gender gap is still a reality in most countries. In South Afica, according to a study by the University of Johannesburg a woman needs to work two months more in a year to earn the equivalent salary of a man per a year.

It’s not only the size of salaries, but the shape of the salary curve that differs for men and women. According to Sally Krawcheck, CEO of women-focused robo-adviser Ellevest, assuming a woman’s salary grows at the same rate as a man’s until retirement leads to inaccurate financial planning results. In the US, she finds that for a large part of the female population, their salaries peak around age 40, while the average man’s salary peak around the traditional retirement age of 60.

This is why career coaching plays such an important role in enabling a woman to meet her financial goals. More and more financial advisers cross-train as life coaches too, transferring the necessary skills to their clients to negotiate for a higher salary and encouraging them to network effectively. Because, as Krawcheck points out, very few companies operate as a meritocracy. ‘You need to be great at your job, but it may not be enough. Instead, networking has been called the #1 unwritten rule of success in business.’

More career breaks

Due to their role as primary caretaker of children, women tend to take more career breaks than men and therefore need larger emergency funds. But according to a survey done by a top 10 wealth management firm, as reported by Ernst & Young, only 43% of women have an emergency fund versus 63% of men. Because their retirement fund contributions come to a halt during these breaks women also need to contribute slightly more than men while they are in full-time employment.

No one is a carbon copy

What the executives interviewed by Ernst & Young agree on is that advisers that are ultimately successful in attracting women clients are those that realise not all women are the same and that they can, in fact, vary dramatically in terms of lifestyle choices, financial commitments and sources of wealth.

Perhaps the key to approaching a new client remains the same for men and women – to test all financial planning assumptions with your client and treat every person as the individual he or she is.

Sources: Bloomberg; Ellevest; Fortune; Harnessing the power of Women investors in wealth management by Ernst & Young; The Guardian; Women in the Workplace research programme at the University of Johannesburg.