The pervasive nature of the gender pay gap persists across industries and job roles. In 2023, the average pay for women in the UK was £31.7k, notably lower than the £37.4k earned by men[1]. Despite a positive trend of gradual decline over the past decade, there's still ample room for improvement, particularly within the financial services sector, where the gender pay gap remains alarmingly high at 26.6%[2].
While the gender pay gap is well documented and acknowledged as an issue, an aspect that tends to get less attention is the disparities in investment behaviour between men and women.
Women are statistically less inclined to invest than men, and when they do, they frequently lean towards keeping the safety of cash ISAs. Factors contributing to this trend include the wage gap which limits women’s ability to invest as much as men due to having less disposable income. In addition, various other explanations have been proposed:
- Lack of financial education: Historically, women have been less exposed to financial education and investment opportunities compared to men. This can lead to lower confidence in investing and reluctance to engage in financial markets.
- Risk perception: Research suggests that women tend to be more risk-averse than men when it comes to investing. They may prefer safer, lower-risk investment options which might result in lower returns, but also offer more security.
- Confidence in understanding: Women typically need to know more than men would before investing, therefore requiring further confidence in the investment before going ahead.
- Underrepresentation in the financial industry: The financial industry has historically been male-dominated, which can create barriers for women to access investment opportunities and receive adequate financial advice.
Addressing these disparities requires efforts to provide better financial education and resources to women, promote gender equality in the workplace, and encourage more diverse representation in the financial industry. Increasing awareness of these issues and providing support systems can help empower women to take control of their financial futures and invest more confidently.
But why should financial advisers and wealth managers be looking at this?
By 2025, 60% of Britain’s wealth will be in female hands, yet only 7% of advisers have a strategy for advising women[3]. That is a huge opportunity for financial advisers, but also detrimental for those who fail to actively engage with this growing segment of the market.
Despite the prevailing gender pay gap, HMRC's report for the tax year 2020 to 2021 reveals intriguing insights: Taxpaying estates owned by males carried an overall tax liability of £2.71 billion, while those owned by females showed a higher aggregate tax liability of £3.04 billion. Notably, female-owned estates consistently exhibit slightly elevated tax burdens compared to their male counterparts. This discrepancy is likely influenced by the fact that women tend to enjoy a longer life expectancy than men[5].
These statistics underscore the evident necessity for females to have access to financial advice. Additionally, it's crucial for financial advisers to recognise that exclusively engaging with the male member of a household can pose significant risks. If that individual were to pass away unexpectedly, it could have severe repercussions for the adviser's business.
According to a McKinsey survey, 70% of women who inherit wealth switch advisers within one year of their husband's death[4]. This represents a significant loss of potential clients for advisers who fail to engage with them effectively.
One effective strategy to address this issue is to engage with clients' spouses at an early stage. This not only facilitates intergenerational planning for the family by understanding their objectives but also safeguards an adviser's business from potential asset outflows upon a client's passing. Some advisers have chosen to develop a dedicated female engagement plan to enhance their approach. Overall, crafting an engagement plan tailored for women not only caters to their distinct financial requirements but also presents a strategic opportunity for financial advisers to build trust, empower clients, and tap into a rapidly growing market segment.
It's also crucial to recognise that women often have a different approach to investing compared to men. Numerous studies have consistently shown that women tend to be more risk-averse and less likely to invest in stocks, preferring safer options such as property investment. For instance, in the UK, approximately half of landlords are female, indicating a preference for property investment due to its perceived safety and stability. Conversely, women hold only 8.5% of cryptocurrency investments, acknowledging the higher volatility and risk associated with this asset class[3]. Additionally, women are more likely to prioritise goals such as financial security and long-term planning.
To bridge this gap, one approach could involve actively seeking female input when designing financial plans or products. A crucial step in achieving this is ensuring fair representation of women within a company, particularly in client-facing teams and those developing tailored propositions for female clients. It's crucial to align marketing materials and messaging with this objective to ensure coherence and relevance, effectively addressing these differences in investment behaviour.
To hammer home this point, a 2021 survey conducted by WealthiHer, a think tank dedicated to supporting female investors, revealed a striking 72% of women feel misunderstood by the financial services industry, with an equal percentage believing that biases against women remain[6].
Recognising and comprehensively understanding female clients is a strategic necessity for financial advisers looking to thrive in an increasingly diverse and competitive landscape. Through proactive engagement, addressing their unique needs, and cultivating trust, advisers can position themselves to capitalise on the significant market potential presented by this demographic. In doing so, they not only strengthen client relationships but also fortify the resilience and longevity of their business, ensuring they remain relevant and successful in the ever-evolving financial landscape.
Sources:
- Statistica, Median annual earnings for full-time employees in the United Kingdom from 1999 to 2023, by gender, November 2023
- PwC, Gender pay gap and diversity in financial services, March 2022
- Schroders, Taking the Reigns: Female Clients and the Transfer of Wealth, September 2021
- McKinsey & Company, Women as the new wave of growth in US wealth management, July 2020
- https://www.gov.uk/government/statistics/inheritance-tax-statistics-commentary/inheritance-tax-statistics-commentary
- WEALTHiHER network, The changing face of women’s wealth, 2022