Gender inequality has long been an issue in the workplace and beyond. For instance, in the financial advisory space, women make up the minority at approximately one in every five advisors. But amid every crisis lies great opportunity. These are exciting times for female financial advisors and wealth managers.
The growing trend of women in power, as well as the wealth transfer from baby boomers, benefit female advisors. Widowed and divorced women tend to switch their wealth relationships to new financial institutions. Although there is inconclusive evidence that women prefer to work with other women, studies show they base their decisions on well-built relationships—a fact that women can take advantage of
All of this comes against the backdrop of a significant shift in wealth control that we expect over the next decade. The future for female advisors is truly promising.
Relevant Trends To The Growth Of Female AdvisorsThe growing trend of more females with more power and wealth is attributed to many components, including the wealth transfer from baby boomers and a leadership style predominantly found in women. These, in turn, are augmented by the rising number of female financial advisors we see today.
Wealth Transfer From Baby Boomers
According to the Federal Survey of Consumer Finances by McKinsey & Company, around 70% of U.S. affluent-household investable assets are controlled by baby boomers. Of those investable assets, about two-thirds are held by joint households where women take on a more passive role—they let the husband dictate where to invest their funds.
In the United States, this implies greater control of wealth in the future by women due to two things. One is the expected longer lives of women compared to men. And two is that women tend to marry older partners. In the same study, it was also found that divorced women account for even higher rates of switching financial advisors. More than the switch in financial advisors due to death, divorcing is an indomitable part of the decision to shift.
But regardless of cause, there is opportunity in the impending large transfers of wealth and the imminent stream of new female clients seeking new advisors.
Relationship-Based Decisions
But do female clients prefer to work with female advisors? While this is unproven, there is evidence that women choose advisors based on relationships and trust more than men do, as also pointed out in the McKinsey study. Now, this is an element that female advisors can leverage.
Team-Focused Leadership
As for leadership style, women tend to be more inclusive in decision-making activities, bringing in each team member where everyone’s strengths shine. In contrast, men tend to be more solitary. Of course, this is a generalization the men are trying to break. Nevertheless, the team-focused approach and inclusivity are more effective for business success.
In a Deloitte 2021 Global Human Capital Trends report, they found that focusing on teams—rather than leaders—is the key to excellent business performance. Similar findings have been found elsewhere. Ray Dalio’s meritocracy policy is another example. Due to the leadership style predominantly observed in women, this can be an advantage for female advisors.
By The Numbers
Perhaps the most unmistakable trend to this growing opportunity is the tangible increase in the number of female advisors in the industry. The numbers don’t lie.
According to the Certified Financial Planner Board of Standards Inc. (CFB Board), the number of female financial advisors increased to an all-time high of 20,633 as of December 31, 2020. That is a year-on-year growth of 3.1%. It also means 23.3% of all CFP professionals—financial planners—are currently women.
While the one-in-five ratio seems uninspiring, this is significant progress considering where we were a few years back. In 2014, Cerulli Associates reported 11.5% of financial advisors were women. And this was already 7.9% up from 2012.
The Challenges Women Face Now
A few important workplace issues stay close to the gender inequality issue. These are equitable pay, sexual harassment and the perception of a lack of commitment. They also face the apparent gender bias that’s hidden in plain sight.
Gender Bias
Research from Ariel University in Israel discovered a gap between what people say about female financial advisors and how they act. In their paper “Uncovering Gender Bias in Attitudes Towards Financial Advisors,” they found that, on a subconscious level, respondents still have a strong preference for male over female advisors.
More specifically, the respondents say gender does not influence the quality of the investment advice offered, even though their subconscious answers prove otherwise. Female financial advisors still feel this hidden level of gender bias and discrimination, and it may keep them out of the industry altogether.
Fortunately, the same study also shows how respondents investing through firms and investment houses perceive female financial advisors more equally than otherwise. This, once again, manifests opportunity for our women peers.
Equitable Pay
Labor Department data show that women are still paid less than men, all things the same. So for the same industries, skill sets or even work hazards, talented women get paid less. The “gender tax,” according to an industry study by the Aite Group, paid by women financial advisors in the form of lower earnings was estimated to be $32,000 per year. That is adjusting for the advisor’s years of experience, size of practice and practice ownership of the advisor.
But while this is a challenge, women are also taking on the lack of equitable pay as an opportunity to break into the financial services industry. With competition tightening the margins afforded to financial institutions, the economical prospects of hiring a female virtual financial advisor are enticing. This is an excellent chance for many underpaid women to earn more than the comparatively lower-paying jobs in other industries.
The Me Too Movement
When it comes to harassment against women in the workplace, it’s clear that we can do a lot more work. But movements like Me Too are increasing awareness, and it should be a matter of time when we’ll see true equity and safety between genders.
Career vs. Family Needs
Justified or not, women are perceived to be less career-oriented than men. The perception is that they desire work-life balance more than what people have been accustomed to. But that isn’t a bad thing.
As women emphasize work-life balance, company culture improves. This again ties back to prioritizing the team over leaders. They promote more collaboration and empowerment, and that is a good thing for the company and its culture.
Nevertheless, the true test for female advisors is breaking in, to begin with, given the existing culture and leadership at most firms.
Existing Company Culture And Leadership
A Carson Group and Hidden Insights Group survey reveal some of the biggest challenges female financial advisors face. According to their study, approximately 60% of participants cited culture and leadership as the top hurdle when joining the industry.
Moreover, about 55% of participants said mentoring and coaching were critical to their development. These rigid cultures make it a problem.
But if these financial institutions want to stay ahead of the curve, it looks like recruiting more women, with their fresh perspectives on teamwork, leadership and relationship-building, is a vital piece to a well-heeled future, no pun intended.
For their part, female advisors understand the need to create a strong network of mentorship and guidance. Efforts like the CFP Board’s Women’s Initiative are a step towards progress—progress that’s particularly helpful for women wanting to join the industry.
Moving Forward
Although we’d be mistaken to simply extrapolate historical trends and assume linear growth, the future of female financial advisors is nonetheless bright. In the same McKinsey study, women are expected to control $30 trillion in financial assets by 2030. That’s close to the annual U.S. GDP, and the huge market is primed for the taking.
For many financial institutions, then, they must tap on the unique perspectives offered by female advisors. More than just a novelty and a growing niche, their unique ways of building relationships are key to the financial advisory practice. Let’s all strap in as women take on the forthcoming growth surge in wealth management.
Jeremiah D. Desmarais is CEO and founder of Advisorist.