Money management isn’t a monolithic, one-size-fits-all thing, and financial planning for women has different considerations than for men, said Lorraine Ell, CEO and senior financial advisor at Better Money Decisions, an RIA that serves clients around the country.
Ell spoke on a panel this week about portfolio construction and financial planning for women at the ETF Strategy Summit in Dallas sponsored by ETF Advisor and Financial Advisor magazines.
“I think there’s a misunderstanding about risk when it comes to designing portfolios for women because women have a problem with longevity,” Ell said. “Seventy-two percent of people who live into their 90s are women, and more than 80 percent of those living to 100 are women. So women have a far greater risk when it comes to running out of money than their male counterparts.”
Ell questioned the notion that people should dial down portfolio risk as they age. “Women have to look 25 to 30 years out [in retirement],” she said. “You can’t start reducing portfolio risk when someone hits age 75 because woman will run out of money. You have to maintain the living standard for those women, and you have to factor in longevity as a greater consideration when deciding on a risk parameter.”
So, how to do it? Little time was spent during the discussion on specific investment options; more of it was about big-picture issues pertaining to managing risk and cash flow.
“Some people say women are risk-averse. I think women are risk averse, but there are men who are risk averse, too,” said Marguerita Cheng, CEO and co-founder of Blue Ocean Global Wealth in Gaithersburg, Md. “I think a better term to use is ‘risk aware,’ because you don’t want to put women in one category and say, ‘They’re all risk averse, so let’s put them in bonds. The language we use is really important.”
She added there are different types of risks involving the markets, longevity and inflation. “But when talking about longevity risk, it’s important to also throw in the concept of frailty risk and health-care risk,” Cheng said.
“On the whole, health-care expenses for women are higher, partly due to longevity but also partly due to factors involved with women’s health care,” Ell said. “So that’s a very important consideration when managing assets for female clients.”
She dispensed the following stat: 67 percent of women think their advisors don’t understand them.
“So guys, I’m talking to you because you’re the majority of advisors out there,” said Ell, who directed her comments to the male advisors in the audience. “Women do not think you get them or understand what’s important to them because their focus is different. It’s not just about performance. They’re more interested in ‘Will I be OK?’ They’re more interested in being able to help their children and in maintaining a lifestyle that they want. I think sometimes that’s a different perspective from the typical advisor in this industry.”