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Women breaking barriers: deconstructing unconscious gender bias in wealth management
Today is International Women’s Day. Celebrated annually on 8 March, it’s an important opportunity to highlight the power of women in finance and deconstruct some long-held clichés.
The finance industry cannot erase a traditionally male mind-set overnight but today’s world is certainly very different. According to the Boston Consulting Group's benchmark study, women now own more than 30% of the world's wealth, and this figure is expected to rise. In North America, the figure is closer to 40%.
Yet, it is commonly said that women are more cautious when it comes to investing or wealth management and tend to take fewer risks. Is this stereotype really true? Do women really approach investing differently? We asked our bankers to share some of their perspectives.
Deconstructing bias
We all have biases, conscious or unconscious, even about ourselves. A good example of this comes from the WealthiHer report, where it’s stated that 70% of the women interviewed said they felt that men tended to take more risks than them. Yet in-depth interviews with these same women concluded that their risk profiles were essentially balanced or dynamic, as opposed to conservative.
“I remember an appointment with a potential female client that clearly illustrates these misconceptions," says Cécile Friedrich-Vuillemin, Senior Banker in Paris for Banque Lombard Odier Europe SA. “The client’s initial advisor, a man, had informed me beforehand that she did not wish to take many risks in regards to her assets. During my meeting with her, we took the time to review and I clearly explained the various risks associated with certain investments, with concrete examples, which led to a constructive conversation. After this analysis, it turned out that the client's risk profile was in fact ... high!”
Understanding the investment expectations of our clients is vital for us as a wealth manager. Large studies based on surveys or theoretical tests sometimes conclude that women take fewer risks. Yet, other research carried out under real-life financial decision-making conditions shows almost no significant difference in risk taking between women and men. The propensity to take risks is, in fact, mainly related to an individual’s stage of life, their culture or their professional situation. Also, Merril Lynch's research has shown that women often show a higher tolerance for risk and make more decisions when their financial advisor... is in fact a woman.
For Marie Bernon, Senior Banker in London for Banque Lombard Odier Europe SA, her “female clients do not have a more conservative profile than our average clientele”. Bernon goes on to explain that she notices that, ”women take risks in order to achieve a goal. Their investments are tailored to their needs thus can be seen as less 'opportunistic' than men overall. This is why our Goal Based approach is well appreciated by all of our clients.”
Different focus
The fact that risk appetite is not gendered in principle does not mean that women invest exactly the same way as men do. At least that is the message conveyed by the Boston Consulting Group’s latest report on “Managing the Next Decade of Women's Wealth”, published a few months ago.
Read more here on why women should invest in women
The report indicates that some asset managers still believe that discussing performance has more of an impact on men than on women, even though both value performance equally. However, women tend to ask for more information to better understand the impact of their investments on their short and long-term goals.
One sentence in the report sums up this logic well: "Women base their investment decisions on facts, not on instinct". Quoted in the report, Katie Nixon, Chief Investment Officer of Northern Trust Bank, explains that women are more likely to question and discuss investments in order to have all they need to make decisions.
Delphine Barbaud, Senior Banker in Geneva for Banque Lombard Odier & Cie SA, agrees with these findings. "Our clients attach a lot of importance to the quality of the expertise we give and our clear explanations. We are more and more challenged on this point and it's exciting! We share our analyses with clients and help them to see long term and enable them to take a step back from the 'noise' of the media and financial markets. I think it is our duty to clearly explain the risks and opportunities of investing in an increasingly complex and changing world.”
Better performance for women
The way women generally like to invest, which tends to be more "factual" than instinctive, seems to be bearing fruit. While there are some drawbacks to large-scale studies of human behaviour, both male and female, it is enlightening to consult some of them on quantitative elements, such as performance.
For example, a study by Fidelity Investments, examined the investment performance of more than eight million clients in 2017. It showed that female clients had recorded an average of 1% additional performance.
Read more here: The rise of women in finance
Another study, this time from the academic world, showed even better results. An analysis of 3,000 men and women showed that female clients' investments had, on average, a 2% higher performance than their male counterparts. The reason for this is that women's assets tend to be better diversified and more broadly allocated.
A growing role in the global economy
International Women's Rights Day, or International Women's Day, is not just about political or cultural rights. It’s an opportunity to highlight the participation of women in our economy as an integral part of building a more equitable and diverse society.
And this diversity doesn’t just benefit shareholders. At a time when the world is experiencing an unprecedented pandemic, the International Monetary Fund (IMF) recently stated that if women had professional parity to men, growth and economic resilience to shocks would be stronger.
Finally, if governments and the business community accelerated measures to advance gender parity and equality at work, global GDP could be $13 trillion higher by 2030, according to McKinsey's annual "Power of Parity" study.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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