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Serving the Next Decade’s Most Crucial Demographic for Financial Planning: Women

Research indicates a massive wealth transfer to women over the next decade — the financial planning profession should be ready.

October 26, 2020

With so many Americans suffering economically due to the COVID-19 pandemic, it can be difficult to think about the future. In the financial planning profession, CFP® professionals remain squarely focused on helping their clients stay calm and weather this storm. Given all the uncertainty of the present, we must remain focused on trends that will shape the future of wealth and, in turn, the financial planning profession.

Research shows that women are an increasingly important demographic for the financial services industry. A study exploring the role gender plays in the investor-advisor relationship published earlier this year by Merrill Lynch found that 75 percent of women under age 45, and 50 percent of women over age 55, manage their own finances, while younger married women are twice as likely to say they are the primary decision-maker in their household.

By the year 2030, women are expected to control much of the $30 trillion in financial assets that the baby boomer generation will possess.

And a July 2020 study from McKinsey found that by the year 2030, women are expected to control much of the $30 trillion in financial assets that the baby boomer generation will possess. A shift of this magnitude serves as a crucial catalyst to ensure that calls for change in the financial planning profession translate into direct action.

The question for CFP® professionals and the firms who employ them is how to prepare for this realignment of their clientele — and how best to serve the increasing number of women clients.

Women Manage Their Finances More Holistically — an Ideal Match for Working with a CFP® Professional

The McKinsey study identified some notable divergences in the way women and men think about their finances, finding that women have:

  • Greater demand for advice
  • Lower financial self-confidence
  • Less risk tolerance
  • Greater focus on real-life goals

Women were found to be more focused on using their investments as tools to reach their financial goals, rather than solely outperforming the stock market.

CFP® professionals are well-equipped to assist clients in meeting holistic financial planning goals like saving for retirement and protecting against longevity risk (women were found to prioritize both more than men).

That makes women more likely to gravitate toward a financial planning professional, rather than an advisor who is more squarely focused on investments. This aligns well with what several experienced women CFP Board Ambassadors said last spring:

“I think there’s still a tendency in the public to confuse money management with financial planning,” says Rita Cheng, CFP®, CEO of Blue Ocean Global Wealth. “With financial planning, conversations begin with goals rather than the transfer of money or market outperformance. The more we’re able to communicate this broadly, the better positioned we’re going to be to answer the call for female clients.”

Leveling Up the Profession to Better Serve Women Clients

Earlier this year, Lynn Ballou, CFP®, senior vice president and partner with EP Wealth Advisors, said that when she entered the financial planning profession, she was not prepared for how underserved and under-represented women actually were at the time:

“As an advisor, seeing some of the most brilliant women I knew abdicating complete control and awareness about their financial situation to their husbands, was and still remains shocking to me.”

Fortunately, much has changed since that era. As the studies cited above point out, women are now more empowered to take control of finances, with the younger generation of women increasingly responsible for managing their own finances (75% of women under age 45). Merrill Lynch’s study also reports that the youngest women surveyed (under 35 years) scored better than their male peers on financial literacy questions.

But while the Merrill Lynch study did not find evidence of conscious bias against women (only 8 percent reported a gender-related negative experience), it did identify several areas where women may encounter some negative assumptions when working with a financial advisor. For example, in conversations with heterosexual couples, eye-tracking technology documented a 60/40 split in financial advisor eye contact in favor of the male client.

Because of the potential for negative assumptions, women clients reported they were consciously making more of a proactive effort to ensure their voice is heard in conversations, and preparing more diligently for meetings.

To help mitigate some of these assumptions for women, CFP® professionals should strive to ensure they’re being cognizant of the ways they’re communicating, including their eye contact and their language. More positive, communal language has been shown to resonate well with women clients, as opposed to an emphasis on risk-oriented language and the potential downsides of financial decisions. 

McKinsey also found in its research that women — across all the major asset levels — place much more importance on finding a personal fit with their advisor than men typically do. This will be particularly important for financial planners to heed because 70 percent of women investors are likely to recommend their financial advisors to a friend or relative, and 40 percent of women are likely to follow their financial advisor to another firm.

Leading the Way: A Call for More Women Advisors

The analyses from McKinsey and Merrill Lynch highlight a seismic shift for the wealth management and financial advice industry at large, but they also shed light on the ongoing push to diversify the financial planning profession to better reflect the overall population.

In a white paper making the business case for more female financial advisors, Milliman, a financial risk management firm, posits that the demand for women financial advisors will soon “outweigh the supply.” It notes that the concept of having a “shared experience” — in this case, both the client and advisor having the experience of being a woman — is an exceedingly powerful factor for women seeking out financial advice. Indeed, Merrill Lynch’s study found that women are 2.5 times more likely to say they are comfortable taking investment risks if they are working with a female advisor. 

Merrill Lynch’s study found that women are 2.5 times more likely to say they are comfortable taking investment risks if they are working with a female advisor.

Furthermore, Milliman’s white paper argues that women make the ideal advisor because they tend to have higher levels of Emotional Intelligence (EI), allowing them to play the crucial role of financial “therapist” in answering nuanced questions like “Will I have enough money in retirement?” and “Will I have enough money to cover rising healthcare costs?” Women are perfectly suited for the profession because they naturally possess skills that clients demand and that the financial planning profession cultivates.

Women who are at the start of their careers, or figuring out if a switch to the financial planning profession is right for them, should consider reading What I Wish I Knew At The Start Of My Career: Insights From Successful Women CFP® Professionals, which features advice and anecdotes from a diverse selection of CFP Board Ambassadors.