Opportunity for financial industry to encourage more women to invest

Below is a commentary I wrote that was published?by The Straits Times?here.

International Women's Day is a good time to reflect on the progress women are making in terms of gender equality and financial inclusiveness. Indeed, we see cause for optimism.

While the pandemic's regressive effects on female participation in the job market are well documented, as it turns out one silver lining is that more women than ever want to take control of their financial future.

A Fidelity survey in 2021 showed a 50 per cent jump since early 2020 in the number of women who say they are interested in investing. A UBS study came to a similar conclusion, with 68 per cent of women reporting they are talking more about finances within their families. It seems increased precaution has prompted many women to review their financial situations and seek control of their destinies.

However, desire doesn't always lead to action. Only a fraction of those in the UBS survey followed through with the actions they intended to take, and a separate UBS report found the majority of married women globally?let their spouses make the financial decisions. The reasons holding women back are well known: social and historical gender roles regarding a woman's role as the main caregiver, and confidence levels.

Attitudes toward female participation in financial decision-making also vary across cultures - in the Middle East, no female respondents in a wealth study by Boston Consulting Group reported being involved in financial decisions, while in Asia most female respondents said that they take the lead in their households. But across the world, one theme clearly stands out: women are eager to invest, but various barriers are preventing them from getting more involved.

Three challenges

First, women often report they are not satisfied with their financial advice arrangements. Specifically, they feel neither their needs nor their goals are well understood. Unsurprisingly, EY research found 70 per cent of women switched their wealth relationship to a new financial institution within a year of their spouse's death.

Second, the excessive focus on the technicals of investing can be off-putting. According to a survey by Pimco, 72 per cent of women, and 81 per cent of millennial women, said the investment system was "set up to be confusing." One contributing factor was the use of jargon: more than a third found the use of jargon to be a hurdle, compared with around a quarter of men.

Third, women often have lower investment risk tolerance than men, according to various research papers. In a recent Nutmeg survey, just 3 per cent of women said they are comfortable taking risks to achieve a good return, compared with 26 per cent of men. Men's favorite asset class is stocks, while that of women is real estate. In pension allocations, women often favour bonds over equities.

Some research suggests that women tend to underestimate the probability of gains, and that this pessimistic view could contribute to their higher risk aversion. In some cases, women's greater uncertainty about cash flows given career breaks for caring for children or parents could also lead them to focus on shorter-term investment horizons, affecting the perception of risk.

Why it’s important to get more women to invest?

Paradoxically, by taking less investment risks, women could end up facing a greater risk of missing their lifetime financial goals, especially as women on average also tend to live longer than men.

An inclusive and more diverse financial system is thus essential-not least because women are also increasingly controlling the world's wealth.

In 2020, female investors controlled 33 per cent of total global personal investable wealth, up from 31 per cent in 2016, and this share is projected to further increase to 35 per cent by 2025, according to BCG research. In fact, BCG expects women's investable wealth to grow faster than men's over 2021-2025 (projected CAGR of 6.0 per cent for women, 4.2 per cent for men).

In addition to more capital flowing into capital markets, also noteworthy is that women have a clear preference for impact investing. Studies show that women are twice as likely as men to say it's important to incorporate environmental, social, and governance (ESG) factors into their policies and procedures. A UBS Investor Sentiment Survey also highlighted that more women (71 per cent) take sustainable considerations into account when investing compared to men (58 per cent).

As such, a 2022 study by BNY calculated that if women invested at the same rate as men, there could be more than US$3.22 trillion of additional capital to invest globally, with over US$1.87 trillion flowing into sustainable areas. This makes it all the more imperative for women to get the support and investment advice they need.

A female-friendly value proposition is critical

For this to happen, the financial industry needs to step in and step up with a differentiated value proposition. Above all, the advisory process should deliver personalized and relevant investment advice in a systematic way, and be based on a purpose-driven framework.

One example of such a framework is the UBS Liquidity. Longevity. Legacy. approach, which helps investors develop an investment strategy optimized for their goals and objectives. Using such a framework, women can define investment strategies that help them clearly understand where their money is and why, and as a result invest with confidence.

On a more granular level, we have found that women tend to be more confident when their values are aligned with their investments and when they see a social benefit. Also, with wealth increasingly moving into the hands of women, we expect assets invested in sustainable and impact segments to increase further. Hence, ESG criteria should be a central tenet of any offering to female investors.

Yet, women are not a homogeneous group. Goals, experiences, expectations, and needs differ. Regardless of whether the recipients are young professionals, entrepreneurs, next-generation daughters with inheritances, or widows, advice has to be holistic and reflect an entire person's financial situation.

Momentum for financial empowerment is growing as more women take control of their finances. This presents a great opportunity for the financial industry to reimagine its value proposition and create a stronger, more inclusive system that benefits not just women but everyone.

For more insights, I also encourage you to read our latest “Women & Investing” paper, authored by Marianna Mamou here.

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