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Different Approach to Planning Can Build Relationships with Women

March 7, 2023 8 min 23 sec
Carissa Lucreziano, CFP
CIBC Financial Planning and Advice
Senior Couple With Financial Advisor At Home
© Cathy Yeulet / 123RF Stock Photo
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Text transcript

Carissa Lucreziano, vice president of financial and investment advice with CIBC.

The financial services industry is working to increase the number of female advisors and planners to attract and retain more female clients and better handle the wealth transfer women are expecting over the next five to 10 years. So, let’s talk about the different perspective female financial advisors and planners bring to their roles and what effect this has on client relationships.

In Canada today, women control $2.3 trillion in personal finances and that number is only expected to drastically increase over the next five years to $3.8 trillion. There are several reasons for this. First, an increase in the number of women in high-paying positions. The gender pay gap is slowly narrowing. Also, intergenerational wealth transfer and inheritance through widowhood.

For firms that are in the business of investing for Canadians, women are great clients to have. According to a study from the Mackenzie Research Institute, maintaining client relationships with women who are part of the baby boomer generation could boost the revenue potential of firms by 33%. On top of that, firms that build client relationships with younger women, especially in the millennial range, could see up to four times faster revenue growth. Now note that this is U.S. data, but the same dynamic is at play here in Canada.

Now, let’s look at the unique value of female financial advisors. One of the best ways to develop and maintain these relationships with female clients is by having a strong presence of female advisors. Studies have shown that female clients largely prefer working with female advisors, and 80% of women switch advisors within a year of their spouse passing. This has been a static stat over the past several years. However, I want to point out that this becomes a non-issue if a woman is engaged with their advisor and they have a strong relationship, regardless of their advisor’s gender.

So with that in mind, the question is what do female financial advisors do differently? In the last decade, expectations as well as needs of Canadians have changed drastically when it comes to what they’re looking for from an advisor. In the past, you’d go to your advisor, and it would be a very performance-driven and product-driven conversation. There’s a big movement in financial planning where it’s all about discovering the needs and goals of the client and that synergy with implementing investment strategies over the long term.

Female advisors tend to have this type of holistic approach when it comes to planning by understanding their client’s goals and factors that may impact their ability to build wealth, like career breaks or caregiver costs and retirement planning. Women also tend to think about planning in terms of life goals rather than focusing on performance alone, which is ultimately goal-based investing.

Female advisors tend to focus on an important element of the industry, building long-term relationships with their clients, and the emphasis on connecting with that next generation, which is the children and spouses. This is such an important attribute in an advisor, especially for female clients who tend to think in the realm of their wealth, not just for what it means for them, but also what it means for the next generation.

Female advisors also have a strong track record as portfolio managers. This is due to the way in which women think about investing, time in the market and not risk averse, but risk aware. This is an important distinction for advisors in general to keep in mind. Women advisors can also help their female investors understand how the synergies of risk tolerance aligns to achieving financial goals.

So let’s move to the opportunity. When it comes to the financial planning and advice industry, women are still underrepresented in most areas and some more than others. In a full-service brokerage, about 15% are female here in Canada and U.S. data shows that 23% of all certified financial planners are women.

So what are the trends in leveraging this great opportunity? You’re starting to see financial institutions work together to attract more women to the industry with programs, education and awareness. Mentorship and providing clarity is so important for those exploring a career in advice. There’s a big opportunity and educators in financial planning and advice are becoming more and more aware to really peel back the onion on the financial industry and make it a part of the financial planning program, so that when women are standing in front of an employer they know what questions to ask and they understand their options and the vast roles available. The financial planning industry is changing and evolving and there is so much opportunity. The bottom line, female financial advisors are good for clients and what’s good for clients is good for the business.

How can an advisor help female clients create a plan that will help achieve their life goals, and what is the difference about investment planning for women? Over the past few years, we have seen an increase in the number of women interested in investment planning. CIBC conducted a poll in 2019 and it showed that 68% of women seek advice when it comes to investing. And that definitely hasn’t changed, it’s only increased over the years. We’re seeing this trend also increase across all age groups.

When it comes to taking action, though, less than half of women have put a plan in place. This is according to a survey by the FPSC (Financial Planning Standards Council) in 2019. They found that only 41% of women acted on putting a plan in place for themselves.

An advisor can really help close the gap and propel women to take action by working with them to build a personalized financial plan. That plan would capture a view of their cash flow, which is important to view the income to expenses along with their financial goals, which includes their needs, their wants, and inspirations for the future. This plan can help women prioritize saving for goals like retirement and investing, while having a better understanding of their overall spending and what it takes to get to their ultimate goal.

An advisor can help create a diversified portfolio that aligns to a personalized risk profile, time horizon and goals, in addition to providing guidance on how to rebalance their investments with changing market conditions or individual priorities. They can also be the source of education and guidance, and this is really important and what Canadians in general are looking for.

At the end of the day, knowledge is power. An advisor can provide that financial education by explaining things like investment strategies to help give their clients a conduit for more informed decisions. When women have a better understanding of their options, they’ll feel more confident in their plan and more prepared for what life may throw at them.

Advisors can also provide education by inviting clients to events. Along with helping clients grow their wealth, a critical role advisors also play is helping clients prepare for future life changes such as wealth transfer. Women will receive some sort of inheritance and wealth transfer in the future, usually in two forms. Once from their spouse or partner, and once from their parents. And 90% of us will be required to play the role of sole financial decision at some point of time. Advisors can work on building the relationship with female clients today in helping them feel more prepared for that time in the future. Once they inherit, advisors can help female clients navigate a sum of money that could likely be life-changing. A crucial first step in inheriting a large sum of money is revisiting a financial plan, revisiting financial priorities, those of specifically to family, and putting together the right strategy for future success.

Ultimately, understanding our clients is the key to helping them build wealth. When it comes to investing, there are a few ways in which women’s approach is a little different. While women are somewhat less confident about investing, when they do invest they typically achieve better results, especially after adjusting for risk. Women are more patient typically, more diversified and less inclined to dabble speculative investments. Women focus on long-term goals that gives them a more long-term approach, and puts them in a good position to earn the equity risk premium, the higher expected return from stocks compared to bonds or cash. This risk premium is earned by investing patiently over the long term with a consistent approach and not by jumping in and out of the market.

We know that the appetite to invest is here. Now we just need to encourage and support our female clients to take action on their terms.