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Carissa Lucreziano, vice-president, CIBC Financial Planning and Advice.
Women do have some unique needs, which means advisors should look at financial planning and investment goals with a different lens. Typically over their lifetime, there are three common obstacles women face to wealth creation. First, a longer lifespan. On average, women live 5.6 years longer than men, leaving women in control of a sizable share of wealth, which they will be responsible for managing solely after the death of their spouse or partner. This means that there are some important considerations. Combined savings may be depleted for care of an ailing spouse or partner that needs healthcare attention first; savings in general will have to last longer to fund retirement and any longterm care needs. Having the responsibility of managing wealth and the day-to-day expenses in absence of a supporting spouse or partner could bring on a sense of financial vulnerability and be extremely overwhelming.
Secondly, lower income overall. Even though there is evidence that the wage gap is shrinking, CIBC research shows that women still earn less in 95% of overall occupations. This means that there is less discretionary cash flow available for women to invest to fund future income requirements due to potentially lower wages. In addition, women often take time away from their career to care for a loved one. This too has a direct impact on women’s earning power and savings. In fact, almost one in three women say they’ve reduced or stopped savings as a consequence of childcare or elder care, and so this puts women at a considerable disadvantage and can create a large gap when it comes to savings for their retirement.
Lastly, attitude towards risk. Women generally take a more conservative approach to investing. Sometimes this is due to a knowledge or competence gap, and that gap can lead to a lower risk tolerance. But sometimes women taking a more conservative approach might not have anything to do with knowledge or confidence; it could be logic that’s driving women. For example, over time many women have had less saved due to a number of reasons. She may have had lower income than her spouse or partner, less opportunities for a promotion or periods of time away from work to take care of a loved one. With less money to invest, women may not feel that they should be investing in higher-risk investments regardless of their confidence or knowledge level. They may be drawn to investing in lower-risk, conservative investments because they need to protect what they have. However, focusing only on conservative investments can lead to an even greater savings shortfall for women.
These three factors converge to impact a women’s wealth creation opportunities. It is important for advisors to recognize this and plan differently — be more strategic in the approach. This could mean advice around starting to invest earlier and more frequent, assessing opportunities more often to utilize the ebbs and flows in discretionary income for investing purposes, and reviewing the investment portfolio structure to ensure the level of risk taken meets the future goal of savings.
Investment advisors should focus on engaging women in the conversation in financial management. This is key. Regardless if the male spouse or partner takes the lead, this will positively impact a woman’s financial literacy and confidence overall. Over and above being aware of the unique financial planning challenges that women face, advisors should focus on three key areas of practice management when engaging female clients. Firstly, think about the approach to communicating, and does your engagement style address both spouses or partners? Are you asking questions of both parties? Are you inviting both spouses or partners to annual planning review meetings, financial literacy events, and communicating with both on an ongoing basis?
Communicate in a manner that resonates with both spouses. Spend time upfront understanding the communication preferences, family dynamic and showing compassion and empathy for a female client’s views, approach to investing and goals. Frame questions around wealth management needs, not just the investment strategy or returns. For example, financial security versus performance; addressing the family’s financial obligations and longterm goals versus focusing on just investment returns; link the return needed in order to achieve the required short to longterm goal; planning that reflects values, uncovering her values upfront; focusing on outcomes and how these outcomes can meet the family’s financial needs. It is not just about the investment performance.
Women also have heightened focus on taking care of the next generation, which includes wealth transition and preservation. Advisors should seriously consider fulsome discussions around intergenerational planning. Secondly, think about a strong focus on financial literacy with female clients. Tailor your approach based on her comfort level and knowledge around investing, providing information that will positively impact financial literacy and encourage her engagement in future discussions. Tailor planning and investment seminars on topics that interest women and provide resources that will aid in further education. Women are looking for guidance around concepts on investing and financial planning in an environment and fashion that is supportive and impactful to them and their family.
And last, consider investment opportunities that may align with women’s investing needs and goals. A balanced and diversified approach to investing can help mitigate some of the risks associated with high-risk and high-volatile investments and can help maximize the opportunity to invest in various types of investment vehicles and different asset classes.
Income-oriented investments may also appeal to women, especially today as we are faced with the challenge of a low-yield environment. Investing too conservatively may hinder the ability to provide the income needed to fund retirement goals and future income needs. This is a particular consideration for women who have not been able to invest to optimal levels due to considerations discussed earlier. Another area to consider is responsible investments such as environmental, social, and corporate governance. Investing in an area becoming more of a focus for women, especially for those looking to leave a lasting legacy for the next generation.