Advisors: Clients’ Gender Clue to Understanding Financial Behavior

Clients must be served as individuals, but understanding their gender biases is key to understanding their goals and behavior

Whether or not they believe that men are from Mars and women are from Venus, financial advisors who want to better understand their clients’ financial behavior could be well-served to take gender into account.

Men and women, studies have shown, think, feel and act differently toward money and, unwittingly, realize their financial and investment goals differently.

“Being aware of gender biases can help in formulating a proper investment plan, by making clients aware of the biases that they, as a man or a woman, are susceptible to,” says John Longo, professor of finance at Rutgers University in New Jersey and CIO at Morristown, N.J.-based MDE Group.

In a 2004 paper on gender and personality biases and how they pertain to behavioral finance, Longo noted several differences between men and women, most importantly the fact that men are far more susceptible to overconfidence than women—a trait, he says, that can sometimes be counterproductive when it comes to proper financial planning.

Overconfidence definitely stands out as a clear trait among men, agrees Greg Davies, head of behavioral finance and quantitative finance at Barclays Wealth in London, and leads to men being greater and more active traders than women, with a far greater degree of self-reliance and independence.

“Most of us are overconfident in some way or the other, but men seem to be far more prone to overconfidence than women and it can be detrimental in an investment context, where men will think they are right more often than they actually are,” Davies says.

Women, on the other hand, tend to be driven by emotion. They are more emotionally connected to the entire investment journey, Davies says, and although they express a greater need for guidance and discipline, they actually need it less than men do. However, in times of market stress, women are more likely to act upon their emotions than men are, which can also be detrimental to their investment goals.

“This kind of data is useful for advisors to put clients into perspective,” Davies says. “We know that people relate well to seeing themselves in peer groups that they identify with, and this is where gender traits come in useful. Advisors can use this kind of information to bridge the gap with their clients and start the conversation.”

But while research—including a recent study undertaken by Barclays Wealth, entitled “Risk and Rules: The Role of Control in Financial Decision Making”—has found clear differences between the investment behavior of men and women, Davies nevertheless believes it is important not to generalize and fall back too much on stereotypes.

It’s no secret that gender is a tricky subject to bring up, and that some people will always defy gender stereotypes. But more importantly, while research on gender and personality traits can help advisors better relate to their clients and better guide them, the overall benefit of psychometrics is to help provide a better understanding of an individual. So ultimately, an advisor should be relating to his or her client as an individual, and not as a member of a particular group, gender or otherwise, Davies says.

Nevertheless, financial advisors like Vivian Groman, senior finance specialist at Starmont Asset Management in San Ramon, Calif., pay close attention to the way men and women clients behave. Groman believes that knowing her clients first as men and as women, and understanding them and relating to them in that context is an important part of cultivating solid and lasting client relationships.

“When I evaluate new clients here, I’ve noted differences between men and women and the way that they are looking at us,” Groman says. “I have noted, for example, that women are more focused than men on the relationship they are going to have with us, whether they can trust us and whether we have their back. Women also ask the same fact-based questions as men, but they want to get to know us more and rely more on intuition, reading us and wanting to know ‘are you looking me in the eye when you say something, does your tone make sense?’”  

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