Do women make better financial advisors? Over the years, I’ve heard a number of people claim that we do for various reasons, but I’ve never really seen enough evidence one way or the other to come to that conclusion. However, based on my experience, I can say with some certainty that female advisors do make better advisory firm owners.
In fact, I can tell you how much better: Based on my current and past advisory clients, women who own advisory firms tend to take home (salary plus free cash flow) about 20% more than men who own comparably sized firms. When I stumbled on this fact about five years ago, I dug deeper to find out why. It wasn’t until I started running my business like a woman, and advising my clients to do the same, that my business—and theirs—took off.
When I launched my consulting firm some 12 years ago, although I didn’t know it at the time, I was trying to build it like a man would (which is the approach they teach in business schools). I focused on attracting advisory clients, keeping expenses low and teaching my clients to do the same. But after I had worked with a number of female owner-advisors, I realized they took a very different—and more successful—approach to managing their businesses. Once I embraced this “women’s” approach, my business became more successful, too.
To make that happen, I had to learn to trust what my instincts were telling me, rather than what I’d learned in business school. I’ve observed that the difference between how men and women manage firms is much like the proverbial tortoise and the hare. Men are the hares: They tend to want to grow their businesses quickly and are willing to take considerable risks to do it. They tend to make fast decisions, are quick to try new things and are usually quick to pull the plug and try something else.
If you ask a male owner-advisor about his firm, nine times out of 10 he’ll tell you how many clients he has, how much he has in assets under management, what his profit margin is and how quickly his firm is growing.
When it comes to business management, we women are more like tortoises (sorry for the visual, girls). Female owners tend to be more focused on making their business be the best they can, but they’re not in a hurry to get there. They tend to be more risk averse, taking longer to make decisions, try new things or pull the plug on a program that isn’t working. Women rarely talk about their AUM or any financial aspects of their firm. Instead, they’ll talk about how their firm helps people, the clients they’ve helped, their employees and the freedom they get from owning their own business.
While both approaches can help an advisory firm achieve its owner’s goals, the hares tend to make more mistakes along the way than do the tortoises. Consequently, it usually takes them longer to get to the finish line. Here’s how female advisors do it better and take home more.
Female owners focus on taking care of their clients. Rather than building a firm to grow, successful female owners build their firms to attract clients by focusing on client service. In my experience, women tend to be less sales-oriented than men (which may be why more women are attracted to financial planning than to securities brokerage). Instead, they tend to focus on great client service to both retain the clients they have and to get them to refer their friends.
So rather than worrying so much about “rainmaking,” female owners often take a “build it and they will come” approach by creating a firm that builds strong bonds with the clients through personal relationships with the advisors and the staff, as well as professional relationships.
They spend a lot of time designing the right client services, building a formal process to deliver those services consistently, and providing client experience programs so that all clients will feel the right connection to their firm.
Female owners focus on employee training. Rather than being sales-oriented, women tend to be more oriented toward teaching. They teach their clients about investing and the financial planning process, and they teach their employees about serving the firm’s clients and its client experience process.
We find that better trained employees not only perform better (duh!), but are also much happier in their jobs. Consequently, their firms tend to have better, more consistent client service and higher employee productivity. That means they can do more with less—and generate those higher owner returns.
Female owners focus on teamwork. I know there are exceptions to every generalization. Yet in my experience, female firm owners tend to see themselves less as “the star” and more as a member of a team. They enjoy working with their employees toward a single goal: caring for their clients. They often view their employees as “family.” This approach also increases efficiency and employee motivation. We find that when firms reach the point where everyone is working together, they really start to take off.
Female owners focus on listening to their employees. This is probably “Part 2” of the above, but it’s important enough to be its own bullet point. We find that one of the most powerful ways to motivate employees to do their best on the job is to just listen to them—really listen. When they come up with good suggestions or valid concerns, let them know you appreciate it. We find this comes more naturally for female owners, which gives them a huge advantage in creating that sense of teamwork and ownership in the firm (even in employees for whom real ownership isn’t in the cards).
Female owners focus on creating a good employee lifestyle. Most female advisors are more interested in the freedom and lifestyle benefits of owning their own firms than they are in simply building a large firm, so it seems to be easier for them to understand their employees’ lifestyle concerns. Female owners tend to be good about flex time, home emergencies, working from home, vacations, etc., as long as the work gets done. The goodwill this creates in employees is more powerful than even compensation or promotions.
Female owners focus on following their business plan. It may be that women are just more rule-oriented (that’s outside my expertise), but in our experience female owners tend to be much better at patiently building their business by sticking to a business plan.
It’s hard to think of anything more detrimental to the success of an advisory firm than an owner who’s constantly changing his business plan because of something he read in a magazine or heard at a conference. Sure, business plans need to be tweaked from time to time, or sometimes even more radically altered, but this should always be the last resort and taken infrequently—not regularly on a whim.
It’s because female owners tend to take longer to commit to a plan and then adhere to it more rigidly that they reach their goals more quickly—and more profitably—than their rabbit-like male counterparts.
The combination of these differences in the way male and female owner-advisors manage their firms enables women-owned firms to build strong client relationships, which result in higher client retention rates and client referral rates. In fact, we have one very client-oriented female owner who has no website, does no marketing or social media, yet still gets more referrals than she can handle.
Many of the most successful advisory firms I’ve seen are owned by women, but many people in the advisory world don’t know this because women don’t talk about their success—at least, not as much as men do. It’s unfortunate that many female advisors are out there trying to run their firms like men.
It’s time we realized that our natural approach is ideally suited to the advisory business. And it probably makes us better financial planners, too.