For all the talk of “embracing change,” the majority of independent firms and financial advisors continue to struggle with one shift that could redefine our industry in the decades to come: the increasing importance of women as financial advisors and clients.
Despite the fact that women are the primary breadwinners in 40% of U.S. households and own 30% of our nation’s privately-held businesses, women remain starkly under-represented in senior home office positions and advisory practices around the country.
Although current advisors – both male and female – are doing a great job servicing clients today, the gender gap is a real issue because it directly impacts our industry’s long-term success. Women represent only an estimated 16% of the total advisor population today. With numerous studies estimating that women will own two-thirds of the country’s wealth by 2030, advisory practices and firms are leaving significant growth opportunities on the table if they aren’t proactively thinking about how to attract and service this unique client segment.
(Related: Wealthy Women Prepping for Wealth Transfer)
To put it simply, this is one change our industry cannot afford to ignore.
Increased Diversity Will Fuel Growth
The growing community of female investors wants to work with female advisors, whether one-on-one or as part of a team. Multiple industry surveys demonstrate that female clients trust female advisors more than their male colleagues to act in their best interests, and that they have more confidence in the investing skills of female advisors. In fact, a study by the Insured Retirement Institute found that 70% of women who are seeking a financial advisor would prefer to work with a female.
Why? Anecdotally, it seems evident that both female investors and advisors tend to prefer a financial planning approach that prioritizes quality of life over the long run versus asset accumulation for its own sake.
This alignment of preferences strongly suggests that, in order to effectively capture, engage and serve female clients, our industry must educate and incentivize more women to become advisors and empower them to succeed once they have entered the profession. This is crucial not only to advance the role of women in the industry, but to ensure that our industry can continue to grow in a way that aligns with the changing face of the client community.
A recent Cerulli study offers signs of encouragement. While established female advisors only make up about 16% of the overall advisor population, almost one-quarter (24%) of new advisors are women. This means there’s clearly interest among women in entering the advisor profession, and it’s up to our industry to actively cultivate it.
We can achieve this by, among other things, aligning them with opportunities to excel in building relationships with clients – including Gen X and millennial investors, who are often very receptive to a female advisor’s approach to the business.
Leveraging Female Advisors to Better Connect With Next Generation Clients
As every experienced advisor knows, success in this profession is driven only partly by technical expertise. Much more important is the advisor’s ability to forge meaningful, authentic client relationships. In fact, a recent MIT study showed that the two traits clients of all backgrounds value most in a financial advisor are, first, a personalized approach and second, empathy. The ability of many female advisors to prioritize personal details and express empathy puts them in a strong position to benefit from these client preferences.
With next-generation clients, these qualities are even more crucial. Millennial and Gen X clients want to receive advice from someone who is part financial expert, part life coach and part trusted friend. They want advisors who can continue to build and strengthen personal relationships, not just in traditional social interactions, but also through social media and other digital channels, whether the advisor is simply on the other side of town or on the other side of the country.
Women often excel in this area, as well. According to Facebook, female users have nearly 10% more friends than male users, likely driven by the fact that women post 55% more frequently than men, with a focus on relationship-building content. That commitment to maintaining a personal touch via social media matters to younger investors.
You obviously don’t have to be a woman to be a successful advisor. As mentioned previously, both male and female advisors are doing a great job in servicing their clients. But to operate a successful practice over the long run, it’s increasingly necessary to include women on your team and encourage their career development.
Gender Diversity Is Only the Beginning
But expanding women’s presence and roles in the financial advice industry is just the tip of the iceberg. Over the long run, the most successful firms and advisory practices will be those that pursue more inclusive hiring and career advancement strategies across age groups and cultural backgrounds — in addition to supporting gender diversity.
Millennial and Gen X investors come from increasingly diverse backgrounds, and they want to work with advisors whose teams reflect an array of backgrounds and experiences. They want to establish a dialogue with professionals who understand their needs and perspectives because they can relate personally.
For firms and advisors, hiring and promoting with an eye on tomorrow’s client opportunities must include taking proactive steps today. Establishing robust mentorship programs for younger advisors and minority professionals, hiring promising CFP program graduates directly out of college, and building targeted women’s professional development initiatives are all potential steps in the right direction.
It’s easy to talk about embracing change. It’s only by taking concrete steps to close the advisor gender gap and promote more inclusive hiring practices, though, that firms can credibly claim to be leading the way forward in a changing industry — for the benefit of all advisors.
— Read How a Schoolteacher Became a Top Wells Fargo Portfolio Manager on ThinkAdvisor.