It is common knowledge that women invest less than men, but this untapped demographic could add $3.2trn (£2.5trn) to markets in a “wealth boom” as female investors become “a major force” in wealth management, according to new research by DWS.
If women and men were to invest equally, global GDP could increase by three-to-six percentage points and boost the world economy by $2.5-5trn, it estimates.
Women already represent around a third of the world’s wealth, and that is only forecast to grow over the coming years. In the UK alone, women are expected to hold 60% of all the nation’s wealth by 2025, according to the Centre for Economic and Business Research.
This represents a massive opportunity for the financial services industry, which could increase global revenues by $700bn, including $25bn in new fees for wealth and asset managers.
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Maria Milina, research analyst at DWS, said: “Closing gender disparities will not only impact women on the individual level, but also can provide a boost to the global economy.
“Since economic development and gender equality go hand-in hand, higher investments in supporting women should be a priority.”
Women are also proven to be better investors than men, putting that additional capital in markers to better use. A study by Fidelity in 2021 found that investments made by American women outperformed men’s by 40 basis points over the past decade.
And this is consistent on an annual basis, with the Warwick Business School finding that women outperform men’s investments by 1.8 percentage points every year.
Ignored potential
However, the financial services industry is still severely overlooking this sizable opportunity for billions of fresh inflows, according to Milina.
Female participation is slowly catching up, but DWS estimates it will still take more than 100 years to close the financial gender gap at its current rate – action is essential to accelerate this.
Generationally there have been improvements. While only around half (55%) of Gen X women invest, that rises to 63% among Millennials and even further to 71% among Gen Z.
Yet women still invest less money than men. This is the case in every market, but is most notable in places such as Germany and France, where women invest 43% less than male investors.
If the industry wants to unlock this mass of untapped investment, then its services need to be more targeted at female clients, according to Milina.
“These trends are helping to reshape finance with efforts to better serve women investors and capture this investment opportunity underway,” she added.
“This will help to increase the participation of women in capital markets, bridge the gender investment gap and ultimately benefit the global economy. Asset managers need to take action to help them on their way.”
A woman’s touch
One major reason for this lack of engagement is the fact that two-thirds of women prefer to speak to a female financial adviser – yet women only represent around 15% of financial advisors in the US and UK.
And only about one in eight fund managers are women, which has not meaningfully changed over the past decade despite the growing size of teams.
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Milina said the financial services industry “is a male dominated field that needs to understand the importance of attracting female clients”.
“Changing the perception of the industry to be a boys’ club and seeing other successful women in the industry are just a few barriers that must be overcome,” she added.
“Setting up dedicated teams for female clients, developing model portfolios with women’s unique needs in mind, entrusting money to female fund managers and to asset management firms that have a strong focus on diversity and female empowerment are some of the ways to tailor the investment process and products towards women.
“Targeting women also makes commercial sense for microfinance institutions because they have been proven to be more reliable borrowers and are more likely to repay promptly.”
Women invest differently
Advisers need to tailor their services to the distinctive way that women invest, which differs from the approach taken by most male investors.
Countless studies have revealed that women are “significantly less risk tolerant” than men, but Milina argued that the reasons for this are far more nuanced than people give it credit for.
This lower risk tolerance is less to do with gender, and more defined by socioeconomic characteristics, she said. In fact, risk averse men tend to shy away from the capital market “much more strongly” than their female counterparts.
Milina said: “Simply telling women to be more risk tolerant is ineffective. It even might encourage women to take more financial risks than they can tolerate, which could lead to more problems in the future.
“For financial professionals it is important to understand why women tend to be less risk tolerant so that they can provide advice that is in the clients’ best interest.”
Instead, women simply have a different relationship with risk than men. Milina used car insurance as an example, pointing out that men pay higher premiums because they are more likely to use expensive, powerful cars while women often opt for compact, practical vehicles.
In investing, women’s considerations are more practical, yet most financial services companies are targeted at men’s approach to risk.
Milina said: “It is reasonable to design investment products that are focused on women, but even more women would benefit from a personalised approach that is tailored to their financial objectives and personal goals.
“This might include addressing specific concerns — such as longevity and care giving responsibilities for children and aging parents — as well as providing education on investing and wealth management. One key difference in the way women consider wealth planning, compared with men, is that they plan and invest for life goals or life milestones, rather than fixating solely on investment returns.”
More accessibility
Financial engagement is increasingly happening online, making investing accessible to those who otherwise wouldn’t participate.
These people can not only teach themselves financial literacy – which alienates many potential investors, not just women – but also allows them to fit investing into their everyday lives.
Milina added: “The language used by the wealth management industry is not helpful, as the financial terms—which often describe relatively simple concepts in what appears to be complex ways—can put off people who are unfamiliar with the terminology, women included.
“Digital channels decrease the cost of access to financial services and help bypassing constraints imposed by social norms and limited mobility.
As a large part of household responsibilities, including domestic duties and childcare, still typically fall on women’s shoulders, digital platforms for financial services make it easier to fit into the day.”
This story was written by our sister title, Portfolio Adviser
