By Carl Roothman, 12 January 2017
According to the CFA institute, the global income of women will grow from $13 trillion to $18 trillion over the next five years. That’s more than the GDP growth of China and India combined over the same period. Yet research shows most women do not have a financial adviser. According to a senior marketing executive that Ernst & Young interviewed at a large wealth management firm, 60% of financial advisers believe women should be served no differently from men. But Ernst & Young LLP’s research shows this might not be a sound approach.
Women typically do more research before they invest, they have a longer sales cycle and choose financial advisers based on relationship, brand affinity and trust. Men, on the other hand, have a more competitive approach to investing and therefore tend to choose an adviser based on the investment product and investment performance. For women, reaching their investment goals with a high degree of certainty is more important than the comparative product performance.
According to the World Health Organisation (WHO) boys born in 2015 can expect to live to 69.1 years and girls to 73.8 years. That’s nearly five years more that a woman needs to provide for herself financially. Or, if she relies on an insurer for an annuity income, that’s five years longer that the insurer will need to pay out an annuity. Therefore, when it comes to their financial plans, women need to face the fact that they will need to earn an income for as long as possible, long after the traditional retirement age of 60. They also need to make peace with the fact that insurers will pay a woman aged 60 a smaller guaranteed annuity income than a man aged 60, for every R1 million rand invested with the insurer. There is no gender equality for the gender blessed with longevity. With a longer investment horizon, women can afford to take on more risk for longer – both in their pre-retirement products and in their living annuities, once retired, if they choose this above a guaranteed life annuity.
Women who are not comfortable with the risks of the stock market should ask their financial adviser to help them with portfolios that could potentially yield higher returns than cash and property.
Unfortunately, the gender gap is still a reality in most countries. In South Africa, according to a study by the University of Johannesburg a woman needs to work two months more in a year to earn the equivalent salary of a man per a year. It’s not only the size of salaries, but the shape of the salary curve that differs for men and women. According to Sally Krawcheck, CEO of women-focused robo-adviser Ellevest, assuming a woman’s salary grows at the same rate as a man’s until retirement leads to inaccurate financial planning results. In the US, she finds that for a large part of the female population, their salaries peak around age 40, while the average man’s salary peaks around the traditional retirement age of 60.
This is why career coaching plays such an important role in enabling a woman to meet her financial goals. More and more financial advisers cross-train as life coaches too, transferring the necessary skills to their clients to negotiate for a higher salary and encouraging them to network effectively. Because, as Krawcheck points out, very few companies operate as a meritocracy. ‘You need to be great at your job, but it may not be enough. Instead, networking has been called the #1 unwritten rule of success in business.’
Due to their role as primary caretaker of children, women tend to take more career breaks than men and therefore need larger emergency funds. But according to a survey done by a top 10 wealth management firm, as reported by Ernst & Young, only 43% of women have an emergency fund versus 63% of men. Because their retirement fund contributions come to a halt during these breaks women also need to contribute slightly more than men while they are in full-time employment.
Women are not all the same and, in fact, vary dramatically in terms of lifestyle choices, financial commitments and sources of wealth. This means women should have all their financial planning assumptions considered by a financial adviser to ensure they are treated as individuals.