This post by
Samantha Lamas
first appeared on
Morningstar Blog
.
With today’s women earning higher incomes, playing a more active role in household financial decisions, and seeking additional professional investing advice, the issue of gender bias in financial advice is more pertinent than ever. It’s important for advisers to make sure they offer women unbiased, accurate advice—something many surveys and academic studies suggest may not always happen.
For instance, a study from Mullainathan et al. found that, compared with male investors, female investors were less frequently asked about their personal and financial situation and more frequently advised to hold more liquidity, less international exposure, and fewer actively managed funds.
And several other industry-led studies have uncovered comparable findings, with many female investors reporting that their adviser depended on common stereotypes in their conversations. For example, they might automatically assume the women had a low risk tolerance or would be interested in focusing on sustainable investments.
These types of studies have paved the way for a deeper understanding of the impact gender bias has on financial advice. In our research, we sought to identify specifically when this bias emerges over the course of the adviser decision-making process so that advisers can learn to avoid it.
Breaking down the financial adviser decision-making process
The adviser decision-making process can be classified as a series of steps:
- An initial conversation with a prospective client, when preliminary advice is communicated
- A period of additional information gathering
- The use of software and/or the adviser's own investing experience to generate an intial recommendation
- The review of the final advice and communication of it to the client
Our study focused on identifying potential gender bias during the third step of the process, in which an adviser generates an initial recommendation based on software or his or her own investing expertise.
The study presented advisers with information about a hypothetical prospective client, including:
- age,
- amount of investable assets,
- income,
- current portfolio allocation,
- risk tolerance,
- retirement goal,
- ideal retirement age, and
- expected length of retirement.
The advisers were then asked to provide their recommended asset allocation.
Each adviser received the same foundational scenario; however, they were randomly assigned to one of three survey variations that shifted whether they received a prospective client who was a woman, a man, or a scenario in which gender wasn't indicated.
Our results were encouraging. We found no significant difference between the advice given to a female investor versus a male investor or gender-neutral investor—indicating that advisers do not substantially take gender into account when making asset-allocation decisions based on standardized information. This analysis, however, doesn’t necessarily mean that gender bias doesn’t exist in other aspects of the adviser-client relationship.
Where else might there be gender bias in financial advice?
These analyses helped us identify a follow-up research question around another important step in the adviser process: the information-gathering period.
This research controlled for this step by initially providing advisers with the information necessary to make an asset-allocation decision. However, the Mullainathan et al. study indicates that women are asked about their personal and financial information less often than men, suggesting this phase may be the source of gender bias in financial advice.
This may be because advisers often don’t collect the necessary information from women during initial meetings, resulting in a fundamentally different onboarding experience for women than men. And when advisers don’t consider a female investor’s complete financial situation, women may feel like their advisers are uninterested in them, feel misunderstood by their advisers, and receive biased asset-allocation recommendations.
A simple technique to stop gender bias in financial advice
To minimize gender bias, advisers can employ a common job interview technique: the structured interview.
This type of job interview is recommended to help interviewers avoid common biases about items such as the interviewee’s gender, race, or disabilities and instead focus on the collection of pertinent data.
Advisers can work to achieve a similar result by treating client meetings as a structured interview for which they prepare and cover a standard set of questions. This simple technique can help advisers focus on the important details of a prospective client’s financial life and ensure that every client, regardless of gender, has a similar and constructive experience.
