The woman problem
Financial services has a woman problem that is most obvious when men die. Older women are increasingly the inheritors, and so owners and bequethers, of wealth – for inheritance tax (IHT) purposes women’s estates were worth £1.3bn more than men’s in 2019, the latest data available, “larger because they live longer so are more likely to inherit from their partner,” says Dawn Mealing, head of advice policy at Fidelity International.
This makes women an attractive target for, and potential beneficiaries of engagement with, the investment sector; investing in IHT efficient vehicles is at least one way to avoid the tax. Yet Fidelity found almost half of female-owned estates, totalling some £13.6bn, had done no financial planning to lower their death duties bill. Attempts at Research by financial services frequently reports how women are 1) less confident with money 2) won’t come to it for advice, specifically to invest. “Women who inherit often face even bigger financial decisions as they are responsible for theirs and their partner’s wishes, so something isn’t adding up,” says Mealing.
The same industry research repeatedly frames women’s reluctance as a problem of their own making. A 2021 report by wealth manager Close Brothers, for example, highlighting how the past 12 months of pandemic have changed the financial plans of UK employees, was sent to the press under the headline, ‘Women prioritising short-term planning at the expense of their financial future’. The company’s head of financial education, Jeanette Makings, blamed female employees for “storing a greater problem in their future by prioritising cash at hand over a comprehensive longer-term financial plan” of investing.
Not linked were findings by PwC highlighting in the same period women were around a third more likely than men to work in a sector completely shut down by UK lockdowns, losing earnings. “Overly cautious”, uninterested in stock markets, too focused on the short term; all traits identified in women by financial services as reasons they don’t invest. Investment management dedicates considerably fewer press releases on how it is adapting or improving to better serve women. “The financial lives of women, along with their career trajectories, which closely impact their financial lives, often look significantly different to those of men,” says Ellie Austin-Williams, financial coach and founder of This Girl Talks Money, “the financial services system was designed by, and for, men, and it still hasn't really been updated to reflect that”.
The role of workplace investing
Updating is rapidly if chaotically underway however, to capture some of the €177bn identified by JP Morgan in additional investment flows if women did invest. Fidelity International manages £517bn for two and a half million clients worldwide, and Maike Currie, its UK investment director, has for the last three years been researching how to increase those numbers for women as “a priority for our industry, Government and women themselves”. A former journalist aware of messaging, Currie is advising Fidelity and the wider investment sector to engage women “at different life stages and through everyday moments” that fit around them. One example is via workplace investing in auto-enrolment pensions (which Fidelity sells). “Workplace pensions provide a natural opportunity to address women’s wider financial wellbeing, with many employers offering information through webinars, events and online,” Currie says. As the demand for personalisation grows in all other sectors, Currie says investment needs to catch up: “We need to make it relevant rather than ‘one-size-fits-all’, which can disenfranchise women,” she says.
The timing of a workplace-centred approach would be crucial to its success. The sex-related pay gap was 15.5% in 2020 but close to zero for full-time employees aged under 40, before widening to over 10% for older age groups. This is the motherhood penalty; around age 30 women leave the workforce or go part-time for years to raise families, where still they do the majority of childcare. Only for some is this later redressed when they inherit – from husbands working uninterrupted – but if women are of little interest to financial services (due to lower earnings) before then, they won’t turn to the sector at this late stage, as the Fidelity research found. “The industry fails to understand knowledge and confidence are key for women in financial decision-making,” says Austin-Williams, “often women don't want someone to do everything for them, but to understand what financial decisions they are making and why”. Workplace pension contributions may be interrupted by motherhood, but the idea it's important to have a personal pot of savings and investments outside the family could be better exploited (to the mutual benefit of the investment sector and women) during early working years. Not least as a foil to overreliance on male wealth in the case of divorce. “The typical woman finds her income falls 33% following a divorce, for a man it is 18%, and male incomes tend to rise again substantially in the years following while incomes tend to stagnate for women,” says Annabelle Williams, personal finance specialist at wealth manager Nutmeg and author of Why Women are Poorer Than Men.
Redefining risk
As less likely to outearn, or even make parity, with male peers, women are good candidates for exposure to the idea of investing for growth, despite and even because of investing smaller amounts than men. But in 2017/18, the most recent data, 3.4 million women subscribed to a ‘safe’ cash ISA versus 2.9 million men, while 300,000 more men than women (26%) paid into a riskier but more lucrative stocks and shares ISA, a gap that is growing year on year. “The conversation around why women are less likely to invest often centres around ‘women don’t like risk’, with the assumption 'risk' always means 'potential for losing money', when it doesn’t,” says Williams. Financial services would better connect with women by reframing what ‘risk’ means within their own lives, she says. “We need to get the message across that loss of capital is one aspect, but, especially for women, there's also 'shortfall risk'”,” she says – that by not investing women won't meet their goals or needs, from buying a home to a comfortable retirement (women’s pensions are on average a third smaller, increasing their risk of pensioner poverty, for example).
A hangover from the 2008 financial crash, investing as ‘gambling’, Williams points out, remains equated with a world of machismo, cavalier attitudes to loss and an activity only for the rich, in which women do not see themselves literally or figuratively. “Gender stereotyping is a main reason women don’t invest and aren’t more involved in investment decisions,” agrees Robin Powell, editor of The Evidence-Based Investor and author of Invest Your Way to Financial Freedom. Often reinforced by fund management, it begins elsewhere. Powell points to studies that boys are more likely than girls to be given the “money talk” by parents, and magazines to portray women as excessive spenders while making money through investments as a masculine ideal. “This kind of messaging doesn’t encourage young women to take control of their finances,” says Powell. When they do, however, the results, despite the economic and social barriers, are startlingly good; a recent US study of millions of retail investment accounts found self-directed women investors outperform male counterparts by an average of 40 basis points a year. “Women tend to be less confident than men about beating the stock market and they also trade less frequently, both positive traits in an investor,” says Powell.
Start small and start early
Fund management, if not wholly to blame for its women problem, is getting help fixing it via an unlikely ally. The Financial Conduct Authority has set itself a target of moving savers out of cash and into investing by 2025, which as the ISA stats show will benefit women in particular. The FCA wants to make it easier to access simple investments like stocks and shares ISAs, and for the sector to better communicate with potential investors about its benefits. Baffling jargon dominates even in areas that should be consumer friendly such as pension investing. Hopes were high much of this would have been achieved organically by the new, app-based solutions in finance. “But despite a proliferation of fintech platforms and information online, we’ve swapped posh old men in suits for tech bros, both of which can be off-putting,” says Philippa Kelly, Director of Financial Services at the Institute of Chartered Accountants of England and Wales. She adds, though, where traditional researching and “wondering whether you need to meet an adviser” can increase the “mental load” and other responsibilities on women exacerbated by Covid, “for straightforward investments, fintech can provide an easier way to get started on a small scale”.
The FCA is also consulting on how to make the industry more diverse and inclusive, so firms consider the impact of their products and services on different groups and reflect their needs and characteristics. Encouraging women to start small and start early, as part of a workplace pension scheme or ISA, for example, can be less intimidating than reaching your 30s and feeling like you’ve “fallen behind”, Kelly says. Also, JP Morgan Asset Management found almost three quarters of women compared to two thirds of men think sustainable investing is important, with one in five women calling it extremely important. “Offering more sustainable options will make investing more attractive to women, particularly those younger,” says Kelly.
For all the damage it has done to women’s finances, the pandemic has also led to a blush of new investors, over a third (34%) women, according to Barclays. Most knew they needed some help; men were more likely to consult an investment provider, women turned to friends and family before making decisions. Women will invest and are happy to seek advice, it’s just financial services has made itself unattractive to them as a source – too often, like the populised Simpsons meme of hapless headmaster Seymour Skinner, who in a crisis of confidence questions, “am I out of touch?”, the financial sector's conclusion about why women don’t invest with it is, “no, it’s the women who are wrong”.