Financially Speaking | Spring 2020
Building Women’s Wealth
To attract and retain women clients, CPAs and financial advisors must account for the unique differences between the way women and men save and invest.
Mark J. Gilbert, CPA/PFS, MBA
President, Reason Financial Advisors
Best Practices in Financial Planning
Money. It makes our worlds turn. In the corporate world, financial decisions are typically made
quite rationally using tools like discounted cash flow analysis and net present value. There
is—or at least should be—less of an emotional component to strategic decision-making
because the primary goal is clear: maximize profitability or shareholder wealth. In the personal
finance world, however, separating emotion and rationality isn’t quite as easy.
The creation and spending of personal wealth often carries with it the weight of our
childhood memories and parental influences, lifestyle choices, educational level, family
status, relationships, societal norms, and probably thousands of other influencers if we
query further. As strategic advisors, we need to be aware of these dynamics and account
for them when providing clients with recommendations to improve their financial positions—
particularly when it comes to the growing segment of women investors.
Their increasing wealth, and therefore need for personal finance and tax advice, presents a
unique and important business development opportunity. Countless studies highlight the
differences in financial decision-making between men and women. And while there are
certainly exceptions to most rules, we cannot ignore the individuality of each client when
advising them. In fact, we become better advisors when we’re aware and acknowledge the
specific needs of each of our clients and tailor our recommendations to them. So, with that
said, here are some generalizations worth observing if you want to better serve women clients.
WOMEN LIVE LONGER
In January, the Centers for Disease Control and the National Center for Health Statistics
reported that U.S. life expectancy increased in 2018 for the first time in four years. The new
statistics peg a woman’s average life expectancy at 81.2 years and a man’s at 76.2 years.
Anecdotally, I find these statistics unsurprising. I would guess most of us know more
widowed women than widowed men both in our personal and professional lives. Heck, a
visit to a retirement community dining hall would likely confirm this. After reviewing my own
client base, I realized that 60 percent of my ongoing comprehensive client relationships
are either women-only or women-driven.
The practical takeaway is that the advice we provide women clients should generally skew
toward a longer life expectancy. In my practice, I typically plan for a woman’s retirement through
age 95 and a man’s through age 90. A recommendation I make in light of this is to defer
pension benefit elections to the latest commencement start date and Social Security to age
70, which should aid in providing a woman or surviving wife with the largest monthly benefit.
WOMEN ARE MORE RISK-AVERSE
Since at least 1996, multiple studies of men and women investors have concluded that
women, on average, invest more conservatively than men. The findings make it simple to
state that women are more risk-averse, but the reality is more nuanced than that. One study
(Barber and Odean, 2001) attributed the result to men being more confident in their decision-making abilities. Another report (Badunenko, Barasinska,
and Schafer, 2010) found that women are more conservative
because they have fewer financial resources at their disposal. Yet
another study (Blake, Cannon, and Wright, 2019) showed that
people with less financial knowledge and education reported
higher risk aversion than those with such education. This report
also found that people with full-time jobs tend to be less risk-averse
than retirees or those with part-time jobs. My point in citing these
studies is to make it clear that it is too simplistic—and arguably
outdated—to assume that a woman is a more conservative investor
simply because of her gender. The advice provided to women
clients must be based on insight that goes beyond simple
investment risk tolerance models.
WOMEN ARE OFTEN CAREGIVERS
Whether it be a natural instinct, a family tradition, or a social norm,
women often take on caregiver roles and make their primary
responsibility to care for children and/or elderly family members.
That of course can mean time out of the workforce, which equates
to time not earning a salary, pension, 401(k) match, or other
disposable savings and investment funds.
A 2019 Aon study concluded that about 70 percent of women face
a 35 percent shortfall in needed retirement savings if they retire at
age 67, due in part to women spending years out of the workforce
while caring for others. We can educate our clients on these findings,
query the possibilities of them fulfilling similar responsibilities and,
when appropriate, encourage greater savings and investments or
possibly delaying retirement to narrow a looming savings gap.
WOMEN ARE BETTER INVESTORS THAN MEN
The results speak for themselves. A 2017 survey of more than 8
million Fidelity clients found that women achieved higher portfolio
investment returns than men. Fidelity suggested the following
reasons for this:
• Women save more of their annual pay than men (about a 0.4
percent larger savings rate).
• Women earn higher annual returns than men (about 0.4 percent
more each year).
• Women invest with a longer time horizon than men.
• Women focus less on short-term investment performance and
more on achieving long-term goals.
• Women invest more in target-date and other age-based investment
vehicles than men, thus improving portfolio diversification.
• Women are 35 percent less likely to trade in their investment
accounts than men, which reduces trading costs (although this
advantage may be lost as brokers increasingly adopt commission-free
These results could easily lead us to believe that women generally
are doing all the right things to provide for their future security. But
we can’t assume this is the case for all women—or even all men.
As financial and tax advisors, we have an ongoing obligation to
educate our clients about basic financial concepts and encourage
them to make sound financial decisions. Further, we must
consciously consider the mindsets our clients have about
their wealth based on not only their gender but also their life
experiences. In particular, we owe it to our women clients to ensure
they understand the additional financial pitfalls they may face and
assist them to successfully avoid them. Providing this thoughtful
and executable advice is how we move toward being not only
trusted but clients’ most valued advisors.