Eliminating gender bias in the advice relationship

Key takeaways:

• Female investors are more likely to engage a financial adviser
• However, they’re also more likely to consider switching advisers because their needs and goals are misunderstood
• This is most likely due to assumptions made by the adviser during the fact-find period
• A structured interview, rather than an informal conversation, can standardise this process for stronger alignment between advisers and their female clients.

Despite being more inclined than their male counterparts to seek financial advice, studies show that 56% of female clients are willing to switch to a new adviser because they feel their needs are misunderstood, versus 42% of male clients.[i]

It’s an issue worth solving, as statistics show women in the United States now hold 52% of management and professional positions, have higher educational attainment than men, and, due to longer life spans, are more likely to inherit money – all things that make them especially well-positioned to engage a financial adviser.

Where aren’t gender biases apparent?

First, let’s look at what’s typically done consistently. A research paper by the Morningstar behavioural science team set out to measure bias in 232 advisers’ asset allocation recommendations to clients.

To do this, the team focused on advisers’ initial recommendations (generated by software and/or their own investing experience) and asked them to make an asset allocation recommendation for a hypothetical new client. Advisers were then randomly assigned scenarios: either with a male client, a female client, or where the client’s gender wasn’t noted. They also gave advisers a slate of information, such as the client’s age, income, amount of investible assets, current portfolio allocation, retirement goals and more.  

Ultimately, with this standardised data as an anchor, there was no marked difference in the advice given to the different genders. However, the researchers noted that this result didn’t necessarily apply in other stages of the advice process.

Where are there gender biases in the advice process?

According to a study by Mullainathan et al., referenced in the Morningstar paper, a common symptom of gender bias is impersonal, generic advice. The study found that this symptom has roots a step before the recommendation phase: during the onboarding or fact find process. This process tends to be less thorough for women clients, with its traditionally informal nature not just reducing the level of detail, but also leading to reliance on enduring stereotypes (such as women having lower risk appetites).  

Morningstar’s research summarised the Mullainathan results. “Participants were instructed to visit financial advisers and pose as prospective clients. The researchers then recorded the advice given to each participant and found that people with identical portfolios were nevertheless treated differently based on demographic characteristics.

Female investors were asked about their personal and financial situation less often than men, and women were also advised to have more liquidity, less international exposure, and fewer actively managed funds.”

Morningstar behavioural researcher Samantha Lamas discussed why this erodes client retention. “Advisers often don’t collect the necessary information from women during initial meetings,” she wrote. “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.”

What can you do to minimise gender bias in your advice practice?

There’s no magic bullet to quash gender bias in financial advice. However, there is a simple technique you can use to start actively countering implicit bias: the ‘job interview’.

The structured interview format is designed to prevent interviewers – or in this case advisers – from applying common biases centred on factors like gender, race and disability. In doing so, it encourages the collection of relevant data. It also introduces standardisation to the fact-find phase, as suggested by the ‘initial recommendation’ exercise described above.

Whether or not you’ve already adopted a similar approach, Morningstar Investment Management has behavioural coaching resources that can help.

If you’d like to hear more about how Morningstar Investment Management’s behavioural coaching resources can support you, please request a call back.

[i] Among investors with incomes of at least $USD100,000 and investible assets of more than $USD500,000