Focus on risk awareness with women investors

Many women’s conservative posture means advisers need to move beyond risk “tolerance’ says Kim Dellarocca the managing director for Pershing, a BNY Mellon company.
Today’s women achieve more academic credentials than ever, earn larger salaries, run more businesses and are among the nation’s most prodigious wealth creators.

But when it comes to preparing for a secure retirement, women face unique challenges — and there’s a persistent, troubling disconnect between these challenges and the conservative risk posture adopted by many women.

To address the unique financial dynamics that their female clients experience, successful financial advisers are taking a different approach to discuss risk — one that focuses on greater risk awareness rather than solely a shift in risk tolerance.


Women have the same retirement priorities as men — retiring comfortably, maintaining their current lifestyles and covering health care costs for themselves or family members. But they’re not entirely confident that they’ll reach their goals. There’s a good reason for this: Several widely acknowledged factors degrade women’s financial security during their lifetimes. Women may take time off to care for others and, despite greater income parity, often earn less than men during their careers. Women also live longer, which adds up to more years in retirement and higher health-related expenses. Those who are single, whether by circumstance or by choice, also will pay a higher tax rate than they would as part of a married couple.


Such an array of challenging factors might typically suggest consideration of aggressive investment approaches, with elevated risk. Yet although female investors span every level of risk tolerance, on average, affluent women are more conservative than men. Nearly half of women investors (48%) report being somewhat or very conservative in regard to their household’s risk tolerance, as opposed to 36% of men who report this, according to the 2014 “Rebuilding Investor Trust” study from Sullivan and Northstar Research Partners.

Part of this difference may reflect women’s concerns following the 2008 financial downturn. In addition, investment portfolios typically have lower risk profiles during women’s longer retirement, making women appear more conservative, the study found. Regardless of the reasons, this percentage has held roughly steady since 2011, so women appear to be locked in a conservative stance despite improvements in the markets.


This apparent disconnect makes it even more critical for advisers to discuss risk with female investors and to help them reframe their view of today’s investment landscape. Women need an appropriate asset allocation even if, on a visceral level, they may prefer the seemingly “safest” approach to invest. They also need to have savings that not only are sufficient but liquid enough when cash is required.

Many advisers are understandably concerned that broaching the risk topic with female clients might damage the relationship. It’s true that when Spectrem Group in a recent survey asked high-income women what might cause them to consider switching advisers, 38% of them specified the “adviser does not understand my risk tolerance,” while 30% of all other affluent investors felt the same way.


Although advisers should not push female clients to adopt a more aggressive investment approach, they can play a critical role in illuminating how a too-conservative approach might under deliver vital income in retirement. Female investors don’t need to fear or avoid risk. They just need to be aware of proven strategies for managing risk so they can pursue their goals with greater confidence.

The good news for advisers is that women might be ready to talk more candidly about risk. In Pershing’s recent report on female investors, we found that they have high levels of trust in, and satisfaction with, their financial advisers. This provides a strong foundation for advisers to move the conversation to topics of deep concern to many women, including raising their risk awareness.

While tackling the topic of risk may seem perilous, this is perhaps the greatest contribution advisers can make to the well-being of their female clients. These discussions can help women pursue their goals while successfully managing the risks they face.

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Disclaimer: Published by Shartru Wealth Management Pty Ltd. ABN 46 158 536 871 AFSL 422409. The advice is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance