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BW Businessworld

Women Of Wealth

As women around the world get wealthier, they must leave some old investing habits behind

Photo Credit : Shutterstock

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Globally, women are increasingly creating sizeable fortunes, and wealth management firms are standing up to take notice. Gone are the days when women were a niche market for advisory firms. A recent report published by the CFA institute estimated that global income generated by women would swell to a prodigious $18 trillion (approximately Rs 1,206 lakh crores) five years hence. Women are also expected to control 75 per cent of global discretionary spending in another ten years.

Winds of Change
A multitude of factors are contributing to this steadily shifting composition of the wealth pie, not just globally but locally. Since 1971, the number of Indian women obtaining college degrees has risen steadily. Increasingly, women are bagging higher paying, more visible CXO roles at top notch conglomerates: Ace bankers Arundhati Bhattacharya (SBI), Chanda Kochhar (ICICI) and Shikha Sharma (Axis Bank), Venture Capitalist Vani Kola (Kalaari Capital) and ratings agency head honcho Ashu Suyash (CRISIL) are just a few examples of extremely successful Indian women executives in a veritable sea of others.

Additionally, the number of gutsy women entrepreneurs who have launched and sold successful startups has taken off in recent times. Even outside of the self-made, many baby-boomer women stand to inherit twice - first from their fathers and then from their husbands. On an average, Indian women outlive their husbands by five years.

Different Strokes
Several studies have indicated that men and women approach investing their wealth differently. For starters, women tend to be put off by excessive jargon and display a higher tendency towards risk aversion. Women usually spend a lot more time than men in evaluating investment decisions prior to execution. They also tend to be less 'transactional' and more 'goal-focused' in their approach to money than men, basing most of their investment decisions on financial planning, trust, and the brand value or pedigree of the advisor instead.

Globally, wealth management firms are acknowledging that pooling women investors together into one homogenous segment was unwise. A corporate executive could, for instance, approach money differently from a wealthy scion of an empire, and an inheritor may have different financial needs and priorities altogether. Nevertheless, some common threads are visible.

While wealthy men tend to look at investing largely as a means of multiplying their wealth and achieving absolute returns - even at the cost of taking on speculative risk - moneyed women investors tend to look at investing as a means of taking charge of their lives, becoming independent, and achieving their future goals in a timely manner. In other words; portfolio performance matters to women, but so does long-term goal planning to educate their children, fund new ventures or retire from active workforce by a certain age.

A Question of Control
Regardless of the source of their wealth, many women tend to allow others to influence their financial decisions. A compelling white paper published by Ameriprise Inc. in 2013 brought some interesting facts to light. The exhaustive survey of Indian women investors across wealth brackets revealed that although women are more likely to make their first investment earlier than men, 72 per cent of single women allow their fathers to influence their investment decisions, compared to 58 per cent of men.

Post marriage, an alarming 77 per cent of women handed over the investment decision-making baton to their spouses. The same survey also indicated that broadly, the level of financial confidence displayed by women tends to dip after they get married.

Wealthy women need to take individual control of their own personal finances, regardless of their marital status or the level of patriarchal influence within their lives. While brainstorming, or exchanging investment ideas with their spouses or fathers on money matters is valid, giving them carte blanche to manage their investments is a perilous route to take.

A goal-based Financial Plan, coupled with an exhaustive evaluation of their existing financial and physical assets, would be an excellent starting point. Working with a CFP (Certified Financial Planner) or a SEBI registered investment advisor, could help make up for some of the trust deficit that could be stopping them from taking charge of their own money.

The Costs of Risk Aversion
Safety orientation and excessive risk aversion ? the same reasons that presumably lead to the widespread relinquishment of control of investment decisions among wealthy Indian women, also stand to influence their investment patterns and behaviours. In the Ameriprise survey, 26 per cent of women respondents stated that they "enjoyed the adventure of high risk and high return", compared to 33 per cent of men. And while the difference here isn't significant, women do display the distinct tendency to lean towards lower return financial assets, such as bank deposits and physical assets, such as gold jewelry.

While risk aversion could stand wealthy women investors in good stead in bearish markets, there's a significant opportunity loss for future wealth creation that could arise thus; especially when one considers the breadth of the investible surplus that many of these high net-worth women command. A structured approach to investing, commencing with a comprehensive risk profiling quiz and moving further to a disciplined asset allocation and periodic, unemotional rebalancing is key ? so is a well thought-out split between financial and physical assets, as well as liquid 'emergency' funds and more volatile growth assets.

A recently published EY report focusing on the North American market suggested that "only 25 per cent of women rebalance their portfolios to keep their asset allocation on track versus 49 per cent of men", underscoring their proclivity towards making more passive, one-time investments even at the cost of lower growth; instead of managing their investment portfolios actively to generate alpha. Although the said study focused on North American women, most Indian wealth managers will attest to observing similar behavioural patterns among wealthy Indian women.

Future Readiness
A concluding word on the importance of retirement planning is warranted. As a group, women investors tend to place less emphasis on planning their own retirement. A Transamerica Study highlighted this behavioural gap, pointing out that a larger percentage of women than men cited "covering basic expenses" as their top financial priority; men, as investors, emerged as more future oriented.

Regardless of their present financial condition, not having a properly planned retirement corpus in place can be a costly mistake; higher lifespans only stand to exacerbate the problem. More specifically, this point applies to high earning women corporate executives, who do not stand to gain from a sizeable bequeathment later in their lives. To avert future pain in their non-earning years, even women who are wealthy at present, need to sit down with a financial planner and crunch their retirement numbers without delay.