To better understand why women are underrepresented in the financial services industry, it’s important to understand the factors that influence investors’ perceptions of financial professionals. Head of Defined Contribution and Wealth Advisor Services Matt Sommer discusses the findings from two studies that examined the role of gender bias in advisor selection.
My colleague, Retirement Director Sara Tegethoff Lowery, recently published an article about the lack of female professionals in the financial industry. According to the Bureau of Labor statistics, just 32% of financial advisors in this country are women. And that’s actually a fairly high percentage compared to other professions in the industry. For example, 11% of mutual fund portfolio managers1 and 4% of venture capitalist partners in the U.S. are female.2
In her article, Sara explained that one reason girls don’t often pursue careers in finance is that they see so few women in these roles. It’s a self-perpetuating cycle exacerbated by the fact that financial literacy courses are not required in most U.S. schools. This lack of financial education leaves both young men and young women ill-prepared to manage their own finances, let alone start down the path of becoming financial professionals.
The Role of Gender in Financial Advisor Selection
While we have some idea as to why young women have been disinclined to enter the industry, less is known about the role gender plays in selecting a financial professional. And since women control 51% of the personal wealth in the United States,3 the question of whether they are gravitating toward female advisors to help them manage that wealth is certainly worth investigating. That why, in 2018, Janus Henderson attempted to gain further insight on this topic.
In partnership with researchers from Kansas State University, we conducted a survey in which respondents were introduced to two hypothetical financial professionals: The first, Paul, was described as investment-centric, while the second, Barbara, was described as financial planning-centric. The other half of respondents were introduced to the same profiles, but with the genders switched.
Our assumption was that there would be at least some evidence of gender bias in the selection of a financial professional. After all, the Similarity-Attraction Paradigm – which states that people feel more comfortable with those who are similar to themselves – suggests that males would prefer a male advisor and females would prefer a female advisor. However, this theory did not hold true in our survey: we found no evidence that gender plays a statistically significant role in an investor’s selection of a financial professional.
While the survey did not uncover the same-gender bias we had expected, it did reveal some interesting findings about the qualities men and women are drawn to in a financial professional, regardless of gender. For example, female respondents displayed a strong preference for working with a financial planner over an investment advisor, while male respondents seemed indifferent toward practice type. There was also a strong preference for gender diversity among both male and female respondents: 65% said they prefer to work with a financial professional team that has a mix of male and female leadership.
Uncovering Hidden Biases
A more recent survey used a different approach in an attempt to determine whether gender influences investors’ perceptions of financial professionals. In a two-part study, the findings of which were published in the Journal of Economic Behavior and Organization in 2021, subjects were first asked directly if their trust in a particular investment’s return potential was influenced by whether the advisor recommending it was male or female. No gender bias was revealed in this initial survey.4
In the second study, a computer algorithm was used to ask participants to choose between two investments based on a number of attributes, including the level of risk and the size of the firm the advisor worked in, as well as the advisor’s gender and age. Using this technique, which explored more hidden preferences, the survey findings revealed negative attitudes toward female financial professionals, particularly among male respondents.
The takeaway here is that there appears to be a discrepancy between investors’ stated preference and their actual (or perhaps even unconscious) preference when it comes to an advisor’s gender.
While these two surveys produced different results, they both carry important implications for financial professionals and the industry as a whole.
Janus Henderson’s study revealed a strong preference for gender diversity among all respondents, which should encourage financial professionals to consider expanding their practices to include both male and female principals. And based on the study’s finding that women value a financial planning-centric approach, practices that are more investment-centric may want to add more holistic planning capabilities to attract female clients.
Meanwhile, the hidden preferences revealed in the 2021 study indicate that, even if investors are unwilling to admit – or do not even realize – that they trust a male financial professional’s investment advice more than a female’s, these biases do in fact exist. And while it would be convenient to place the blame on investors, I believe it is the financial services industry’s responsibility to address this bias. By working to shift investors’ perceptions of female financial professionals, we can attract more talented women into the business. This, in turn, can help earn the trust of more female investors – a critical goal, considering their increasing share of wealth and growing financial independence.
Lastly, I would note that new research on this topic is welcome and necessary. Gaining insight into the factors that influence investors’ perceptions of financial professionals is a key aspect of fostering diversity and equality in the financial services industry and educating the public on the value of financial advice.
1 “Women make up 14% of all fund managers, and the U.S. lags behind that global average.” InvestmentNews, March 12, 2021.
2 “8 Female Venture Capital Investors To Watch In 2021.” Forbes, March 2021.
3 “How To Be Culturally Relevant To The Women’s Consumer Market.” Forbes, May 2022.
4 “Uncovering gender bias in attitudes towards financial advisors.” Journal of Economic Behavior & Organization, Volume 189, September 2021.