By Charlotte Plaskwa
Statistics reveal two incontrovertible truths: women generally outlive men, and the baby boomers, the world’s wealthiest generation, are ageing. As time progresses, the vast capital held by this predominantly male cohort is set to transition. Indeed, the trillions controlled by these ageing baby boomers are set to pass into the hands of women. This shift is not just about wealth moving from one generation to the next; it’s about movement across gender lines, which introduces a different set of financial behaviours and priorities. As this great wealth transfer unfolds, critical questions arise: How will it reshape the global economy in the next decade? What are the implications for industries and the wealth management sector?
For decades, wealth management has been predominantly a man’s world. A McKinsey report illuminates this gender disparity, noting that a mere 15 percent of financial advisors are women, and in two-thirds of affluent American households, men are the primary financial decision-makers. Coined “the feminisation of wealth management”, American women are expected to take control of a significant portion of the $30 trillion in financial assets currently held by baby boomers in the next decade. This upcoming shift in financial power dynamics signals a new era for the wealth management industry, prompting us to re-evaluate not just who manages the money, but how it’s managed.
What will women do with this capital, and how does gender influence investment behaviour and psychology? Firstly, women tend to be more philanthropic with their investments. As incomes rise, women are statistically more likely to donate to charity. With the impending wealth transfer, we can expect female investors to increasingly shape charitable giving trends as greater funds are channelled into philanthropic causes. Consider Mackenzie Scott, who after gaining control of her substantial personal fortune, quickly signed the Giving Pledge—a commitment to donate half her fortune during her lifetime or through her will. This decisive action, conspicuously not replicated by her ex-husband, hints at a fundamental difference in their approaches to wealth distribution, showcasing the gender-specific nature of investment psychology and behaviour. In the coming decade, we can anticipate that philanthropic investment will gain more visibility within the broader economic landscape, reflecting its elevated priority among female investors.
Secondly, studies show that women are generally more risk-averse investors than men. Women’s preference for conservative investments might lead to an increased demand for bonds, mutual funds, and stable equities. While this may bring a new era of market stability, it could slow down the aggressive growth rates fuelled by testosterone-driven, risk-taking ventures. There is concern about potential economic destabilisation if this shift in investments reduces the capital available for high-risk, high-reward investment models that have spurred innovation and growth in the past.
This burgeoning control over wealth is reshaping the strategies of financial institutions. Major players like Morgan Stanley, Goldman Sachs, and UBS are already pivoting from the more volatile, capital-intensive income streams such as trading and investment banking to asset-based business models. These models promise more predictable returns and align with the growing influence of female investors.
Impact investing emerges as another distinct characteristic of female investment behaviour. Research indicates that women’s investment portfolios often channel funds into companies that tackle issues disproportionately affecting women, such as gender equity and health. Additionally, women are more likely to invest in initiatives that benefit family, community, and climate action.
Furthermore, the ripple effect of the wealth transfer will likely extend beyond the financial sector. In the US, where women control 85% of all consumer spending, their purchasing power is substantial. As a result, we can expect industries traditionally favoured by female consumers, such as healthcare (in which women account for 80% of expenditure), education, and retail goods, to experience significant growth. This anticipated wealth transfer will require companies to recalibrate their marketing strategies and product offerings to cater more directly to female consumer preferences.
Wealth management firms are confronting a dual challenge: a notable shortage of financial advisors across the industry and the strategic importance of attracting and retaining female clients to sustain their growth. This growing scarcity in the advisor workforce intensifies the demand for professionals, particularly women who can relate to and understand the unique needs of female clients amidst their growing power in wealth management. These challenges underscore the need for a more inclusive workforce and a shift in leadership styles within the industry. Ellevest, a financial services firm specifically designed for female investors, exemplifies this shift. Their significant growth in recent years highlights the industry’s imperative to offer services that are tailored to the distinct investment psychology and behaviours of women and align with their financial goals and preferences. Firms that integrate a “gender lens” into their investment strategies are poised to achieve enhanced returns whilst effectively addressing the pressing shortage of financial advisors.
In short, the feminisation of wealth management is more than a mere shift in financial power; it’s a cultural pivot that could redefine how fortunes are made, managed, and multiplied. As the industry braces for this transformation, one thing is clear: the future of finance is female.
The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.
Image Rights: Fast Company