As part of this feature, Caroline Simmons, Deputy Head of the UK Investment Office at UBS Wealth Management, explains why women must take a far more proactive approach to managing their money. Otherwise, factors like career gaps and risk aversion can mean females end up very much worse off than their male peers.
Women’s wealth is top of the agenda. Women now hold 30% of global private wealth[i] and this is expected to continue rising by 7% a year as labour market participation and female entrepreneurship continue to grow.
The fact that women control close to a third of global wealth is neatly mirrored by the fact that around 30% of visitors to findaWEALTHMANAGER.com are women – a figure which, while fairly strong, is one we are very keen to improve through our content and guides. We want to encourage women to get more proactive about making sure their money is working as hard as it can, as there are many challenges creating an urgent need for them to take more control.
Five reasons women can end up significantly worse off
The first reason women can suffer a financial penalty is the gender pay gap. This may be narrowing, but in the UK still stands at 9.1% in favour of men for full-time workers[ii]. As the case study illustrations from UBS below illustrate[iii], this discrepancy can add up to a huge difference in lifetime earnings, particularly when combined with the second reason women need to think more carefully about their wealth: the likelihood they will take career breaks to have children.
Figure 1: The gender pay gap
Figure 2: The impact of career breaks
In short, career breaks tend to hugely magnify the effect of the gender pay gap, meaning that women tend to have a far lower net income than men over their lifetime.
Figure 3: Lower net income
The third reason that females might end up worse off is the fact that women tend to be more risk-averse investors than men[iv]. While no-one would advocate recklessness, women need to be aware that even slightly more caution can compound over the long term to really curtail the potential returns from their investments. Wealth managers play a vital role in reconciling your risk-profile to your financial objectives in an optimised portfolio.
While no-one would advocate recklessness, women need to be aware that even slightly more caution can compound over the long term to really curtail the potential returns from their investments.
Figure 4: The impact of risk aversion
The fourth point to be remembered is women’s longer life expectancy. In every country without exception, women outlive men[v] – to the extent that female centenarians are thought to outnumber males five to one.
Figure 5: Longer life expectancy
The fifth risk to women’s wealth is that females are far likelier not to have made proper pension plans: 51% of women admit to not being financially prepared for retirement, against 35% of men[vi]. The reality is that a woman is likely to need to fund many more years in retirement than a man; they should also plan for probably outliving a male spouse.
The reality is that a woman is likely to need to fund many more years in retirement than a man; they should also plan for probably outliving a male spouse.
Wealth managers to the rescue
Wealth managers have really woken up to these issues in recent years, and UBS is at the forefront of the movement to improve females’ financial education and engagement.
Last year, UBS Wealth Management formed an external Advisory Board to tackle women’s issues and launched UBS Unique, a global five-year programme to better serve female clients and increase the financial confidence of one million women. As part of these efforts, the bank hosted over 60 events around the world to share learnings and fully understand the scope of the challenges around women and investing. Next to be unveiled is an online educational tool designed to help people build their confidence in investing.
So, what can Caroline Simmons, Deputy Head of the UK Investment Office at UBS Wealth Management, tell readers about the challenges facing women and what wealth managers are doing to help them?
FWM: How well are women’s special wealth management challenges being tackled by the industry, in your view?
Caroline: The financial industry has lagged in its response towards women’s needs in terms of understanding their values and attitudes to wealth – only 2% of wealth managers see women as a specific audience with specific requirements[vii].
Prior to launching UBS Unique, we embarked on a two-year research and collaboration project with our female clients to better understand the attitudes of women towards managing their wealth, what they want to achieve through it and what they want from the financial industry.
Female investors view wealth differently to men and we know that women have a strong desire to use their growing wealth to create positive change in society.
Research also shows that women have historically been more reluctant to take risks and tend to be less confident when making investment decisions.
This lower risk potential in the short to medium term, coupled with events such as taking a career break to raise children, can pose a threat in the long term and women need to be aware of the long-term impact to achieving their life goals.
This lower risk potential in the short to medium term, coupled with events such as taking a career break to raise children, can pose a threat in the long term.
This is why it is so important for wealth managers to transform their approach to better serve female clients. At UBS Wealth Management, we have made some important steps to change the way we engage with female investors and we hope the rest of the industry will follow.
FWM: What are the real “danger zones” when women neglect wealth management in their own right, and perhaps just rely on a partner?
Caroline: Wealth management presents women with an important opportunity to make the most of their finances while also ensuring they are protected should the worst happen.
Relying solely on a partner or neglecting wealth management entirely can mean that women are completely unprepared if something unexpected were to occur, such as their partner becoming ill, or if they lost their job, for example.
New research from our Chief Investment Office shows that good wealth management is crucial to help women fulfil their life goals and sustain their lifestyles in the long term.
In October last year, we released findings of a study which shows how investment decisions and behaviours widen the gender gap in addition to income disparity, pay discontinuity, work flexibility and longevity. Using an illustrative example to model the effect on a woman’s wealth, the study found that a woman who starts with an illustrative pay gap of 10% could see this gap widen after factoring in a short career break, resulting in having 43% less wealth than men at age 85.
Women have also historically tended to take less risk when making investment decisions. As a result, they are less likely to receive the returns they need to achieve their ambitions.
An appropriate investment approach can make a significant impact on a person’s financial situation.
FWM: Which wealth management tips would you offer professional women in their 30s, 40s and subsequent decades?
Caroline: Understanding your lifegoals is a major part of planning the best investment approach. Without this, it’s impossible to make sure that your investment strategy is the right one for you.
Your age and personal and professional circumstances are also important. In your 30s and 40s, you need to consider if you’re taking the right amount of risk when it comes to investing. Because women typically tend to be more risk-averse, you might find that your investment strategy won’t give you the returns you need to meet your goals. This becomes even more important when you factor in taking a career break to raise children, which can have a significant impact on your future wealth.
Understanding your lifegoals is a major part of planning the best investment approach. Without this, it’s impossible to make sure that your investment strategy is the right one for you
Just as for many men, women in their 50s see their pay plateau as they reach the top of their chosen profession. Pay rises tend to be in line with inflation, rather than the big leaps you get early on in your early career. This needs to be taken into account when you consider your investments; you can’t bank on your salary increasing forever.
Longevity is also an important factor. Women tend to live for longer than men. Sometimes women only become involved in investment decisions when their partner becomes ill, or they divorce. Taking control of your finances before something like this happens, rather than after, can bring you much more financial security.
Your next steps
As this piece sets out, female investors have specific financial needs that should not be ignored.
The institutions represented by findaWEALTHMANAGER.com are experts in helping women at all stages of life take control of their finances, so, whether you are a young professional looking to make your savings work harder, a divorcee needing help with a financial settlement or someone investing for retirement, help is at hand.
[i] According to the 2016 Global Wealth Report from Boston Consulting Group
[ii] Institute of Economic Affairs, citing data from the Office for National Statistics
[iii] According to UBS Wealth Management report, ‘Women and Investing – Taking Action: How women can best protect and grow their wealth’, October 2017
[iv] Rui Yao, Sherman D Hanna, ‘The Effect of Gender and Marital Status on Financial Risk Tolerance’, Journal of Personal Finance, 2005.
[v] World Economic Forum
[vi] According to 2017 research by the UK Pensions and Lifetime Savings Association
[vii] According to BCG