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Sharon Rich

'Numbers Too Big To Ignore'

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by: Thomas M. Kostigen

Financial Planning

Page 147
COPYRIGHT 1996 Securities Data Publishing, In Copyright 1996 Information Access Company. All rights reserved.

When Jill Barad was named chief executive of Mattel Inc. a few months back, she became the first woman to head a Fortune 500 company. These days, roughly 10% of all Fortune 500 board seats are held by women, according to the New York-based Catalyst Organization, and about 5% of all senior management positions are in the hands of women.

To be sure, these percentages are small. But considering that women's role in corporate America was basically nil until recently, the numbers are significant because they reflect the growing economic importance of an historically underrepresented group. Women are accounting for more of the nation's wealth, partly because they constitute a larger percent of the population and partly because they're playing a more dominant role in the business community. For instance, women now own 47% of all small businesses (more than 50% in New York state) and account for more employees than all Fortune 1,000 companies worldwide, according to Patricia Miller, head of Women's Life, a New York organization that counsels women on everything from lifestyle to financial management issues. While opportunities seem to be increasing in corporate America, women are still in the embryonic stages of financial management relative to their male counterparts, says Fiona Lally, president of Rasenna Consulting, a financial risk management firm in New York. 'The trend toward women owning and operating small companies is a trend that is growing at a tremendous rate,' she says. 'This is triggering more decision-making processes for women when it comes to finances. Women are just now moving into the stage of business where they are able to take control.' As women gain greater economic clout and move into positions of power, chances are they'll need help managing their income and investments.

That, of course, is good news for financial planners. Planners who wish to tap this large, increasingly affluent market must first understand that women and men have different investment attitudes. Women are often more willing than men to take the risk connected with starting their own business, but a great deal of evidence indicates that their penchant for risk doesn't extend to investments. 'Many women feel that risk is to be avoided or view risk as a joyride with a catastrophic effect,' Lally says. 'They view risk as something that happens to them, not as something they can control. In order to become wealthy, you have to view risk as a tool, and many women haven't come around to that way of thinking.'

Miller agrees. Men are more likely to go farther out on the risk curve than women, who prefer less risky investments along the lines of short-term CDs and income-oriented mutual funds, she says. There's a simple explanation. For many women, the rewards of investing pale in contrast to the risks. 'Men are more excited by the chance to make a lot of money, so they are more aggressive investors,' says Sharon Rich , a financial planner with Womoney in Belmont, Mass. 'Women, on the other hand, are trying to protect what they have, so they hold on for security.' There are valid reasons why women are more concerned with protecting what they have: They usually have less. Women earn an average of 25% less than men and are more likely than men to take time off from work to raise a family. 'I agree with the historical notion that women are less willing to lose money because it's harder to replace,' Rich says. 'The reality is women earn less. If you lose it, you have less options for replacing it.'

Moreover, women are less likely than men to work for a firm that offers retirement benefits, according to Susan O'Grady of Equipoise, a Denver financial planning firm. 'One of the things I've noticed is women tend to gravitate toward employers that don't offer a lot of options,' she says. 'Women work for non-profits or school systems, which makes their planning needs greater because you're limited by [Individual Retirement Accounts] - which aren't a whole lot of money.'
Glenda Price, a planner with American Express Financial Advisors in New York, says women are more conservative because of a lack of understanding rather than a risk-averse investment characteristic. In fact, Price says, once she has explained investment fundamentals to female clients, they tend to invest in growth vehicles. 'They begin to understand that they need their assets to work for them,' Price says. 'We really try and deal with the whole financial picture, and that sometimes involves more choices and more complexities.'

A Matter Of Trust Another area in which men and women differ involves financial planning priorities. To many men, making money is the primary consideration. To many women, however, high returns are less significant than working with someone they trust, according to Dr. Christopher Hayes, director of the National Center for Women and Retirement Research at Long Island University in New York. His view is supported by the findings of a survey the center conducted in 1994. Of 1,000 women who participated in the poll: 74% said they had postponed making financial decisions because they feared making a mistake. 25% said they didn't have a financial adviser they could trust. 21% said they felt they didn't know enough about financial planning. Obviously, the three issues are related: Women who have a financial adviser they can trust will get the information they need to make informed decisions; therefore, they will be less fearful of making a mistake. The issue of trusting a financial planner is not exclusive to women, and there is no evidence to suggest that women are by nature more distrustful than men. Women do, however, tend to deal with the issue differently. Despite changing social trends, in many circles financial planning is still seen as a 'man's job' (partly because the face the financial planning profession presents to the public is usually male). A married woman may insist that her husband handle the financial planning responsibilities, even though he may not know anything more about financial planning than she does. A single woman may simply ignore the issue.
Neither approach is effective. Given the high rate of divorce and the fact that women have a longer life expectancy than men, married women who leave financial planning to their husbands may be lulling themselves into a false sense of security. Victoria Collins, a financial planner with Keller, Coad & Collins in Irvine, Calif., who is also a psychologist, says planners should bear these thoughts in mind and urge married male clients to include their wives in the financial planning process. 'It behooves financial planners and advisers to make sure the female counterpart is fully informed and she has the ability to ask questions,' Collins says. 'Women live longer than men by seven years on average, so there's a high probability that the woman will end up being your client. And there's also divorce.'

Nonworking spouses can take some comfort in knowing that if they lose their partner's income, they can get a job themselves. That's a measure of security single people don't have. Therefore, a single woman's retirement nest egg is not only likely to be smaller, but will also have to last longer than that of a single man or a married couple. A Market For Patient Planners To some advisers, working with female clients may seem like trying to accomplish contradictory goals. Because women earn less and live longer, they need high-return investments; but because high-return investments are risky, many women won't consider them. Some planners have found a way to reconcile the apparent contradictions - they start slowly. Trust, like wealth, is built over time; as women become more comfortable with the financial planning process (and gain trust in their adviser), they're more willing to consider riskier investments, according to Phyllis Wordhouse, a financial planner with Wordhouse Financial Planning and Education in Plymouth, Mass. Many women tend to invest in no-risk vehicles such as savings accounts or certificates of deposit. Wordhouse recommends moving from CDs or bonds to a balanced fund. Once the client accepts this level of risk, the investment can be moved to a growth and income fund. As the client becomes more comfortable, the risk level can rise until the woman has assets in an equity fund. Wordhouse says she finds it helpful to present the financial plan in the form of a numbered list so female clients have a 'road map' they can follow during the process.

Generally, it doesn't take long for women to lose their nervousness about investing, according to Peg Downey, a financial planner with Money Plans in Silver Spring, Md. Once they do, they're content to sit back and let their investments grow. Collins agrees. 'Women have traditionally been more conservative investors, but I'm seeing a trend toward inclusion of equities with debt,' she says. 'Portfolios aren't as laden with CDs and money market funds as they were three years ago.' Financial literacy is another key issue than women handle differently than men, and understanding that difference will enable financial planners to more effectively meet the needs of female clients. 'Many times women ask for information that men don't,' says Downey. 'They don't know what it is they need to know, so they ask everything.' While this can be tedious to planners more accustomed to focusing clients on the rewards of aggressive investing, they should resist telling the woman not to worry about the details. Rich recommends asking for feedback during the sessions. 'Ask someone if they understand. That's not patronizing,' she says. 'Assuming people don't understand would be paternalistic. Looking at a client's expressions for cues isn't.' As more and more women move up the corporate ladder, their financial planning profile will undoubtedly change. For instance, 90% of the women holding vice presidential titles or above at Fortune 1,000 firms earn more than $100,000 in salary plus an annual bonus, with the average compensation weighing in at $248,000, according to Catalyst. For these women, fear of losing it all through equity investments is probably less of an issue than it is for a single mother earning $25,000 a year. Indeed, when women and men achieve workplace parity, gender differences toward investing and other aspects of financial planning may very well disappear. In the meantime, the increasing affluence of women affords financial planners the chance to get in on the ground floor of a growing market. FP


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