13th October 2020

Managing the next decade of women's wealth

In conversation with Anna Zakrzewski, a Managing Director & Partner of Boston Consulting Group (BCG). Zakrzewski along with Kedra Newsom, Michael Kahlich, Maximilian Klein, Andrea Real Mattar, and Stephan Knobel, wrote the BCG report ‘Managing the Next Decade of Women’s Wealth’, published earlier this year.

Over the past few decades, women have become a sizeable economic force, but it's these next few years that will be a defining decade for women in wealth, according to the new BCG report. Anna Zakrzewski, one of the lead authors, summarises, women are "adding $5 trillion to the wealth pool globally every year— outpacing the growth of the wealth market overall but in spite of the increasing power of their purse strings, women remain largely underserved by the wealth management community."

The consequences of COVID-19

While the report, Managing the Next Decade of Women's Wealth, was published the week before the world went into lockdown, the long-term trends remain largely unaffected and women’s wealth is still expected to outpace global wealth growth over the next years. The trend is intensified by the growing number of women taking the lead in financial decisions. Some regions have more catching up to do than others. In Asia 79% of women take the lead on financial decisions compared to 86% of men, in North America 70% of women take the lead in financial decisions versus 92% of men; in Europe however the rate drops to only 40% of women compared to 85% men and in the Middle East this compares to only 20% of women and 93% of men.

As Zakrzewski explains, "Additionally, over the last five months, we have seen that COVID-19 is accelerating sustainable investing. 64% of investors believe the pandemic is a tipping point for ESG." ESG (Environmental, Social, and Governance) refers to the three central factors in measuring the sustainability and societal impact of an investment. For women value investing is of higher importance than for men.

We have also seen these past months that ESG funds have begun to further diversify beyond the red button issue of climate change. "The full breadth of the definition is filtering into mainstream investment discussions," says Zakrzewski. If wealth managers can avoid the pitfalls of common misconceptions and "personalise their approach to meet the specific needs and priorities of individual clients, regardless of gender", Zakrzewski argues that the enormous business opportunity of female investors can be unlocked.

What women want

Naturally, how women generate their wealth varies from region to region. Women in North America currently hold the largest relative share of wealth, with 37% of the total regional wealth pool. Asia, with the notable exception of Japan, is the fastest-growing hub of wealth creation for women, set to add $1 trillion per year to their total wealth over the next four years – setting Asian women up to hold more wealth assets than any other region in the world except North America by 2023. In the Middle East, women's wealth segments in assets under management (AuM) are also poised to experience substantial growth in the years ahead with an expected CAGR of 8.8%. Female rates of primary and secondary education participation are now similar to those of men, and women outnumber men at the university level in 15 of the 22 Arab countries.

Despite these advancements, wealth managers are still using historical social norms as a reference point, regarding men as the primary financial decision-makers, and this attitude is not going unnoticed. 64% of female respondents to BCG's survey felt that their bank or wealth management provider needed to improve its value proposition, with working women and those in the highest wealth bands expressing the most dissatisfaction. The women's segment is too often dismissed, considered primarily in terms of marketing. Outdated assumptions about what female investors want, combined with an inadequate understanding of women’s actual behaviours and preferences, have contributed to subpar service. As Zakrzewski explains, women do think differently, just not in the way tradition dictates.

"There is a preconception that women are far more risk-averse when it comes to investing but this simply isn't the case. It takes women longer to make an investment decision because they tend to gather data and information before committing. But when they do take the plunge, it's the same risk profile as men: Once they invest, it's an equal playing field."

If you dig a little deeper into women's typical investment behaviour, they tend to spread their risk a bit more but remain more committed than men when it comes to long-term investments, having the patience to make investments with a longer-term perspective. If the performance of two investments is more or less on par, women tend to choose ESG-focused investments more than men; and also those that most align with their own values. In addition, they are looking to invest to fund specific life stages or goals much more than men.

A generational shift

In a nutshell, "the future pool of clients, both men and women, will not just want more, they'll want better," says Zakrzewski. This means they're looking for investments that are engaged and purposeful. BCG's research shows that gender-based differences in investor behaviour diminish with every new generation. Millennial men and women share very similar views, including a shared preference for purpose-driven investing.

Meanwhile, more women than ever are taking the lead in financial decisions - 70% of millennial women, compared with just 40% of female baby boomers. Zakrzewski explains that "women's empowerment is fuelled by three main drivers - wage equality, more entrepreneurial activities by women, and more women in leadership positions. Women that accumulate wealth themselves tend to manage it more actively. Our data shows that younger women delegate fewer financial decisions than older women.”

Accelerating progress

Ten years ago, Zakrzewski was writing a report with her colleagues on levelling the playing field. At the time, it was thought that 2020 would see much less unconscious bias and women would no longer be treated as a homogenous group by wealth managers. Although the advancement has been slower than she hoped, Zakrzewski remains optimistic that the speed of change is only going to accelerate and is hopeful that we will see the industry taking big strides in the next five years.