A behavioural finance perspective on women and investing

The financial services industry is undergoing a dramatic shift. The next generation of investors will be younger and far more diverse, with women taking an increasingly prominent role in building and growing family and personal wealth.

Women are currently under- represented in the investment world, but that is changing fast. While various cultural and societal reasons are contributors to this, there is also a simpler driver: the rising economic might of women in generating and managing the income and wealth of their families.

Studies show that women think about money and wealth in a different way to men – and the way the financial service industry has traditionally serviced its clients. As the economic influence of women grows to new heights, how will they want their wealth to be managed?

Recent surveys attribute two reasons why women are under served by the financial services industry as being a lack of personal connection and poor customer service. Also, unfortunate perceptions that financial advice is a man’s world still exist, and many women feel patronised or excluded from financial conversations.

However, there is an invaluable opportunity for financial services companies to serve the financial needs of women better, and behavioural finance will play a vital role in unlocking this opportunity. The prevailing view is that investors do not necessarily make rational investment decisions, that investment decisions are often influenced by emotional or other non-rational factors and this results in irrational investment choices. Behavioural finance is becoming more prominent in the advice process, but has product development in South Africa given these emotional and non-rational factors that determine investor behaviour sufficient consideration?

Women (and men) want to take action and do something about today’s issues — whether it’s gender equality, climate change, education, healthcare, sustainability or something else — and investing is a powerful way to cast a vote for change. Based on Rich Thinking® global interviews, more than three- quarters of women prefer to invest in stocks and funds that align with their core values. This values-based thinking supports impact investing.

Impact investing refers to an investment strategy that not only generates financial returns but also results in constructive outcomes. The strategy actively seeks to invest to generate specific beneficial social or environmental outcomes, in addition to financial gains. Examples include investing in non-profit organisations that benefit the community or in clean- technology enterprises that benefit the environment.

Chaos always gives rise to opportunities and perhaps COVID-19 is the catalyst the South African financial services industry needed to acknowledge that impact investing is underrepresented within our market.

As the COVID-19 pandemic continues to unfold, it is undoubtedly taking a tremendous toll on societies and economies across the globe. The crisis is leaving no government, company or individual untouched and is calling for a widespread reassessment of the way we live our daily lives. For investors, the events of recent months have accelerated the ever- growing demand for sustainability and placed a renewed focus on corporate Environmental, Social and Governance (ESG) practices.

Perhaps we should be looking at more women to manage impact investing strategies. From a South African asset management industry perspective, for the last decade, a base case of less than 10% of all fund managers are women (according to research conducted at WITS University by N. Archary published in 2016). Additionally, women have a smaller allocation of funds entrusted to them to manage. The findings in the WITS study named earlier indicated that female fund managers are managing less than 6% of the total assets under management in the South African unit trust industry.

The representation of women in broader roles (COO, CEO, Marketing, Client Services, Distribution) in the asset management industry is higher than this number.

At Prescient, we are proud to have made significant progress towards bridging the gap and continue to promote gender equality at both a policy and practical level.

Diversification is a widely used term in the world of investments. While it has been proven that female and male fund managers have different behavioural biases, these contrasting approaches serve to enhance client outcomes, as opposed to detracting from them. This evidence strongly supports the idea that opportunity exists for gender-diversified investment teams to develop meaningful impact investing funds.

As more and more women begin to take control of their finances and investment decisions, we expect the current gender, pay, retirement, and wealth gaps to significantly narrow. Sustainable change can only be achieved when there are underlying changes within organisations, with the focus on building diversity and inclusion into a compelling employee value proposition. The same can be said for the value propositions offered by product ranges that focus on ESG investing and upliftment, which, in many instances, better suit the interests of women investors.

ENDS