Are Financial Advisors Giving Women the Short End of the Stick?

Dive into the latest research revealing critical insights about financial advising practices.

In this episode, Wes Cuprill breaks down a groundbreaking study from the American Finance Association that exposes significant biases in how financial advisors serve different genders.

Learn why women often receive suboptimal financial advice, what questions to ask when choosing an advisor, and why the fiduciary standard matters more than ever.

This eye-opening episode will help you navigate the complex world of financial planning with confidence.
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Study mentioned in the episode: https://drive.google.com/file/d/1HRWexK-HdSxUoVxLMF38lFheSmCP4g8_/view?usp=sharing

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Transcript

>> Wes Cuprill: 0:03

Unfortunately, in the financial advising industry you will have a lot of players who are self serving and want to push products or recommendations that are best for them, not the client. So it comes back to the necessity of having a fiduciary standard. Hello and welcome to another episode of the Wealthwise Women podcast. My name is Wes Cuprill and in today's episode I want to discuss a study that I found while doing some research about financial planning for women. And this study actually came out just last month, so October 2024 in the American Finance Association's journal. Now this study was conducted in Hong Kong, so it does have an international aspect to it. But I do think the results of this study are still very, very applicable to the United States. One thing that I'm always talking about is that women need customized financial advice that is specific to them and they need an advisor who specializes in helping women plan for retirement. Specifically, because women's needs are different than that of men's and of we don't address those specific needs, it can have drastic financial consequences in the long term. Now this study, what they did is they arranged for trained undercover men and women to pose as potential clients and visit all 65 local financial advisory firms in Hong Kong. Now they visited both financial planners in the traditional sense and then what we would call securities firms or broker dealers. These are more individual stock traders if you will. And there are some interesting points that they discovered. Now I'm not going to go into all of the details of this study. I will however include a link in the episode description where you can go and read this study for yourself if you'd like. It's not terribly long. Now granted I find the findings very interesting. I know academic studies could be a little bit dry for some people, but I want you to see the source, of where I got all of this information. So there are s several different things that they conclude, but I really want to give you the highlights and speak to them a little bit. Now the first point that they found is financial planners give better overall advice than brokers do. However, the financial advisors give suboptimal advice to women compared to men. There's something interesting here though. Brokers did not seem to differentiate in the type of advice given to men versus women. So a couple things here. The broker dealers necessarily didn't care if it was a man or a woman. Financial planners on the other hand, did seem to have some biases. And the suboptimal advice that financial planners gave in this Hong Kong study was especially given to women with A high confidence in high risk tolerance. The advice that was given was actually found to be overall suboptimal. So even men were getting suboptimal advice. Granted, as I'm talking about this, I'm realizing this doesn't exactly give my industry a huge vote of confidence. I do think it speaks a lot to maybe a lack of expertise among some people posing as financial planners. That's a discussion that I might get into later on. But I do want to continue with some of the other points here. Now, brokers were more likely to recommend individual securities. And the reason behind this is because brokers make their money off commissions. So every single time that a trade is placed, they earn a percentage of that trade. So they were more likely to recommend stocks that would have a high frequency trade in individual stocks rather than funds, because that way you're always trading and they're earning commissions on that. Financial planners on the, other hand though, were more likely to recommend customized financial advice. So those in a business like myself were more likely to take a look at the individual client and make rec recommendations that were specific to their needs. That's typically because financial planners are compensated more on a fee basis. They aren't compensated on commissions based on the individual products they sell. They are compensated on overall assets under management or perhaps a retainer fee. Now I want to go back first to the suboptimal advice given to men versus women. I think it speaks a lot to the unfortunate biases that exist in the financial advising industry. Many financial advisors will tend to lean towards wanting to work with men more so than women. Or rather they just don't know how to work with women in particular. Again, we've talked about how advisors need to have a specific approach in place for working with women. The typical approach that they might have been using over the years may not be best for women. And that's why I talk a lot about how we created our empower her planning system. It is specific to the needs of women and takes a lot of their specific needs and other considerations into account. Now one thing I want to go back to that I was very interesting in this study was that the overall advice was subopimal. You know, I think that's actually one of the more damning pieces of evidence from this study that overall advice given to the so called experts isn't really meeting the mark for all of their clients, men versus women. And I think for me that's kind of a wake up call to say, all right, you know, I can't control what everybody else is doing. But I need to make sure that every single piece of advice that we're giving is the most optimal that we can. I think a lot of it too is a self serving bias. Unfortunately, in the financial advising industry you will have a lot of players who are self serving and want to push products or recommendations that are best for them, not the client. So it comes back to the necessity of having a fiduciary standard. Dad is a certified financial planner himself. Or Dan, if you don't know. My boss, Dan Capapril is my dad. He's a certified financial planner and I just recently passed my certified financial planning exam. So I'm waiting to be able to use the marks myself. But what that means is that we have a fiduciary duty to put the needs of our clients before ourselves. Not every person who holds themself out as a financial advisor has that same fiduciary responsibility. Now again, while some might say that they are fiduciary, actions speak louder than words. So we do always say we put the needs of our clients first. We have always stood on our fiduciary duty and every action we've taken backs that up. But it is a fair war to everybody that you want to make sure that the advisor you're working with has a long track record of upholding their fiduciary responsibility. Because it comes back to that self serving attitude is the advisor you're working with making sure to put your needs before themselves. That's why a lot of the products that we sell, we only sell them if they fit the individual plan that we first put together for the client. And we only recommend things that fit that plant. Yes, we do collect commissions on some products, but the vast majority of what we make is from fees on assets under management. That is to ensure that the quality of the advice that we're giving is as optimal as it can be. So those are really the two biggest things that I wanted to point out from this study. That yeah, it looks like the financial advising industry has some work to do in terms of improving the overall quality of advice. But also it speaks to the fact that women are receiving lesser financial advice compared to men on average. And so what that means is financial advisors, you need to have a specific, system in place for working with women. And if you are a woman who's looking for a financial advisor, make sure to really ask them the questions of, you know, how do they work with women compared to men? To help with this process, on our website, if you go to moneyincclarity.com and scroll down towards the bottom of the home page, you'll actually find a guide that we put together. That is a list of questions that will assist you with selecting a financial advisor, especially finding one who is a specialist in working with women. There's questions on there like tell me about your process in working with women. Another one is tell me about some case studies or case examples of the outcomes that women clients of yours have achieved. Because a good financial advisor who has a good track record of working with women will very quickly be able to tell you about very specific success stories for the women who are their clients. So that's just some high level points that I had about this study. Like I said, the link to it is in the text box below. So I encourage you to read that and go through some of the results there. This study has certainly opened my eyes to some of the shortcomings in my industry and I don't think this will be the last time that I talked to various studies such as this. There are a couple others quoted in this individual study that I want to go and read about, so I certainly think there are future episodes to be done on this topic. But hopefully you enjoyed some of the things that I talked about in this episode. And if you have any questions or would like to meet with me at any point, simply go to visitwith mc.com or you can send me an email at westapri moneyincclarity.com. i would love to hear your thoughts. That being said, I hope you have a great week and I'll see you in the next one. Bye.