What Advisors Must Do to Reach Affluent Women: McKinsey

A huge transfer of assets into the hands of U.S. women is underway, and by 2030 will represent a $30 trillion opportunity for the wealth management sector, according to a report from McKinsey and Co.

Advisor and wealth management firms must transform their business and client service models now to acquire, retain and serve women. Delaying these changes could mean losing out on the next leg of growth.

The prize is substantial. Consider that just by retaining female baby boomers as clients could translate into one-third higher revenue potential, according to analysis by McKinsey's PriceMetrix.

In addition, firms that acquire and retain younger women as clients, especially millennials, could see up to four times faster revenue growth than their peers.

The analysis of advisors reveals that those who acquire this small but influential segment of younger women — at present, just 15% of affluent households' investable assets — enjoy annual revenue growth of 5%, outperforming the industry average of 1%.

For its study, McKinsey in partnership with Dynata surveyed more than 10,000 affluent investors, some 3,000 of them female financial decision makers, and also leveraged analysis from its proprietary PriceMetrix solution.

Winning Women Investors

The study finds that affluent female financial decision makers are likelier than their male counterparts to have an advisor. They also are more willing to pay a premium for in-person financial advice.

Indeed, older affluent women are twice as likely as older affluent men to favor paying a 1% or higher fee for an account managed by a financial advisor, versus paying 10 basis points for a digital-only service.

The coronavirus pandemic, of course, has upended advisor-client relationships, placing a priority on remote modes of communication. Many investors say they will stick with those new ways of engaging with their advisors after the pandemic ends.

Many women lack confidence in their financial decision making and investment acumen, according to the study. In fact, only a quarter of affluent women surveyed are comfortable making investment and savings-related decisions on their own — 15 points lower than male respondents.

Thus, advisors would be wise to help women meet their goals and build trust in their own financial literacy. About half of women financial decision makers surveyed feel unprepared for their financial goals despite having an advisor.

Not Risk Takers

The survey also reveals that women are some 10 percentage points less likely than men to take big investment risks for the potential of higher returns. Affluent women tend to prioritize capital protection over alpha generation and are more likely to manage their money through passive investment strategies.

Their goals also differ from men's, according to the survey. They are happy to outperform the stock market, but for them the big theme is retirement.

Women also are roughly 10 points likelier than men to express concern about outliving their assets in retirement. They also are likelier to worry about health-related matters.

Besides these long-term goals, the research shows that women also want more help with cash management and other day-to-day finance needs.

Many affluent women in the survey place a high value on establishing a personal connection with their advisor. About a third prefer to work only with an investment professional they trust, some 10 points higher than men.

More than half say the same about a good personality fit. According to the research, if women do not feel they have this kinship, they are more likely than men to switch advisors.

Big Drivers

Divorce is the chief life experience that prompts many women to seek a wealth relationship, according to McKinsey. It noted that women often experience greater financial effects from divorce or separation than men, and are twice as likely as men to cite divorce as the reason for opening a new investment account.

The dissolution of a marriage is an even more powerful driver of switching financial advisors than the death of a loved one. Some firms have taken note, building specialty services for divorcées into their practices.

More Effort Needed

Although wealth managers are making efforts to engage women clients, most are still not fully meeting women's needs, according to McKinsey.

Researchers heard from married women who have felt shut out of household wealth discussions, with advisor teams contacting them infrequently or only on matters of day-to-day cash management, rather than bigger investment decisions.

In addition, it said field interviews with RIAs finds that many of their new female clients came to them from firms where they were uncomfortable asking basic financial-literacy questions or spending enough time with advisors to find the right financial plan to meet their goals.

Many new firms that cater to women have experienced rapid growth, according to McKinsey, though none have yet achieved significant scale. As for incumbents, it finds little difference in the rate at which established firms were serving women.

When it comes to millennial women as a percent of total client base, for example, PriceMetrix concludes that most firms cluster around an average high watermark in the low teens, and a similar pattern exists for other female segments.

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