DEFINING THE FEMALE EFFECT ON ADVICE. How female advisers are managing their practices and clients and igniting a new wave of growth

Transcription

1 DEFINING THE FEMALE EFFECT ON ADVICE How female advisers are managing their practices and clients and igniting a new wave of growth

2 Introduction While women still represent a distinct minority of the overall population of financial advisers, there has been some notable progress in the composition of the advisory industry landscape. Within the independent space, women now hold roughly 34% 1 of all advisory roles, and represent 15.7% of the total universe of 298,000 brokers and financial advisers. 2 While 23% of advisers with the Certified Financial Planner designation were women at the end of 2017 a number that has held steady since 2003 the number of women holding the CFP designation grew to 18,288, a 78% increase during the same time period. A clear gender gap still exists, but generational shifts and broader initiatives to bring more women into the financial advice industry suggest that progress will likely continue. At the same time, these recent advancements have presented a unique opportunity: With more women advisers in the industry, it is now possible to identify meaningful differences in the ways that men and women work with their clients and approach the business of financial advice. Through our research, we have identified clear contrasts in how women advisers operate their firms, view their roles as advisers and are ultimately growing their businesses relative to their male adviser counterparts. The goal of this paper is to highlight both these differences and define the unique impact, or the female effect, that women can have on the performance of an advisory firm. By identifying these elements, we aim to provide enhanced visibility into the complementary skill sets and strategies that could drive the future success of financial advisory firms. Key findings and areas of exploration in the research brief will include: While 23% of advisers with the Certified Financial Planner designation were women at the end of 2017 a number that has held steady since 2003 the number of women holding the CFP designation grew to 18,288, a 78% increase during the same time period. Growth: advisers are growing their book of business at a faster relative rate than male advisers Client acquisition: are more likely to employ a diverse and proactive array of marketing methods, which is driving their growth and their ability to attract new clients Technology: are using technology-driven, client-facing solutions more often than men, which is setting the stage for a divergence in the digital experiences and expectations of their clients Positioning: more frequently describe themselves as financial, holistic or life planners, as opposed to wealth managers Focus: At the same time, women also tend to outsource investment management more than men and spend more time on practice management. 1 InvestmentNews Research, InvestmentNews 2017 Adviser Compensation and Staffing Study (September 2017). 2 Cerulli Associates, U.S. Advisors Edge: Advisor Issues ( Q1) (January 2017). 2

3 Research overview: Profile of male and female advisers In order to examine how male and female advisers contrast in the ways they grow and operate their businesses, InvestmentNews Research fielded a survey to financial advisory professionals, collecting representative samples of both genders consisting of 203 women and 288 men. FIGURE 1: Tale of the tape 42 YEARS OLD 53 YEARS OLD JOB TITLES 52% 70% 63% 73% FIRM CHANNEL Men 11 years 22 Years 29% 27% 17% 2% 12% 14% 23% 10% Experience Experience Senior Management Financial Advisory Administrative Independent Captive Insurance or Bank Note: Respondents were presented with a list of 28 common advisory firm positions, including titles for executives and partners ( senior management ); advisers and investment specialists ( financial advisory ); and advisory support and administrative ( administrative ) roles. Independent firm channel includes RIA-, IBD- or Hybrid-affiliations; Captive includes wirehouse or regional broker-dealer affiliations. One of the more notable differences between the demographic makeup of women and men in our study is their age, with women aged 42 on average versus 53 for men (Figure 1). This gap, which has been persistent across InvestmentNews research, has been described as the leaky pipeline of women s career advancement in the financial advisory industry. are equally represented at the beginning of the advisory career path, but at more senior positions, their ranks slip to a much thinner margin of the population. Ninety-seven percent of men and 81% of women responding to our survey hold client-facing professional roles, with 52% of men and 42% of women indicating they are a partner or hold a C-suite role. This study does not aim to address the systemic issues underlying this trend, but rather outline the benefits of gender diversity in the financial advisory world by underscoring the differing strengths that women bring to the table. Firms with more women will have a built-in advantage attracting the growing portion of wealth controlled by women investors, who have traditionally been underserved by the industry. In 2015, women controlled more than half ($14 trillion) of all personal wealth in the U.S. 3, a figure that is expected to grow to $22 trillion by And female respondents are already at an advantage diversity-wise as they were much more likely to work at firms where women owned a portion of the firm (median of 26% 50% versus 0%), work with other female professionals on more diverse staffs (40% of professionals are women, versus 10%) and are more likely to work with more female clients (46% of firm clients are women, versus 42%) (Figure 2). are coming into the business and bringing new approaches that appear to be translating to early successes. They are growing faster than their male counterparts, and they are forging a distinct style of management taking the industry in a much-needed new direction. FIGURE 2: Gender Diversity at Respondents Firms PERCENT OF FIRM OWNED BY WOMEN 26%- 50% 0% PERCENT OF WOMEN PROFESSIONALS AT FIRM 40% 10% PERCENT OF CLIENTS THAT ARE WOMEN 46% 42% Men 3 BMO Wealth Institute, Financial concerns of women (March 2015). 3

4 DEFINING THE FEMALE EFFECT ON ADVICE Growth: advisers ascendant at the individual level. advisers, our analysis found, are quickly accumulating assets and generating revenues and at a faster rate than their male counterparts. FIGURE 3: Growth at the individual level Median values Men Personal Revenue Percent Change, % 50% Personal Revenue, 2017 $525,000 $440,000 Personal AUM, 2017 $50M $99.9M $50M $99.9M Personal Revenue Per Client, 2017 $4,100 $3,300 reported the revenue they personally generated in 2017 increased by 60% over their 2014 revenue, and men reported 50% growth over the same period, as shown in Figure 3. Thirty-eight percent of women reported doubling their revenue over the past three years, versus 24% of men. reported the revenue they personally generated in 2017 increased by 60% over their 2014 revenue, and men reported 50% growth over the same period. What contributed to their higher level of success? Our analysis showed that age is a big part of the personal revenue growth story. Two of the strongest predictors of personal revenue growth were the size of their book and adviser age, with lower AUM and younger advisers exhibiting higher growth. When controlling for age, both groups, it seems, are equally successful at growing their practice. Under a gender-agnostic model, for each additional year of experience, three-year personal revenue growth increases by 1%. When the ten-year gap in median experience is factored into the equation, the playing field between genders is level: in other words, the data suggests that men and women of comparable age and experience generally performed the same. Assets personally managed had less sway on the growth of women s revenue than men s, likely owing to the fact that, while they control fewer assets than their male counterparts, they are less likely to be at or near traditional retirement age a time when advisers personal books tend to have more decumulators than their younger counterparts. They are ascendant equally if not more successfully growing their businesses. 4

5 at the firm level: When examining growth at the level of the firm, the biggest factors were not the responding adviser s age, or even the size of the firm where they worked. The most significant indicator was their firm s typical client size. Firms working with the largest clients were most likely to have grown the fastest over the past three years. To examine firm growth through the lens of gender diversity, we split our sample into two groups: Firms where 33% or more of all professionals are women and those with less than 33%. While measuring from an equal footing might seem more appropriate, it s worth keeping in mind that at 33% of professionals, such firms who staff that proportion of women are well ahead of the curve in terms of gender diversity in the financial advisory industry. In the sample collected for this study, the typical respondent said 23% of professionals at their firm are women. In broader studies, at the typical independent firm, just 26% of professional staff are women, and estimates for the financial advisory industry at large are under 20%. FIGURE 4: Growth at the firm level Firms with women Firms with women representing 33% or representing less than Median Values more of professionals 33% of professionals Firm Revenue Percent Change, % 43% Firms with women representing 33% or more of their professions grew their revenue 50% compared to 43% of firms with less than one-third of women. Firm Revenue, 2017 $1,800,000 $2,500,000 Firm AUM, 2017 $150M $199.9M $150M $199.9M Firm Revenue Per Client, 2017 $4,100 $3,800 Firm Revenue Per Professional, 2017 $325,000 $400,000 As can be seen in Figure 4, firms with women representing 33% or more of their professions grew their revenue 50% compared to 43% of firms with less than one-third of women. Additionally, the more diverse firms generated higher revenue per client and grew their number of clients at a faster rate (38% vs. 28%). 5

6 Drivers of growth: find success in part by utilizing more marketing measures and more client-facing technology than their male peers Predictors of growth Beyond client size, respondents who worked at firms with higher levels of engagement with marketing, growth, technology and outsourcing strategies were linked to higher firm revenue growth rates. Each of the following were correlated to increases in revenue growth rates: An increase in the number of marketing activities a firm deployed An increase in the number of outsourcing solutions utilized An increase in the number of active growth strategies deployed in the past year An increase in the number of client-centric tech practices utilized. Examples of such practices include tracking prospects and leads in a CRM, or offering a fully-digital onboarding process to clients. As we will explore throughout the rest of this study, women advisers, as a group, are more likely to adopt proactive front-end technology. They re also more likely to utilize more marketing activities and report them as successful and bring more outsourcing solutions to their practice. They take a different approach to human capital, holding mentoring and its virtues in high esteem, and they use and value their time differently, spending less time on investment management, where they re more likely to outsource, and more time on managing the firm. Given the divergences in performance and strategy, it is important to understand how female advisers approach their business and deliver financial advice differently. Respondents who worked at firms with higher levels of engagement with marketing, growth, technology and outsourcing strategies were linked to higher firm revenue growth rates. Most importantly, they re just as successful as men if not more so at growing their businesses. By magnifying their influence, and complementing one another, the industry stands to benefit from a more diverse approach to an industry that is increasingly facing up against a more diverse client base. 6

7 Marketing Strategies Traditionally, the financial advice industry has relied on referrals and business development tactics tailored to referrals pipelines, rather than strategic marketing approaches. One key component is distinguishing marketing from business development. Marketing is all about promoting a brand be it a firm or an individual adviser while business development, or identifying potential client engagements, is often stressed in advisory practices through defined sales targets, training, and time allocation. For instance, in InvestmentNews 2016 Financial Performance Study 4, 50% of firms planned to allocate more of their advisers time to business development over the next year and 55% of firms planned to train advisers to develop more business. In our survey, male respondents were more likely to shun all marketing activities (17% undertake no marketing vs. 8%) than female advisers. On the other hand, women were much more likely to employ a diverse array of marketing methods, averaging 4.6 distinct activities, compared to 3.3 for men. Out of the 16 marketing activities posed to respondents, women were significantly more likely to deploy 14 of them. Of these activities, the biggest differences between utilization were between online advertising (30% vs. 11%), actively posting on social media networks (51% vs. 33%), and direct mail campaigns (28% vs. 16%) (Figure 5). FIGURE 5: Marketing activities used to generate referrals Social media networks Community involvement General public relations Sponsoring community events Hosting networking events Online advertising Direct mail campaigns Print advertising Search engine keyword advertising Actively capturing leads on firm's website Newspaper/magazine columnist Blog Radio/television shows (host or guest) Radio/television advertising No marketing activities are undertaken 7.8% 7.4% 7.8% 10.6% 11.4% 11.8% 10.2% 13.5% 16.3% 15.5% 23.7% 21.8% 21.8% 16.3% 19.2% 17.1% 16.6% 16.7% 24.4% 29.8% 28.2% 29.5% 28.0% 33.1% 29.5% 42.5% 38.3% 34.7% Men 47.7% 50.8% were much more likely to employ a diverse array of marketing methods, averaging 4.6 distinct activities, compared to 3.3 for men. Not only are women utilizing a higher number of marketing tactics, they are reporting these activities to be more successful. Of those who said they employed each activity, women reported higher success rates on 13 of the 16 activities. As seen in Figure 6, most of the success ratings are widespread when we look at them by gender. By both usage and success rates, it is evident that women not only embrace new and creative strategies that go beyond the basics, they re reportedly utilizing them to a much greater effect, using their marketing savvy to stand out and as we saw earlier, attract new clients. 4 InvestmentNews Research, 2016 Financial Performance Study (September 2016). 7

8 FIGURE 6: Percent ranking each marketing activity as extremely or very successful Growth Strategies When asked about specific growth tactics, men and the firms they work for once again utilized fewer, with 27% reporting they did not implement any in the past year, compared to 16% of women (Figure 7). Given their rates of marketing activities, it is not surprising to see that 36% of women, compared to 29% of men, implemented a new marketing strategy with the past year, and 16% of women versus 9% of men hired a marketing consultant in the same time period. It is important to note that this focus on marketing is not a trade-off with business development, as 27% of women held formal adviser sales training and 14% hired a business developer. Men Social media networks 61.9% 16.3% Community involvement 61.5% 43.7% General public relations 58.9% 31.5% Sponsoring community events 68.1% 35.3% Hosting networking events 69.7% 53.5% Online advertising 63.2% 28.0% Direct mail campaigns 60.4% 20.0% Print advertising 48.9% 7.9% Search engine keyword advertising 66.7% 11.1% Actively capturing leads on firm's website 66.7% 20.0% Newspaper/magazine columnist 54.1% 17.2% Blog 46.9% 12.0% Radio/television shows (host or guest) 53.1% 47.4% Radio/television advertising 66.7% 16.7% It is important to note that this focus on marketing is not a trade-off with business development, as 27% of women held formal adviser sales training and 14% hired a business developer. FIGURE 7: Growth tactics implement in the past year New marketing strategy Held formal adviser sales training Purchased or merged with another firm, or purchased a book of business Hired a marketing consultant Sell/transition/fire a segment of our client base Hired a business developer Implemented a digital advice platform None of the above 5.7% 4.5% 7.8% 9.4% 11.4% 12.7% 14.1% 14.4% 16.2% 15.6% 15.6% 24.1% 28.6% 27.1% Men 27.4% 36.5% Technology Beyond traditional technology solutions such as CRM and account aggregation software technology-driven strategies to service clients can be a significant value-add and overall productivity booster. Not only are these tech-based services becoming more of an expectation from clients, but they allow advisers to add capacity and focus on guidance and financial planning. Similar to their approach in marketing, women were more likely to use technology-driven clientfacing solutions when delivering service to their clients. In our study, as the percent of women at a firm increases, so did the number of client-facing solutions. Firms with more than half their ownership in the hands of women were more likely to use all of the client-facing tech strategies presented to respondents (Figure 8). 8

9 FIGURE 8: Client-facing technology strategies, by percentage of firm owned by women Use customer relationship management (CRM) software to track prospects or leads 66.2% 81.4% Offer a fully-digital onboarding process for new clients Use a digital, customizable risk-tolerance questionnaire that is regularly updated and monitored Use an investment management platform to collaborate with clients on their portfolios Create interactive digital reports for clients Use video or online conferencing to meet with clients Send e-newsletters to clients with financial topics, or firm and market updates Use Account Aggregation software to provide holistic planning Use behavioral finance tools to assess and coach clients Use social media to engage clients and prospects Percentage of firm owned by women: 35.1% 45.7% 0% to 50% 51% to 100% 48.2% 57.1% 52.5% 42.5% 52.9% 39.5% 50.2% 48.8% 48.6% 54.4% 61.4% 65.7% 68.6% 68.9% 74.3% 74.3% In our analysis, for every additional client-facing technology strategy a responding adviser utilized, three-year revenue growth increased by +3.2%. On average, female advisers reported using 6.1 out of a possible 10 processes, compared to 4.5 for male advisers. For eight of these processes, women significantly outpaced men in utilization, especially in video conferencing (69% vs. 44%), investment management platform collaboration (69% vs. 47%), and fully-digital onboarding (50% vs. 29%). At the individual level, one of the strongest effects on growth aside from age and size of their book was the utilization of client-facing technology, with both higher adoption and usage rates of cutting edge technology correlating to high personal revenue growth. In our analysis, for every additional client-facing technology strategy a responding adviser utilized, three-year revenue growth increased by +3.2%. 9

10 How practice management styles differ: are more focused on human capital, less focused on investments It is clear that women and men take different approaches when it comes to their marketing and technology practices at their firms. Before a firm can effectively market or develop new business, a clearly defined positioning is needed to attract the right clients. These approaches to firm positioning and service models highlights another key difference area. Positioning of firm & service models The most direct way an adviser can position their firm is the way they present their service model to clients. In our study, women were more likely to utilize phrasing that contains the word planning, i.e. holistic, life, or financial planning, than men (43% vs. 37%) while only 14% of women described their services as wealth management which was the top response for men at 26%. Almost a quarter of respondents that had over half of their firm owned by women described their firm as holistic planning. Only 14% of women described their services as wealth management which was the top response for men at 26%. It is one thing to describe yourself in a particular framework and another to actually act upon it. To evaluate this, respondents were asked to breakout the percent of time the spent on specific activities. Unsurprisingly, both men and women equally spent the largest proportion of their time with their clients (Figure 9). After this, the two varied greatly in how they allocated their time. On average, women spent more time on internal management (22% vs. 14%) and practice management and leadership (18% vs. 14%). Men, alternatively, focused on developing new business (20% vs. 17%) and creating or monitoring portfolios (22% vs. 16%). FIGURE 9: Average Time Spent by Gender 18.0% 16.9% 21.6% 27.4% 16.2% 14.4% 14.3% 22.0% 19.6% 29.7% Developing new business Client meetings and communications Creating or monitoring portfolios Internal management (human capital development, office administration, operations) Practice management and leadership (strategy and initiative setting) 10

11 Outsourcing Given the time women spend focused on internal and practice management, it is unsurprising to see that the majority of women in our survey (81%) utilized outsourcing. Compared to the 68% of men who outsourced at least one activity, women outsourced on average 2.5 activities whereas men outsourced 1.7. Importantly, 69% of women outsourced at least one investment management activity including portfolio management, overall investment strategy, and portfolio construction (Figure 10). FIGURE 10: Activities female advisers outsource more than male advisers 25.7% 20.9% 19.9% 18.3% 17.8% Portfolio management Management of specialized or alternative investment asset classes Outsourced Chief Technology Officer (CTO) for software and hardware consulting and strategy Investment manager research Outsourced PR for press and commnuincations support 76% of women in our study worked at a firm that had a mentorship program compared to 49% of men. 17.3% 15.2% 13.6% Overall investment strategy Portfolio constrction Outsoured Chief Marketing Officer (CMO) for marketing, advertising and branding support By freeing up their time and moving away from creating and monitoring portfolios, women can create a value proposition that supports a more holistic and planning-based approach to financial advice. Creating value away from investment management provides advisers with opportunities to grow and succeed in the increasingly commoditized advice industry. In our study, those who outsourced more activities worked at firms who tended to have higher revenue growth over the last three years. Mentoring One way to attract women, and their unique approach to advice, is through mentorship programs. Overall, 76% of women in our study worked at a firm that had a mentorship program compared to 49% of men. The value of these programs is undeniable as three-quarters of women at these firms were involved in the program and almost a quarter of women served as both a mentor and a mentee. Mentoring gives these firms the ability to better retain, recruit, and attract talent, and 72% even reported a measurable impact of their firm s financial performance. Given the gap in growth between gender, mentoring can provide a way to both promote inclusion in the industry but also as a way to share unique approaches to practice management and growth. Incorporating more women in the workplace can foster new ideas in practice management, marketing, and technology leading to new ways to fuel growth. 11

12 Conclusions and key takeaways: What did we learn: advisers are growing at a faster rate than male advisers. While typically younger and at smaller firms, both their revenues and assets are growing at a faster relative rate than men. advisers tend to represent a forwardlooking, next generation approach to wealth management and financial advice, and offer a view into creative and innovative approaches to building and managing a business. Why are they growing faster: advisers tend to take more proactive approaches to marketing, technology, outsourcing and the positioning of the services they offer. For example, more women tend to describe themselves as holistic planners which positions them to serve a population of investors and clients with a broad set of needs. Men, meanwhile, tend to lean toward investment management when describing their services, which is naturally a more narrow field for current and future prospects. This suggests that, male or female, advisers who position themselves as solving multiple problems versus a singular or narrow issue will be more likely to out-perform in the future. The bottom line: This research shows that not only are female advisers growing faster at the individual level, diverse financial advisory firms are also growing at more significant rates. While we have seen studies that quantify the performance of Fortune 500 companies that have more diverse leadership and boards, our research confirms that this is also true in the local financial advisory industry and substantiates the economic benefits of building more diverse organizations. 12

13 ABOUT THIS RESEARCH Research methodology To support this paper, InvestmentNews Research fielded an online survey from January 31 to February 15, 2018, distributed to InvestmentNews' audience of financial advisers. The sample, which is representative across different advisory channels, received 491 responses in total 203 from females and 288 from males. The data collected from this survey were segmented and analyzed to extract insights and actionable intelligence. The results are accurate at the 95% confidence level, with a margin of error of +/-4%. About InvestmentNews Research The mission of InvestmentNews Research is to provide advisory firms with the industry's most comprehensive and informative practice management resources, benchmarking reports and targeted research studies. Our benchmarking studies and tools are a leading source of strategic intelligence for the industry's top advisory firms, custodians, broker-dealers, consultants and professional organizations. InvestmentNews Research is a dedicated business unit of InvestmentNews, which officially launched in 2009 with the acquisition of the former Moss Adams LLC benchmarking studies. The business now offers, in addition to the legacy benchmarking studies, a subscription-based research dashboard, custom research services, dedicated research webcasts, national and regional workshops and in-person presentations. For more information about InvestmentNews benchmarking and custom research, please contact Mark Bruno at mbruno@investmentnews.com About Advisor Group Advisor Group, Inc. is one of the nation s largest networks of independent financial advisors serving over 5,000 advisors and overseeing approximately $190 billion in client assets. Headquartered in Phoenix, AZ, the firm is mission-driven to support the heroic role that advisors can play in the lives of their clients, offering securities and investment advisory services through its subsidiaries FSC Securities Corp., Royal Alliance Associates Inc., SagePoint Financial Inc. and Woodbury Financial Services Inc., as broker/dealers, registered investment advisors and members of FINRA and SIPC. Cultivating a spirit of entrepreneurship and independence, Advisor Group champions the enduring value of financial advisors and is committed to being in their corner every step of the way. For more information visit About Advisor Group s s Forward Program s Forward, Advisor Group s women s initiative, is a one-of-a-kind, women-centric community led by our network s top female advisors as we work together to transform the financial services industry into one which women lead and flourish. Through thought leadership and innovation, the initiative develops actionable programs and resources that support the initiative s mission to attract, develop, and nurture female financial advisors. For more information, visit