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Gender bias in financial advice revealed by research

Clients receive different financial advice depending on their and their adviser’s gender, according to research by King’s Business School.

A study into advice given to high net worth clients shows female advisers are most likely to judge female clients as being less in control of their wealth and male advisers are most likely to recommend male clients higher risk investments.

King’s Business School lecturer in banking and finance, Dr Ylva Baeckstrom, a former private banker, based her research on work with 129 experienced UK-based investment advisers specialising in millionaire clients.

Each member of the group was given information about ten fictitious clients whose genders were switched. The advisers rated each client on their likely financial knowledge and the degree of control over their investments and then chose the most suitable of seven different risk-rated portfolios for each person.

On average male and females were recommend similar risk-rated portfolios. But females were rated as having less control over their investments and female advisers tended to rate this group lower on financial knowledge and control than the male advisers.

Female advisers also tended to recommend lower risk portfolios to female clients than to male ones.

The research shows the highest risk portfolios were more likely to be recommended by male advisers to the male clients.

Baeckstrom says: “previous studies have looked at how investors rate their own financial knowledge and attitude to risk, but the potential ‘interference’ caused by gender biases that advisers have internalised has not been explored.

“This is important for the financial services industry as it tries to serve the needs of a growing market of independently wealthy women.”

She is concerned this will spell more problems for women on moderate incomes:

“For the millionaire clients we studied, a slightly sub-optimal choice of investments might not be life-changing.

“However, for women who are not as financially fortunate, allocating sufficient money into their private pension investments could be crucial to funding a comfortable retirement. This is why I am extending my research to investigate gender bias in advice for clients on more moderate incomes, and the role played by the roboadvisers that are establishing themselves as alternatives for this market,” says Baeckstrom.

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