Last week, FT Money editor Claer Barrett wrote about the problem with women and investing. There clearly is a problem. A vast and growing pile of repetitive research tells us that women are much less likely to invest in financial markets than men are; they are much less confident in their knowledge of financial matters than men are; and when they do invest they tend to hold a much higher proportion of their portfolio in cash than men do.
This matters for women because, with interest rates at today’s ludicrously low levels, it is almost impossible to hope for a happy retirement without getting into risky assets of one kind or another. Get a return of 6% a year and it will take you 12 years to double your money. Get one of 0.5% and it will take you nearly 140 years (yes, really – see the rule of 72).
It matters for the financial services industry too: every time it sees a woman with cash it sees one of the things it objects to more than just about anything else in the world: fees forgone. How can it keep profits growing at the speed to which it would like to stay accustomed if the ladies won’t hand over their hard-earned cash at the same rate as the chaps?
With both these things in mind, I bring you good news: this problem might soon disappear. At a recent event to discuss the matter held by peer-to-peer lender Ratesetter, Mick McAteer of the Financial Inclusion Centre mentioned to me that most of the studies into gender and investment fail to control for wealth levels, professional status in the workplace and such like. Do that, as one study for the German Institute for Economic Research attempted to in 2009, and a good part of the gender difference vanishes: it even turns out that once they have started investing, “males and females allocate equal shares of their wealth to risky assets”.
It’s interesting stuff. And assuming it is accurate for UK investors, this means the financial services industry has a slightly different job on its hands from the one it thinks it has. If the investment gap closes automatically as the gender pay gap closes, then the industry might be better focusing on getting rid of ththat instead. The cause of their troubles rather than the symptom.
Luckily, there is an easy place it can start from — its own firms.
According to data from Citywire, a mere 7% of fund managers around the world are women. Between them they have exclusive control over only 4% of the assets under management (another 10% are under mixed management). There’s a way to go there.
This brings me neatly to something I’ve been meaning to mention for a while — diversity. I’m (obviously) a great believer in gender equality and I’m always thrilled to see women making it to the top (I’m rooting for Hillary). But until quite recently, I was thoroughly unconvinced about the idea that diversity should be an end in itself — that groups, companies and perhaps even fund managers might do better if we insisted they were run by very diverse groups of people. Better, I thought, to look at people in isolation and just hire the best one.
Then I heard US academic Katherine Phillips (senior vice-dean at Columbia Business School) speak at a conference and I changed my mind. The first thing she did was to ask us to turn to the person next to us and try to find the main differences between us. This is oddly difficult.
I turned to the person next to me (a white woman not that far off my age) and we tried. We really did. But our social defaults took us back and back again to looking for the similarities between us instead. We talked not about how our children are different ages, but how close they are in age. Not about how we live in different places, but how near we live to each other. Not about how different our jobs are, but about how they cover the same skills. You get the idea. We want to be the same as other people, not different.
Phillips then told us about her research. She’s taken lots of different groups, some homogeneous and others diverse (by age, gender, ethnicity, etc), given each member a different piece of information on a particular problem, and then put them in a room with that very problem to solve. Time and time again the diverse groups outperformed the homogenous.
It seems that when we see people who are the same as us we make an implicit assumption that they already know what we know. But when we see people who are different from us we assume the opposite, so we are more likely to share relevant bits of information and to question them for information.
Diversity, says Phillips, “acts as a trigger”. It makes people work harder and question more. It creates more “conflict of opinion, of perspective” and that makes getting together the information to come up with the “right answer” more likely than it would otherwise be (despite the odd fact that the diverse groups tend to have less confidence in their final decision).
So it’s hard to get diverse groups together (we look for the same, not for the different) and it can be uncomfortable to be in those groups (the lack of confidence in results). But it makes for better outcomes. Yet another reason for our fund management industry to become a little more diverse (over to you, boys) and then perhaps to add “how diverse is the board?” to the checklist of questions they say they ask themselves before they invest our money in other companies.