Women’s crucial role in the future of Europe’s investment market

Wealth is on the move, with trillions of dollars’ worth of assets set to shift from the Baby Boomer generation of the post-World War II years into new hands over the coming years. And while this handover, dubbed the Great Wealth Transfer, represents a significant shift of economic resources, more importantly, it will hand women unprecedented financial power and make them major allocators of capital.

In Europe alone, the transfer involves the migration of around €3.5trn in business and personal assets by 2030, according to a forecast by Dutch banking group ING. Women will be the major beneficiaries for several reasons. For one, their longer average life expectancy means they are likely to outlive their partners and become the primary recipients of deceased husbands’ estates. At the same time, a growing number of women have become independently wealthy in high-paying executive positions or have launched their own successful entrepreneurial ventures.

McKinsey estimates that women currently control about one-third of all retail financial assets in the EU, a share that it expects to rise to between 40% and 45% by the start of the next decade. This significant gender redistribution of private capital has major implications for how wealth will be deployed, the provision of advice, the design of financial products and, not least, subsequent economic as well as social developments.

Women in finance: different perspectives

In general, women manage wealth differently from men. Research findings suggest that women are not less commercially minded than men, but rather their decision-making encompasses considerations other than the purely financial. And this thinking is likely to be longer-term given that women’s longevity necessitates wealth planning for extended time horizons.

In addition, multiple studies suggest a contrast in women’s appetite for risk. While men are more likely to invest in assets such as shares and crypto-currencies, women display preferences for bank products and real estate. And while men often focus on maximising returns in the belief that they can beat the market, women tend to be less speculative overall in their investment approach.

It’s a strategy that can pay off – a recent pan-European equity investment analysis conducted by Sweden’s financial regulator found that on average female investors obtain a slightly higher return than men. This could be precisely because women don’t overtrade but rather reap the benefit of a longer-term approach to market fluctuations.

Women are more likely to consider environmental and social factors when making investment decisions. Women expect financial returns but they show greater interest in sustainability issues and ethical concerns, and are more likely than men to increase ESG allocations. Women generally engage more in philanthropy than men, with charitable acts focused on social impact, health and gender-related giving.

Follow the money

The coming migration of wealth represents a significant opportunity for advisers. McKinsey reports that more than half of female-controlled assets remain unmanaged, with women tending to keep their money in bank deposits rather than deploy it in more active investment instruments. This is capital that is available to be mobilised and represents a major opportunity for wealth managers and advisers.

However, private banking and wealth management needs a reset. The business remains wedded to a traditional model featuring a male asset owner as a family’s key decision-maker, with a female partner playing a secondary and primarily domestic role.

Financial industry professionals have largely treated women as specialist segments for periodic targeted campaigns, but few institutions have implemented significant structural changes to address their specific requirements. There’s now a real need to bring women in from the margins, to treat them as core clients.

Little wonder then that women are less inclined than men to engage with advisers. The wealth industry’s predominantly masculine, jargon-led approach can be alienating, leading female investors to believe that their specific needs and preferences won’t be adequately addressed. There are obvious solutions, and many wealth managers are looking to hire more women for client-facing roles as well as training male advisers to move away from financial performance-centric communications towards a more gender-relevant approach.

It is not just a case of moving with the times; firms’ survival depends on their adaptability and the shift of wealth towards women is a reality that is already dawning.

Relevancy is critical. Investment products must be recast to focus on security rather than on risk and return, to meet female life-expectancy concerns. Offerings should take into account the potential for complex life journeys that include parenthood and maternity-induced career breaks, becoming a widow, caring for elderly relatives, navigating divorce and handling inheritance.

As women are more likely to hand over wealth in their own lifetime to provide financial assistance to family members as well as to the wider community, it’s important that they receive reliable long-term planning support. In parallel, financial institutions need to offer strategies dedicated to building equity portfolios based on sustainability values that chime with many women’s ethical concerns.

Beyond wealth preservation

Through enhanced adviser engagement, static financial holdings such as cash savings could be redeployed to increase the total volume of capital invested in markets. Much of any extra flow will undoubtedly head towards longer-term, values-based – rather than speculative – strategies, representing a significant switch in allocation.

The female investor may direct her capital to lower-return segments that have previously been underinvested, including the care economy, as well as sustainability initiatives and also female-led business that are often hindered by prejudice from lenders. Gender-focused philanthropy initiatives could direct more funds to social enterprises such as community organisations, arts and healthcare projects.

Increased female wealth and financial participation could play a critical role in achieving the ambitions of the EU’s Savings and Investments Union initiative. The long-debated strategy – previously known by the much less welcoming title of Capital Markets Union – aims to bridge a funding gap estimated at hundreds of billions of euros by supporting a shift away from bank deposits to equities, corporate bonds, investment funds, private market allocations and entrepreneurship in order to boost longer-term investment in areas such as renewable energy, technological innovation and, in an increasingly fraught geopolitical environment, defence.

“The SIU aims to create better financial opportunities for EU citizens, while enhancing our financial system’s capability to connect savings with productive investments,” the European Commission declared in a policy document published in March.

With a more diverse investor base including women’s new wealth resources, the SIU could help deliver faster economic growth, greater innovation and increased economic and financial resilience.