The number of female financial advisors has decreased, yet women with wealth often look for female advisors, writes Dr Lilli Friedland of Executive Advisors in a guest feature for Family Wealth Report.

This is the second installment of a two-part feature by Dr Lilli Friedland, president at Executive Advisors, looking at the advent of the "women's economy" in wealth management. View the first part here.

Over the last few years, gender has become increasingly important in the financial advising world. The number of female financial advisors has decreased, yet women with wealth often look for female advisors. And this new focus is now intertwined with the advent of the “female economy.”

Affluent women use advisors and are more loyal to them than their male counterparts. The greater the woman’s wealth, the more she comes to depend on and trust the advisor.  As such, many of the world’s largest and most reputable financial institutions are increasing their focus on the needs of this changing client demographic.

Current status of female financial advisors

During the height of the financial boom, many financial services firms accelerated their hiring of young women. However, during the financial crisis, five times as many female advisors as male advisors were laid off. Young female financial advisors were most affected.  Currently, there are 9.6 per cent more men working in finance than 10 years ago, but 2.6 per cent fewer women.

The majority of women in financial services do not earn as much nor progress as quickly in their careers as their male counterparts. Catalyst conducted a study of graduates from elite MBA programs around the world and found that women continue to lag men at every career stage, beginning with their first professional position.

Additionally, biases and misperceptions still exist towards women in finance, which reduce a woman’s likelihood to receive a promotion. Most commonly, managers incorrectly believe that it is harder for women than men to balance work and family obligations. 

Bottom line impact

Feeling secure and fulfilled about a defined career path in the financial services industry materially impacts an individual woman’s earnings. However, between 2000 and 2007, the pay gap between men and women in the financial services industry continued to widen. In the general economy, women’s pay parity to men is 80 cents on the dollar, but in finance it is 60 cents on the dollar. It comes as no surprise, therefore, that many of the largest investment banks and asset management firms have found it difficult to attract and retain top female financial advisors.

Recent research has shown that a firm’s inability to retain female advisors negatively impacts the company. According to JPMorgan, for every woman who leaves the firm at the three-year analyst level, the company loses $250,000 of income. A firm’s inability to retain its female financiers also negatively impacts staff morale, and thus, overall productivity. As such, many of the top financial institutions are now focusing their resources on recruiting, developing, promoting, and retaining women in order to financially benefit the firm. Companies with a higher percentage of women in senior management roles have substantially better firm performance.

Employee surveys indicate that enriching talent development programs are the primary reason that employees remain with their employers. Compensation alone is not sufficient to retain top talent in the financial services industry. High performing financial institutions understand this well and distinguish themselves from their peer firms by advancing their talent and leadership development efforts.

However, women have a higher bar to overcome in talent development. In many instances, women have to overcome unspoken judgments about their personal lives, as well as gender biases, in order to receive job offers or promotions. Interestingly, 50 per cent of women in finance believe gender biases exist, while only 28 per cent of men in finance believe the same thing.

In order to attract and retain top female talent, many of the top financial institutions are establishing programs aimed at targeting and empowering high-potential women. Typically, these programs encompass talent and skills development, mentorship, sponsorship and networking.

Formal mentorship programs teach employees the informal customs of the company’s culture. Mentors provide valuable advice, feedback and evaluations. However, women’s mentors tend to have less organizational clout than those of their male counterparts. Studies show that mentors cannot actively advocate for female financial advisors at senior levels as frequently or with a similar impact as those of their male counterparts. Moreover, mentorship does not provide equivalent career benefits to women as it does to men.

A 2008 Catalyst survey of more than 4,000 full-time MBA graduates show that women are paid $4,600 less on average in their first post-MBA job, occupy lower-level management positions, and have significantly less career satisfaction than their male counterparts with the same education. Having a mentor raised a man’s salary in his first post-MBA job by $9,260, whereas having a mentor raised a woman’s salary in her first post-MBA job by only $661.

Most male and female financial advisors find their career mentors on their own by tapping into their personal networks. Men’s mentors tend to be more senior than women’s, which may help explain why they receive more promotions and higher compensation. A study conducted in 2010 shows that women who found their mentors through formal programs received more promotions than women who found their mentors on their own, by a ratio of almost three to two. Interviews of the women in the aforementioned studies reveal that mentorship helps promote better self-understanding and helps women identify ways that they may need to improve in order to rise in leadership.

Best practices: sponsorship

Of the corporate programs instituted, those which incorporate sponsorships are most effective. Sponsors are powerful individuals who use their own political and relationship capital to advance high potential employees. Most notably, sponsors increase access to promotions and developmental assignments for the financial advisors whom they support. Having a sponsor bestows career benefits of anything from 22-30 per cent, depending on what is being requested (e.g., pay raise or assignment), and whether a male or female employee is making the request.

For years, high potential female financial advisors have been over-mentored and under-sponsored compared to their male peers. Financial advisors who have sponsors – regardless of gender – report higher satisfaction with their career advancement, are more likely to take on “stretch assignments,” and are more likely to request compensation increases than their peers without sponsors.

Unfortunately, many female financial advisors tend to underestimate the critical role that sponsorship can play in their advancement throughout their career and across their industry. Even those women who realize the critical role of relationship capital may fail to effectively cultivate it, because they are concerned that they will appear self-serving or are fearful that they will be turned down.

Some of this reluctance is justified in that sponsorship often involves older, married males spending one-on-one time with younger, unmarried females and can be misconstrued as sexual interest. As a result, female financial advisors have not been advancing at or staying with their firms. Studies reveal that female financial advisors are more satisfied with mentorship, but need sponsorship more than any other program element. Without sponsorship, high-performing, young female financial advisors are likely to be overlooked for promotions, regardless of competence.

Effective sponsorship is only part of a comprehensive program that includes training and development, performance evaluation and succession planning. For sponsorship programs to be effective, companies must hold their sponsors accountable. Research shows that those female financial advisors who are fortunate enough to have sponsors are more successful in advancing their career trajectories and are more loyal to their employers than those who do not have sponsors.

Many leading financial institutions have purposefully implemented talent development programs for their female financial advisors. Deloitte was the Catalyst’s 2010 award winner for achieving a tremendous milestone: 1,000 female partners, principals & directors. Currently, 36 per cent of Deloitte senior managers are women, up from 23 per cent in the mid-1990s.

Another method employed by financial services firms to retain top female financial advisors involves deliberately staying connected with their advisors when they take a leave of absence with/without pay for family events (e.g. maternity/paternity leave). Many of the most successful firms continue to invite their advisors-on-leave to company activities as well as provide continuing education courses and other resources as needed. As a result, these firms engender strong loyalty and very positive morale when their financial advisors return to work.

Goldman Sachs reported that more than half of the alumni of their “Returnship” program hold full-time positions at the firm after taking temporary leaves of absence. JPMorgan’s informal program that targets and connects high potential female employees with sponsors contributed to women holding 23 per cent of senior-level roles and 54 per cent of mid-level manager positions at the firm. And recently, Deutsche Bank initiated the Atlas program in which 30 female managing directors are sponsored by members of the executive committee and meet with the CEO every year.

Attracting and retaining top female financial advisors requires involvement and support from the top down. When done thoughtfully and with sponsorship, not only do the individual women flourish, but so too does the institution’s financial performance.