Women and financial advice: closing the gender gap

In summary

Dr Sujata Visaria is Reader in Finance at Bayes Business School, City St George’s, University of London. Since completing her PhD in Economics at Columbia University, Dr Visaria’s main research focus has been on understanding the impact of financial and information challenges for low-income people in Asia, and possible solutions.

Financial security should be built on trust, good guidance, and sound decision-making. Yet research by Dr Visaria has revealed that women are often disadvantaged when seeking financial advice.

The project revealed that financial advisers supporting people to plan for their retirement gave better advice to men than to their female clients. Given the central importance of such financial planning, the potential impact of the disparity revealed in her work is alarming.

What did we explore and how?

Dr Visaria and her team studied two types of financial advisory firms:

• Securities firms, which focus on buying and selling stocks.
• Financial planning firms, which offer broader guidance on products like insurance and pensions.

The research team discovered that securities firms, while offering weaker advice on average, did not appear to discriminate between male and female clients. By contrast, financial planning firms provided stronger advice overall, but the quality of guidance shifted depending on the gender of the client.

Dr Visaria and her co-authors suggest that the bias could be due to financial planners’ well-founded assumption that women are still less informed about investments and financial services than men.

As they seek to build a long-term professional relationship with their clients, Dr Visaria says, the planners may be more cautious when advising men as they are more likely to spot flawed suggestions.

Benefits and influence of this research

She suggests much comes down to the levels of knowledge about financial products.

Although the research was carried out before the widespread adoption of AI, Dr Visaria says, it’s unlikely tech innovation will resolve the problem.

The influence of this research extends beyond finance. It speaks to broader questions of equality in professional services, where unconscious bias can shape the quality of advice individuals receive. Ultimately, this work underscores the need for vigilance and reform in the financial advisory sector.

Our work suggests that women were receiving worse advice because they were less knowledgeable. AI has improved access to financial investments for many low-knowledge customers, many of whom cannot afford financial losses. But AI does not address the underlying problem of low financial knowledge.

Women investors should be cautious before following the financial advice they receive. Ideally women would understand the principles of finance and would detect and reject bad advice. But even if not, they could be curious about their advisers incentives: does their compensation depend on the value of the clients portfolio, or does it depend on the frequency of trades they advise her to make? The advice is more likely to be high quality when advisers' incentives align with the clients.