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Gail MarksJarvis: Financial advisers strengthen focus on attracting female clients

McClatchy-Tribune Information Services

March 16, 2015


They are swarming around women and trying to perfect their pickup lines.

Financial advisers want women clients, and consultants are busy suggesting ways to woo them. Firms ranging from Fidelity to BlackRock are researching women’s attitudes, and advisers are inviting women to all-female seminars. After refreshments, the advisers frequently imply that someone in a dress will be the most attentive to women’s concerns.

It makes sense for advisers to do this. More women than men now go to college and complete college, and their pay is rising. And since women tend to live longer than men, widows of wealthy husbands or women with nice divorce settlements make lucrative financial advice prospects. Broker conferences often highlight a Boston College estimate of $59 trillion in wealth passing to the next generation by 2052. Women are expected to be the major recipients.

Besides the lure of women demographics for advisers, the financial services industry has a reason to be hungry for new clients. Their business has come under pressure from Internet services such as Betterment or WealthFront, which sell basic financial help cheaply to an audience happy with no-frills.

Yet, advisers try to distinguish themselves by selling the personal touch. That can be appealing to women who are insecure about their ability to invest money. A survey by the American Psychological Association shows insecurities run so deep that 40 percent of women feel uncomfortable even talking about money.

But the combination of overhungry brokers and naive clients can turn out badly.

"Women could be preyed upon," said Annamaria Lusardi, a George Washington University professor who studies financial literacy and has found women far less knowledgeable on personal finance than men on average.

That means that women may not realize that a person they think is advising them well isn’t really catering to your best interests. Brokers who call themselves financial consultants may push investments and insurance that pay them high fees and commissions, while they never mention cheaper products that might even be better.

A study by the White House Council of Economic Advisers recently found that individuals are losing $17 billion a year in their retirement accounts because financial advisers are choosing investments that pay them higher fees and commissions.

On an individual level, consider a person who enjoys low costs of just 0.18 percent in mutual funds rather than the 2 percent in fees and commissions a financial adviser might prefer. If the woman invests $10,000 and earns 10 percent a year on the investments in the low-cost fund, in 35 years she will have about $264,000. But if she pays 2 percent and the investments earn 10 percent, she will end up with just $138,500.

Worried about Americans running out of money in retirement, the federal government is considering rules intended to make brokers put the clients’ interest ahead of theirs. That supposedly would keep brokers from selling high-commission funds and annuities when cheaper ones would work better.

But brokers, who you may think are giving you untainted advice, have been fighting this feverishly. Brokers are paid to sell, not necessarily to give you the best advice despite titles like consultant. They are different than registered investment advisers, who are fiduciaries and must put your interests first.

That means you must be on your toes now. If you are invited to a women’s seminar, go and learn. But before turning over money, ask whether the adviser is paid by fees, commissions or both, and whether she picks funds from a restricted recommended list (maybe high-fee favorites). Your adviser should be free to pick low-cost funds, with fees closer to 0.18 percent than 1 percent. Ask the adviser to assume your investments will earn an amount, maybe 7 percent a year, and have her estimate in dollars what you will lose in fees that year compared with a "comparable index fund." If she balks, find another adviser at http://www.plannersearch.org/Pages/Home.aspx.

The adviser may say the higher cost fund is worth it. Test the assertion: Ask the adviser to find a Morningstar report and point to the return, or earnings, from the fund she’s selling. Then, in the report, ask her to show you what the comparable index earned last year, over five years and 10 years. If the index — a cheap, simple investment — earned more than her favorite, you have to ask why she’s selling the expensive fund.