Women are more risk averse than men, although the traditional gap between the sexes is shrinking, according to new research.
Henley Business School has published the pioneering study, using data provided by award-winning financial planning company Dynamic Planner, based in neighbouring Reading.
Four members of Henley Business School’s faculty and staff exhaustively examined more than 500,000 UK cases involving financial advisors and their customers. It found that men are more tolerant than women concerning their attitude to investment risk – but revealed that the gender gap is closing and is likely to close completely within 20 years.
Trends mirror one of the hottest items on UK news agendas in 2017 – the closing but still significant gender pay gap. Both have positive ramifications for women today as they prepare and plan for retirement. Women have almost halved the gender pay gap for full-time UK employees to 9.1% in the last 20 years.
Henley Business School Professor Chris Brooks, one of the authors of the study, said: “Our results have important implications for the pensions which women are likely receive in the future.
“As well as living longer, women have traditionally tended to invest less and in lower risk funds than men, which typically provided them with lower returns. If women are becoming more risk tolerant over time, this will hopefully bolster their pension pots in the long run.”
Dynamic Planner was founded in 2003 and is the UK’s most widely used digital risk profiling and financial planning service. Its market-leading position means 2,000 financial advisers trust it every day with customers’ investment portfolios and how they should be positioned in relation to their responses to ‘attitude to risk’ (ATR) questionnaires, which provided Henley Business School with the data behind this study.
The research was funded by the Economic and Social Research Council and finds that self-assessed levels of investment experience primarily explain the difference between men and women’s comparative attitude to investment risk.
The study is the first to show that women - when they are more risk tolerant and are highly risk averse - are more influenced by financial advisors when they select a level of risk for their investment portfolio. In comparison, men, after taking professional advice, are more likely to select funds at a level of risk closer to their attitude to risk according to their ATR questionnaire answers.
Heather Richards, Dynamic Planner Senior Actuarial Analyst, said: “We are very proud to have been able to contribute to this important research. It demonstrates the value of an objective risk profiling process, while highlighting the role advisors can take in ensuring good outcomes for all.
“Our role in cutting-edge research such as this will further inform any future enhancements to our tools.”
The study also analysed risk tolerance in married couples when they make investment decisions together. The research shows that when one partner has a higher risk tolerance, the final risk level selected is most likely to reflect that. However, when the woman is more risk tolerant, she is more likely to have to compromise than when the man is more risk tolerant.
Customers complete the ATR questionnaire before Dynamic Planner scores their attitude to investment risk on a scale beginning at one (being the lowest) and rising to 10 (the highest). Their chosen investment portfolio is then matched to funds which Dynamic Planner too ranks on a scale from one (the lowest risk) to 10 (the highest).