Risk taking in the context of financial advice: does gender interaction matter?

Abstract

This study tests a gender threat hypothesis whereby having a financial advisor of the opposite gender results in gender stereotypical risk attitudes in portfolio choice. We employ a unique dataset of 1,621 advised UK investors, combined with information on the gender of their financial advisors. Confirming the hypothesis, our results show that men advised by a woman take more risk than when advised by a man. Women advised by a man adopt a more cautious approach than when advised by a woman. When the gender threat is alleviated, that is when women are advised by women, and men are advised by men, we found no gender gap in risk-taking.

KEYWORDS:

• Behavioural finance
• portfolio choice
• attitude to risk
• gender
• financial advice
• identity

JEL Classifications:

• G4
• G20
• G40
• D14
• J16

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Risk preferences measured through a survey could be biased, especially if they are collected months after the advising meeting. We will return to this point in our discussion in the following sections.

2 Several studies have argued that one of the reasons for the wealth gap between men and women − in favour of the former − is that women hold less risky portfolios than men. A lower risk portfolio is expected to offer a lower return in the long run (Sundén and Surette 1998; Neelakantan and Chang 2010; Jianakoplos and Bernasek 1998; Arano, Parker, and Terry 2010; Watson and McNaughton 2007).

3 Recent studies emphasize however that women’s presence at the board of directors has beneficial effects on the firms’ performance (see e.g. Chen et al. 2019, 2018).

4 For comparison, the UK national average disposable income of a household in 2019 was £35,300 (Office for National Statistics, 2019). The UK national median net wealth in 2016 is £259,400 (Office for national statistics, 2018).

5 Investing via a SIPP allows tax rebates on contributions in exchange for limits on accessibility to funds (Savings become freely accessible after the age of 55 and savings drawn down are taxable as income after the first 25 percent has been drawn down tax free). When investing via ISAs, up to a maximum of £20,000 a year, clients are exempt from income tax and capital gains tax. Very few clients have chosen to invest through other vehicles like Junior ISAs, Investment bonds, or off-shore bonds (i.e. less than 2 percent of our sample).

6 We also estimated our regressions using the logarithm of Investment amount. The results are very similar and do not change our main argument.

7 Including time frame dummies implies that we could have used ATR categories (ATR cat 1, ATR cat 2, ATR cat 3, ATR cat 4, ATR cat 5.) as dependent variables in the model. Doing so leads to the same conclusions. We do not report the results in this paper but they are available upon demand.

8 The male advisor interviewee reported “all my clients are recommendations from other clients, family members, friends”; The female advisor interviewee reported: “predominantly, I don’t do any networking or breakfast clubs (…), I don’t need to do a lot of that because my clients introduce other clients. […] Really, it’s looking after my existing clients, I get introductions from my existing clients.”

9 Ordered logit estimation of equation (2) provide the same results.

Additional information

Notes on contributors

Jerome Monne

Dr. Jerome Monne is Assistant Professor of Finance at ESSCA School of Management in France.

Janette Rutterford

Dr. Janette Rutterford is Emeritus Professor of Finance and Financial History at the Open University Business School in the UK.

Dimitris P. Sotiropoulos

Dr. Dimitris P. Sotiropoulos is Senior Lecturer in Finance and Associate Dean for Research, Enterprise, and Scholarship at the Faculty of Business and Law of the Open University in the UK.