Women create, control, and influence wealth. In the United States alone, women exercise decision-making power over $11.2 trillion. That's over 39% of the nation’s investable assets. Yet women continue to be grossly misunderstood by the financial services industry, likely because women are so underrepresented and undervalued in the industry itself.
There are countless financial firms that have made mention of women's issues such as the need to hire more diverse employees or the need to be more representative of the clients they hope to serve. They've marketed the fact that women live longer than men, but generally have less wealth accumulated for retirement, to gain traction with women investors. However, very few finance firms have ACTUALLY prioritized or put in the work behind the scenes to focus on specific challenges that exist for women beyond simply marketing to them in the hopes of gaining new business. In an industry where over 86% of financial advisors are male...
What are the questions you need to ask in order to truly determine if your values align with the investment firm you are doing business with?
1) What does the firm look like? More specifically, what's the gender and race breakdown of senior leadership teams?
Most firms verbalize that they care deeply about "diversity and inclusion," but these phrases are sanitized versions of race and gender conversations still yet to be had and...it's a catchphrase that means next to nothing if there is still little representation in key leadership roles. Ask yourself what commitment does a firm have to diversity and gender inclusion if it consists of 80-90% white men. Is inclusion just a passing afterthought or buzzword used on brochures and in their annual meetings or is it a true commitment backed by data? In other words: show us the receipts.
2) What is the compensation structure in your firm and does it lend itself to compensating women less than men?
This is a longstanding issue of nepotism in the finance industry. Often, men hired on are old friends or relatives of existing advisors from the same social circles. They're hired on generally at higher starting salaries based on prior compensation when transitioning from other positions (where we know, women are also paid on average less than men in many other industries). Male advisors often walk into mentorship and sponsorship opportunities and many are handed books of business as new associates. There are multiple studies showing that women in finance face the largest of all income gaps and it is due in large part to antiquated, industry wide hiring and compensation practices.
3) How does your firm handle workplace disputes and sexual harassment? Do you require employees to handle complaints through private arbitration?
First of all, what is private arbitration? Private arbitration is a mechanism for resolving disputes and preventing the dispute from being public. As of 2018, more than 55% of employees in the US (30 million women) had confidential arbitration clauses in their employment contracts. That means if a woman were to report sexual harassment, she’d be forced to seek damages behind closed doors, instead of taking the case to court — which protects both her employer and the person she accused from public scrutiny. (Update: On Thursday, March 3, 2022, President Biden signed into law the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021” (the “Act”), following the earlier passage of the Act by both the United States Senate and the House of Representatives).
Larger-scale employers who have been involved in more arbitration cases tend to have higher win rates and have lower damage awards made against them. A study from ILR School at Cornell University also provided evidence of a significant repeat employer-arbitrator pair effect; employers that use the same arbitrator on multiple occasions win more often and have lower damages awarded against them than do employers appearing before an arbitrator for the first time. Yes, you read that right: Employers who experience these complaints against them MORE frequently win more and pay LESS in damages.
4) Do you fund politicians? Does your leadership or firm contribute to political campaigns?
You can easily search via public records for contributions made. The people and policies the firm’s leaders support sends a message about their underlying values that marketing campaigns may not. If their values don’t truly align with yours, can they genuinely represent your best interests? Do you want your dollars funding politicians whose values directly conflict with your own? Something to consider.
5) Is your firm considered a fiduciary?
If the advisor hesitates or says, "no," this should spur a breakup conversation. A fiduciary is someone who is legally obligated to put your interests ahead of their own. Registered investment advisors (also called RIAs, like deMAURIAC) are held to a fiduciary standard. We have to give investment advice that’s in your best interest — always. We also have to disclose conflicts of interest and be transparent about important topics like cost. Other financial professionals, however, are held to a suitability standard. They can recommend any investments as long as they “reasonably believe” that the investment will fit your needs. Consider this: your advisor could recommend “suitable” investments that generate more commissions for them— even if they’re not the best investments for you and your goals.
6) How will you help me invest in things I care about?
Do you care deeply about topics such as gender parity and environmental sustainability? Is your advisor and the firm they work for vested in the same issues? Are they well versed in offering investments that are in line with your values? It's your money and you should be able to have a choice in how it's invested. Make sure the firm you work with can assist you in making informed decisions about where your money is going.
7) Does your firm have its own investment products?
Many finance firms have in house products that they generate more revenue from. They also collect revenue sharing fees from fund families that they have agreements with. Are you positive that the firm you work with is providing you with objective, research driven recommendations and investments that are in your best interest and not just in the best interest of the firm they work for? Ask about revenue sharing agreements with fund companies or internal revenue from funds created in house. You may not agree with all of the sources of where your finance firm generates revenue. For example: are they getting revenue sharing right now from fund companies that are heavily invested in defense weapons, those that have had human rights/labor violations, those fund companies that lack gender or racial diversity in their leadership, etc? What are those fund companies' actions when it comes to addressing gender pay discrepancies, pay transparency, climate and sustainability concerns, etc? Ask about where your financial planning firm generates revenue sharing from and what those company approaches are to the topics that concern you most.
8) How do you, the advisor, get paid?
Many firms charge advisory fees (a percentage of overall assets managed), however, many firms also charge transaction based commissions on certain products. These commissions are called "loads." Be aware that "loads" directly compensate the person who sells you the fund, and are often 3–6% on top of everything else you may be getting charged for. It is important to work with an advisor that will assist in reducing your overall expenses, not add to them with front and back end sales commissions. It is possible in the investing universe to avoid "loads." Your advisor should be able to explain all the different types of fees you might be charged if you invest with them, so that you can determine if working with that firm is truly in your best interest moving forward. This is especially important for women investors who, not only generally are paid less over the course of our lifetimes in many sectors, but also may take time out of the workforce to care for loved ones, while also living longer in retirement. You need to know how cost plays a part in what will ultimately be available for you in retirement. Is there a value being provided for that cost long-term or is it a trade-based commission for a more transactional relationship?