The older woman investor is no longer an anomaly. In fact, this group’s
numbers are growing so fast, it is questionable how long it will even be
considered a niche market. Working successfully with older women presents both
opportunities and challenges for advisors. These women may easily become your
most loyal and satisfying clients. They may also seem difficult or
time-consuming if you can’t adapt your practice to incorporate their unique
needs, both financial and personal.
Who is the older woman?
These women were born before the baby boomers. (Baby boomers never consider
themselves old—they will barely acknowledge that they have reached middle age.)
Consider that many of these women have a shared experience that included a world
war requiring considerable personal sacrifice, not to mention being reared by
parents who had just come through a great economic depression. They usually have
adult children and grandchildren, and these relationships will be very important
to them. In many cases, an adult child will participate in the decision-making
process, at least initially.
The single older woman will traditionally be a widow, but it is becoming more
common to see divorced women in this group. Women of this generation paid the
household bills, but their husbands usually made the investment decisions. They
have experienced more social change than perhaps any other generation in our
history.
The bag lady syndrome
Their money may come from life insurance, inheritance, divorce settlements,
or personal savings, and there are many shared traits among these women. The
most universal of these is the “bag lady syndrome.” All—not just some, but
all—of our single women clients over the age of 65 have expressed concern or
anxiety about having enough resources to live comfortably for the rest of their
lives. This anxiety is as real for the multimillionaires who have nothing to
fear as it is for the less affluent, who must be very careful about their
spending.
Coupled with a lack of understanding of financial instruments and financial
markets in general, this leads many older women to invest far too conservatively
due to their intense fear of capital loss. Their aversion to loss can be so
strong that they are likely to panic and sell off portfolios at the first whiff
of volatility or never venture past the perceived safety of a bank CD. Most of
these clients will tend to have a little stash of cash somewhere “just in case.”
They will also tend to have multiple accounts at multiple institutions thinking
that this fragmentation equals diversification.
Their ideal advisor
Many of these clients have never managed significant assets before and have
little experience with investment advisors or financial planners. They will
typically rely on the advice of an accountant or, occasionally, an attorney.
More likely, they seek advice from their adult children or other women they view
as peers. Unlike many men, they rarely want multiple advisors competing with
each other on an ongoing basis for a larger share of their assets.
Your success with these clients will hinge on how well you address the top
three priorities of their decision-making process: relationship, relationship,
relationship. Women in this group will make decisions more on the basis of trust
and relationships than on analysis of data. They form this trust through the
strength of their referral source to the advisor, the level of interest the
advisor shows in their situation, and most important, their gut reaction to the
advisor.
There is no real evidence that the older woman client prefers other women as
advisors, but women advisors often have an edge in establishing a bond of shared
experience and trust. Older women can work well with advisors of any age as long
as this bond of personal trust can be established.
Think conversation, not presentation
A common mistake advisors make with these older women is to consider them
slow and indecisive. While older people in general may need a bit more time to
process unfamiliar or technical information, they are by no means daft. They
also tend to be at their best earlier in the day, so an early-morning
appointment is usually better for them. Remember that they transition from one
thing to the next more slowly than the usual multitasking advisor. Allow them
time to settle into your office, and don’t forget the polite exchange of
pleasantries that is so important to this generation. In fact, many of them will
think it rude to jump into business before inquiring about their families.
When it is time to discuss business, follow these golden rules:
- Focus. Cover no more than three or four concepts in any one
meeting. Actually, almost anybody of any age will get confused by introducing
more. - Use a written agenda with space for them to take notes. This
will help them progress through the meeting and improve their retention later. - Use real-world examples. Tell stories that convey the
concepts you are presenting. Stories will increase their understanding far more
efficiently than a stack of glossy handouts. - Be plainspoken. Scrub your conversation of as much industry
jargon as possible. It will only serve to reduce their retention later. Again,
use anecdotes whenever possible. They will remember the point of the stories,
but not always the details of the issues involved. - Be respectful. Never overlook that the decisions are theirs
to make. Even if they trust you and defer to your judgment, no one enjoys being
treated in a condescending manner.
These ladies enjoy being treated to lunch but will be on their guard if they
feel that you are trying to sell them something over a meal. Choose your
restaurants carefully, for many are too busy and noisy for older people to
concentrate on your conversation easily. A normal business meeting should take
place in a quiet, comfortable office. Use a lunch appointment to celebrate their
birthday and to build and maintain your personal relationship, and refrain from
discussing their financial situation in a public place. We rarely meet in our
clients’ homes unless they are ill, to avoid creating the stress of having to
entertain a visitor.
Enemy number one: Inflation
There are three important investment concepts for these clients to
understand, and advisors need to take the necessary time to explain and
reinforce them. The most important concept for your older female client is the
certainty of inflation. Inflation erodes a portfolio’s ability to protect a
standard of living.
We compare inflation to high blood pressure. You can’t feel it on a daily
basis, but over time the damage can be devastating. Inflation is the number one
enemy of any investor, because it is so certain. These clients can easily tell
you what they paid for a gallon of gas when they first started driving.
Comparing that with today’s prices will help them to understand how real
inflation is. You will need to increase their understanding of inflation so they
can appreciate the importance of owning assets, such as stocks and bonds, that
have historically exceeded the rate of inflation over time.
Find their sleep number
Try presenting this need for equity exposure by talking about their sleep
number. What percentage of equities can they own without losing sleep over the
day-to-day volatility? Talk about the historical best-case/worst-case returns
with various mixes of equities in a portfolio. You could also discuss the
worst-case returns over various holding periods, such as one, five, and 10
years, to illustrate the difference between short-term volatility and actual
loss of capital.
In most cases, our firm’s portfolios will contain a high-quality bond ladder
to cover projected withdrawals for at least five to seven years, with adequate
cash reserves for one year. This is usually enough of a security blanket to
allow even the most timid of investors to allocate at least 25% to 30% of their
portfolio to equities.
The benefits of diversification
This will be the easiest concept of all to explain, since they have believed
from childhood not to put all their eggs in one basket. Help them understand
that five mutual funds tracking the S&P at different fund families is not
the same as exposure to all of the different stocks in the U.S. market,
thousands of stocks in established international markets, and stocks in the
emerging markets of the world—not to mention the high-quality bond ladder.
As a firm that believes there are three factors explaining investment returns
(exposure to equities, exposure to capitalization size of companies, and
exposure to high book-value-to-market-value companies), our portfolios typically
contain broadly diversified mutual funds to allow for a targeted exposure to
each asset class. When these clients understand how little exposure they have to
any one company—such as an Enron—they become increasingly comfortable with the
idea of owning stocks.
Income vs. cash flow
The concept of total return vs. income yield is also critical for your older
women client. She thinks she needs income from her investments, and she will
tell you that she doesn’t want to touch the principal. What she really needs is
predictable cash flow, and you will need to educate her as to why it doesn’t
matter whether that regular cash flow comes from interest, dividends, or
realized capital gains. This deeply held aversion to touching the principal must
be educated away before you can ever hope to overcome it. Help her focus instead
on her withdrawal rate as a percentage of the portfolio, and the likelihood of
that withdrawal rate being sustainable over time.
Another strategy is to make the withdrawals as automatic as possible. Some
advisors wait until their client calls each month asking for money. Then the
advisor asks the client, “What do you want to sell?” This creates an
unacceptable level of anxiety in the older woman. Rather, establish a regular
monthly or biweekly transfer of cash directly to their local checking account.
This predictability helps them maintain the same level of control they had when
paychecks were funding their lifestyle. It also prevents their portfolio from
turning into an ATM machine.
High touch rather than high performance
These women are more concerned with the quality of their relationship with
you and how well you address their anxieties and concerns than with market
performance. Advisors often overlook how stressful changing advisors can be for
any client, especially the older woman. Consider designing a “First 120 Days”
program for these clients. Once the forms are signed and the assets transfered,
schedule a meeting for the first week of the next month so you can review with
them the statement they will be receiving from your custodian. Even experienced
investors will have questions about the statement from a new provider.
Schedule yourself to touch base with your new client by phone after she
receives the second monthly statement to make sure she doesn’t have any
questions. Then schedule a meeting to deliver and review the first quarterly
performance report in person. This will go a long way toward reinforcing her
good decision to hire you. In the meantime, e-mail or call her whenever money
moves into or out of her account during these first months. Knowing that a
deposit has been received or that funds have been transferred to her bank
reduces a lot of their anxiety.
These older women may require a bit of extra time and care, especially in the
initial phase of your relationship; however, you will find that with a little
adaptation to their needs, they can become some of your most profitable and
satisfying clients. They are quick to refer those advisors they trust to their
friends and family, and we find that they truly appreciate our efforts on their
behalf.
