When it comes to jobs occupied by women, the one with the biggest gender income gap is financial advisor. Women who work as personal financial advisors command median weekly earnings of $953 compared to the $1,714 men receive, for full-time work. That's according to a recent analysis of U.S. Department of Labor data by the Institute for Women’s Policy Research (IWPR).
That difference in pay translates to a 44.4% wage gap between female and male financial advisors – women in the field earn about 56 cents for every dollar earned by a man in the same occupation. The IWPR also reported that women represent about 35% of all personal financial advisors, and the CFP Board says they make up only 23% of CERTIFIED FINANCIAL PLANNERSTM (CFPs), one of the field’s most prestigious professional designations.
So where does this wage gap come from? Some problems that depress women’s pay in other fields also hurt those who work as financial advisors: Many women prioritize work/life balance over career advancement, and can miss out on salary increases if they don't specifically ask for them. Others are unique to the industry and have to do with the ways advisors offer counsel and get paid, as well as the field’s continued male dominance.
Here are some reasons why professional financial advisors think women earn less than the men in their field.
Relationship vs. Transactional Approach
“Most women in my field tend to work very differently from our male counterparts,” says Annalee Leonard, an investment advisor representative specializing in retirement and legacy planning with Mainstay Financial Group in Pensacola, Fla. Men, says Leonard, tend to take a transactional approach focused on serving as many clients and selling as many products as possible. Women, on the other hand, “really get to know our clients – their needs, goals and dreams – and we form a relationship with them and base our recommendations on that deeper understanding.” Instead of opening the conversation with a potential client by asking how much money he or she has, Leonard says she tries to find out about her client’s life, family and goals; she’s more concerned about what is best for her customers than about getting a bigger paycheck.
This kind of relationship approach is time consuming and means managing fewer accounts and probably earning less money. According to Leonard, while she may be more likely to retain her clients than a transaction-focused advisor, she’s not likely to generate bigger profits. Not only will transaction-focused advisors earn higher amounts in commissions from week to week; they will also likely get added promotions and incentives throughout their career. (For more, see The Best Financial Careers for Women.)
Lack of Role Models and Mentors
There aren’t enough role models and mentors for female financial advisors, nor are there enough women in the field to advocate for their female colleagues. Successful role models help less experienced women see themselves rising through the ranks and elevating their careers, while mentors guide them in how to do it. Advocates help promote their female colleagues’ contributions and accomplishments, which can lead to greater visibility with supervisors as well as to promotions and higher pay.
“Financial services is a male-dominated field,” says Giana Armano, a registered investment advisor with Flagship Private Wealth in Woburn, Mass. “When I attend industry events, I am often the only female advisor in the room.” Paul Ruedi, CEO of Ruedi Wealth Management in Champaign, Ill., echoes her observations, saying that when he attends advisor conferences usually 90% of attendees are white men in their mid-50s. (For more, see How to Get More Women Into Financial Advice.)
Perceptions of Success
“Among all the reasons inequality in pay exists, perception still remains one of the strongest forces, and this is especially true in the financial services industry,” says Katie Calagui, director of talent management at Hewins Financial Advisors in Redwood City, Calif., a firm at which 45% of the advisors are women. “Financial services has historically been a male-dominated career and culture. Accepting women as driven providers with equal levels of talent and technical knowledge in financial advice remains a difficult hurdle to overcome in an industry still dominated by the Wall Street culture of overconfident, risk-seeking behaviors more commonly attributed to men.” As a result, she says, traditional stereotypes are dying a slower death in the advisory business than in other fields, and the industry’s reputation has made it difficult to attract female talent, putting less pressure on fixing the pay gap.
Calagui, like Leonard, says that the way women prefer to offer financial advice has contributed to their lower pay: “The women who have entered the field recently have shown a preference for long-term financial planning with a prudent investment approach, and as a result have foregone the higher compensation earned by professionals who mange high-risk investments or advisors who facilitate poor investor behavior. Service, integrity and acting in their clients’ best interest sadly doesn’t pay as well as selling expensive brokerage products.” (For more, see The Rise of For-Women Advisor Practices.)
Not Charging Enough
It sounds obvious, but for independent financial planners who are able to set their own rates, not charging enough could be a big reason why women are earning less than men for offering professional financial advice. “What advisors charge is never an issue of what people are willing to pay; it is what an advisor is willing to work for,” says Ruedi.
Nancy Butler, a 25-year financial planner turned business coach, says she has seen more women than men who lack confidence in the value they bring to their clients. The result is that they charge lower fees than they should. “I have often seen the extensive knowledge and great advice female advisors give their clients,” says Butler, “but when I see what they charged for that advice, it is far below what it should be. I have even seen this in advisors who have extensive training and designations in their field and many years of experience.”
Butler says that when she discusses this problem with these women, they say they don’t feel comfortable charging more and are afraid of losing clients. However, in some cases advisors are undercharging by so much that it costs them more to produce the work than they earn after factoring in their own time, staff time, equipment usage, printing costs and other business expenses. “Clients only have a problem with the fee if they feel what they are getting is not worth the price,” says Butler. “If the advisor truly believes in the value they will be providing the client for the fee charged, they will have no trouble helping the client to see the value as well.” (For more, see Women: Invest in Your Financial Literacy.)
The Bottom Line
No single factor explains why the discrepancy between what women and men earn as financial advisors is so large, but several things seem to contribute. A long-term, in-depth, relationship-based approach to advice that’s in the client’s best interest can mean earning less money than a transaction-based one that might not be in the client’s best interest. A lack of female role models can hamper women from advancing. Further, some women’s lack of confidence in their skills can hurt them in two ways: They don’t charge enough, and they can seem less knowledgeable because they won’t make bold predictions or promise things they can’t deliver – in other words, say what the client wants to hear.
It is up to everyone in the industry to make the changes that will allow female financial advisors to gain earnings parity. A greater awareness of the wage gap, and the increasing need for more transparency, can help with that process. (For more, see Why Women Choose Women for Financial Advice.)