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Older, female, richer investors more likely to get advice

Women, older investors and those with more funds under management tend to receive more financial advice than other New Zealanders, a new research paper has found.

Monday, May 12th 2014, 6:00AM 1 Comment

by Susan Edmunds

Annie Claire Zhang, a researcher at AUT, has written a paper called Financial Advice and Asset Allocation of Individual Investors, soon to be published in the Pacific Accounting Review.

In it, she analyses how New Zealanders use financial advice on their KiwiSaver accounts by looking at 400,000 individual KiwiSaver members.

Ten per cent received advice from an AFA, which she said was low by international standards but in line with what had historically been seen in New Zealand.

Her data did not differentiate between bank-provided advice and that received from independent financial advisers. “I can’t tell if they sought the advice or if someone from the bank called and said your balance is X, it’s time to think about this.”

She found through her research that female investors, older investors and those with more invested were most likely to have received advice. “That prompts the question, why aren’t men those relatively younger investors or with less funds under management getting it?”

The probability of receiving advice jumped up when balances were between $20,000 and $30,000.

She also found that those who receive advice tended to hold riskier assets than non-advised investors, less cash and bond assets and more property and equity asset classes.

Men who receive advice invest more in riskier assets, she said. Men who receive advice hold 49% of their asset allocation in equity assets compared with only 42% for men who do not receive advice.

Women who receive financial advice also invest in riskier assets than do women who have not received advice (47% in equity investment compared to 41% in equity investment, respectively), however, women hold marginally safer assets than men.

Zhang said although older investors who received advice tended to hold riskier assets than their peers who did not receive advice, they still held fewer equities and property investments than younger investors. “They must also be switching out of riskier asset classes at ages closer to retirement.”

She said there was no clear indication that advised accounts performed better, although the data available is limited to the relatively small number of years that KiwiSaver has been operating.

“During the global financial crisis in 2008, advised accounts underperformed advised accounts by 2.52%. This finding, however, is unsurprising owing to the fact that advised accounts tend to hold more equity assets than non-advised accounts.”

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Comments from our readers

On 12 May 2014 at 9:38 am Peter Urbani said:
It would be interesting to know the sex of the adviser also although I think it is safe to assume they were predominantly male. The advice given seems generally to have been to take on (slightly) more risk.

This is consistent with a lot of behavioral research which indicates that women are more risk averse than men and tend to make better risk decisions as a result.

One of the behavioral / evolutionary reasons postulated for this is that overconfidence bias ( an otherwise useful evolutionary / survival trait )causes us to overvalue the knowledge we do have and overestimate its probability of being correct thus undervaluing outlier or tail probabilities.

It has been suggested that men as evolutionary 'hunters' are more goal focused and hence more prone to underestimating the degree of dispersion whereas women as evolutionary 'gatherers' are more aware of the wider range of outcomes / dispersion and hence tend to be a bit more cautious.

Bottom line is that we need more women in finance.

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