The article “The Reason Why Investing Decisions Shouldn’t Be Left To Only One Spouse In A Partnership” was originally published on Financial Post on June 25, 2018.

Married men and women need to work together to arrive at a happy medium as it relates to investment risk, a recent research paper shows

Men tend to make riskier decisions than women. This phenomenon has been observed and documented in different contexts, including driving, health, and personal finance.

The Henley Business School explored gender and attitude to financial risk in a recent paper entitled “Experience Wears the Trousers.” Their findings provide insight for men, women, couples, and their advisers.

The Henley paper used a database of more than 500,000 interactions between clients and their financial advisers to confirm their assertion that women were less tolerant of risk than men. They did note that women’s risk tolerance appears to have increased over time and is closing the gap relative to male investors.

This may not be surprising given the slow, steady societal evolution towards gender equality. Women may someday have comparable risk tolerance to their male counterparts.

Low risk tolerance for women can ironically be risky, given they tend to retire earlier than men (about one year earlier on average according to Statistics Canada) and they tend to live longer (about three years longer on average according to Statistics Canada). This suggests a woman’s retirement nest egg may need to provide for them for four more years than a man on average and many need to be invested more aggressively for every dollar saved.

Henley’s research did not find a single study that supported women being more aggressive investors than men. Men were also found to recover more quickly to an economic shock like a stock market downturn.

Hormonal differences (nature) and societal pressures (nurture) appear to play a factor in men’s more aggressive financial decision making.

However, when it comes to investment performance, studies such as Barber and Odean (2001) have found that male investors tend to underperform their female counterparts by about one per cent per year. Higher risk should result in higher return, but male bravado — in the form of more frequent trading and attempts to time the market — were examples of reckless risks that may lead to lower returns for undisciplined male investors.

Based on the results of the Henley research, married men and women need to work together to arrive at a happy medium as it relates to investment risk. It is important to distinguish between risk in a balanced investment portfolio (asset allocation between stocks and bonds) and risk in the management of an investment portfolio (frequency of trading, speculative investment selection, inadequate diversification).

Risky portfolio management techniques — whether those of a do-it-yourself investor or a professional portfolio manager — may not necessarily generate higher returns over the long run.

The Henley paper found that financial advisers are more inclined to recommend lower-risk investments to women than to men with similar risk tolerance questionnaire scores. This practice suggests that advisers may be subconsciously biased towards recommending lower risk investments to women due to gender stereotypes.

This is particularly concerning given that earlier retirement ages and longer life expectancies mean a woman’s investments may need to last longer than a man’s and that, if anything, the bias should be towards more aggressive, not less aggressive investments.

When working with couples who have different risk tolerances, advisers are more likely to recommend an asset allocation that is closer to the man’s risk tolerance than the woman’s. This is suggestive of adviser gender bias and probably also related to the prevalence of men who work in the financial industry. Only 31 per cent of Canadian securities agents, investment dealers, and brokers were women in 2016, according to Catalyst.

Experience seems to be the most important factor not only to increase investor risk tolerance, but also to mitigate gender biases towards female investors. According to the authors of the Henley paper: “When the wife’s job is more prestigious/senior than that of her husband and in cases where she is more experienced and knowledgeable about investing than her partner … it is the partner with the greater investment experience who ‘wears the trousers,’” whether male or female.

From a public policy perspective, this emphasizes the importance of financial education for women, especially young women. The findings also suggest the need to ensure couples are working together to achieve mutually agreeable long-term financial planning goals. Finally, advisers need to avoid gender stereotypes and encourage the less-experienced spouse, regardless of gender, to be more forceful and ensure a more balanced outcome focused on equality.

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.