INVESTING FOR WOMEN
Watch those figures, girls!
Nicola Horlick says women will soon be richer than men, and should learn to look after their money When divorce is cited as a fast track to becoming rich, it’s time to pay attention. Even before the law lords’ recent controversial ruling in the Miller and McFarlane divorces which confirmed substantial alimony settlements for two ex-wives — the leading ‘Rich List’ compiler Philip Beresford told the BBC Money Programme that ‘Divorce is the hot new growth area for women making money.’ To the widespread gloom of wealthy spouses dissatisfied with their marriages, Lord Nicholls’s ruling on 24 May appears to back up Beresford’s claim — and catapults England far up the league of the world’s favourite divorce capitals. The best piece of advice I can give a poorer spouse facing divorce is this: file your divorce petition in England and be quick about it. But divorce is obviously not the only reason that women are forecast to own 60 per cent of Britain’s private wealth by 2025. We are doing well educationally, narrowing the infamous gender pay gap and achieving more seniority at work. There are higher levels of home ownership combined with soaring property values, and we have longer life expectancy than men. One survey last year found that there are already more female millionaires (47,355) than male (37,935).
According to the DTI, there are now more than 700,000 British businesses owned by women, turning over £130 billion a year. Yet — and here we get to a less rosy picture the financing of those businesses is generally poor. It is a sad fact that women finance their businesses inefficiently, often on a credit card or with a secured loan on their home or through personal guarantees. Last November the Association of Chartered Certified Accountants published a report which showed that women typically start with only one third of the capital employed by men in similar circumstances, and they are less likely to use external financing as the business grows. ‘Such under-capitalisation has enduring and negative effects upon business survival and growth prospects,’ the ACCA commented.
Despite this, female entrepreneurs are making their mark and now account for 6.8 per cent of the working population — double the proportion in 1979. But I have found through my new venture, Bramdiva, which offers tailored wealth planning for women, that female entrepreneurs, despite their business success, remain intimidated by finance.
The same is sadly true of women who delegate or yield financial responsibility to their husbands after marriage. Successful businesswomen and those women who stay at home share a common bond: whether through fear of the unknown or lack of time, neither is good at running their personal finances.
This will become an increasing problem if women are to own the majority of the nation’s personal assets. The thirst for financial knowledge is global — financial seminars designed for women are growing in popularity from Geneva to Tokyo. The demand is soaring from women for tailored investment solutions based on a comprehensive understanding of their actual and aspirational lifestyles. Women have a more conservative attitude to investment and risk than men. They often leave sizeable sums in high-street deposit accounts for years, unaware of the erosion caused by inflation. Consider this: £25,000 invested in 1990 in a savings account with all the interest reinvested would have grown to approximately £60,412 by the end of last year — a nominal profit of £35,412. However, the profit falls to £15,855 when adjusted for inflation over that time. By way of comparison, the equivalent investment in the UK stock market would have produced an inflationadjusted profit of £46,735 — just under three times the profit from a savings account.
The good news is that for investors with a cautious attitude to risk there is a wide range of cash-based products and strategies that would yield a better return than a typical savings account, for the same level of risk. In my business, we spend a noticeable amount of time focusing on alternative cash strategies for women clients, and we find the fondness for deposit accounts alarming.
Another bond that women investors share, particularly those who rely on capital for income, is the need for a regular, protected and dependable income stream. The more responsive private banks are attuned to this objective and are devising structured products to meet it. And there are still some tax-efficient vehicles that Gordon Brown has allowed to survive. That said, I have been surprised by pockets of ignorance in our industry: often clients have not been well-advised on investments that might suit their particular needs.
It is a sad fact that women who depend on capital for income need a lot of it to support a lifestyle they are used to. I spend much time talking my clients through the realities of financial life after divorce, and there is often a lack of appreciation about what their married lifestyle amounted to in terms of annual income.
A £3 million settlement might sound a lot — and in the first year a 40-year-old woman (the average age of a British divorcee) could draw an annual income of £130,000 gross if the settlement were placed on deposit at 4.5 per cent per annum. But in real terms, by the time she is 80, this income would be worth only £51,000 per annum, assuming an average inflation rate of 2.5 per cent. In order to maintain her income against inflation, she may start to draw on her capital. But if she requires a regular real income of £100,000 per annum in today’s money, she will end up heavily in debt in her old age.
One of the initiatives we are examining is how we can package higher-risk investments, such as private equity and hedge funds, in a way that can generate income for our women clients. For those with the appropriate attitude to risk, these are an asset class that we would like to be able to recommend, because they may generate higher yields in a low-yield environment.
Many private wealth managers have not moved with the times and are not able to service the breadth and complexity of wealth planning and management demanded by sophisticated high-net-worth individuals. Across the world more and more of those individuals are women who are increasingly in control of their own financial destiny. The wealth management industry must adapt its models and devise new products to offer the service women demand. It makes good business sense, too.
Nicola Horlick is chief executive of Bramdean Asset Management.
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