After the financial crisis of 2007-08, France's former finance minister, Christine Lagarde, asked in a New York Times column: "What if it had been Lehman Sisters?"

Lagarde was echoing the long-held assumption that women are more prudent and risk-averse than men, says Sarah Kaplan, a professor at the Rotman School of Management, University of Toronto.

Kaplan conducted a research study that examines the underlying forces that perpetuate the belief that women are risk-averse, and published the results in the Stanford Social Innovation Review.

The theory goes that when women are empowered to make important financial decisions, they are prone to exercise caution, weighing all the possible implications. In contrast, men are portrayed as overconfident investors who are unafraid of the prospect of uncertain outcomes.

Kaplan challenges this assumption in her work, arguing that gender should not be used as a "proxy" for risk tolerance: "There's intrinsically no difference in terms of our baseline risk preference; the difference [lies] in the risks we actually face in the world."

Kaplan says we need to understand the ways in which women are motivated to take the less risky route. She offers insights into to why women appear to have a lower tolerance for risk than men:

> Women face more risk
The perception that women calculate risk differently than men do may be attributable to the specific situations they face rather than some innate preference.

Women may weigh the costs through a more prudent lens, Kaplan says, because they don't earn as much as men in similar occupations. So, losses would be more pronounced for women.

The gender pay gap remains a reality that affects women's ability to take riskier bets with their finances. For every dollar that men earn in Canada, women make 72 cents, according to Statistics Canada.

"If you make an investment decision that goes poorly," Kaplan says, "you're going to have less ability to make up those losses through your income."

When advising both men and women, financial advisors should take into account each individual's income level and make a comparison, Kaplan suggests, and consider what that income security affords.

> Women aren't presented with the same investment options
The assumption that women are risk-averse can limit the number of  options that are made available to them by their advisors. If you automatically assume that women have a lower appetite for risk, you might decide — consciously or not — to offer investment options that lean on the conservative side, Kaplan says. 

Tests that assess risk tolerance may not be enough to erase your assumption about women's risk tolerance. A better way of gauging a client's risk appetite, regardless of gender, is to systematically lay out the pros and cons of a range of portfolio options that fit his or her income and savings profile, Kaplan suggests: "Make it feel accessible."

> Women aren't treated as serious investors
The reason why women may not seem to be as confident or engaged as men when it comes to investing, Kaplan says, could be because women historically haven't been as involved in conversations about finances.

A common mistake among advisors is to neglect to include women in the conversation when discussing investments with a couple, Kaplan says. That exclusion often is cited as one of the main reasons why women sever ties with the family advisor upon their spouse's death.

This is the first part in a two-part series on working with women clients. Next: Instilling trust and confidence in your women clients.

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