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Is the gender pay gap the real reason women invest less than men?

Why do women invest less than men? It’s a question that raises endless hands-wringing from those who run the online investment platforms we use to manage our wealth. Big names like AJ Bell, Fidelity, Hargreaves Lansdown and Interactive Investor.

They philosophize about what traits women have that keep us from investing – they claim we are “risk averse,” “timid,” “unselfish and nurturing,” just to name a few. They deplore the huge gap between women’s and men’s pension pots.

They pour out numerous surveys, indexes, guides and events to help us women catch up with our male counterparts.

Rightly so. Women are generally paid less, have less savings and invest less often than men. All of this needs to be addressed.

At the level: women are generally paid less, have less savings and invest less often than men. All of this needs to be addressed

At the level: women are generally paid less, have less savings and invest less often than men. All of this needs to be addressed

But this is the bit that gets stuck in my throat. In some cases, these types of companies perpetuate these imbalances. Every major investment platform pays its female employees at least 12.9 percent less than male employees. In the worst case, for every £ 100 paid to a male worker, his female counterpart gets £ 73. And in one case, the gender pay gap widens.

For three years now, every company with more than 250 employees has been obliged to disclose data on their gender pay gap. This year, most investment platforms have quietly uploaded these reports to their websites, no doubt in the hope that they would go unnoticed. But they didn’t.

The latest Interactive Investor report reveals that the average gender pay gap has widened for three consecutive years. It now sits at 22.9 percent – almost twice that of its rival Hargreaves Lansdown. It is up from 16.6 percent in 2017. Now it is one thing not to narrow the gender pay gap; it’s quite another to increase it by 38 percent in just three years.

Despite the increase, Interactive Investor’s gender pay gap is still lower than AJ Bell’s 26.7 percent. AJ Bell has worked to close the gap with initiatives such as rolling out ‘unconscious bias training for all people managers’.

Still, the fact remains that it still has only one woman on its board and none in the eight-member executive management.

Interestingly, Hargreaves Lansdown, which has made the most progress, has four women on its nine-member board. Meanwhile, Interactive Investor has one woman on the board of ten, in addition to four Johns and Jonathans.

Hargreaves Lansdown has narrowed its pay gap to 12.9 percent, from 28.8 percent three years ago. But the difference between bonuses awarded to male and female employees has risen to 73 percent – from 70.6 percent a year ago. That means that for every £ 27 received by women, £ 100 is received by men.

This is no doubt because, unfortunately, only 9 percent of drivers are women and it is usually drivers who earn the big bonuses. Fortunately, Fidelity narrowed its gender pay gap to just below Interactive Investor’s, at 22.8 percent, after widening the gap the year before.

These imbalances are, of course, unfair and must be addressed. Most notably, some of these companies are perpetuating the investment and retirement gender gaps they claim to fight.

You can do anything about why women invest less than men. But I suggest that the biggest determinant of whether someone invests is not whether they are time-poor or not. The point is whether they are money poor or not. Check out the Isa stats released every year, and unsurprisingly, you’ll see that the higher a person’s income, the more likely they are to invest.

The investment industry claims that investing is open to everyone. But the truth is, there is no point in investing while you have unsecured debt. Once you clear those, you’ll need a good chunk of cash set aside for a rainy day. Only then is it time to invest. And when women have a lower income, it takes longer to reach that stage.

Some women may be encouraged to start investing after reading a women’s guide from an investment platform. But I suspect a much greater number is prompted by seeing cash begin to build up in their checking account and wondering if it could be better used elsewhere.

If you found out that a coworker is doing the same job as you and you are paid 7.3 percent less, would you be happy with the explanation that your salaries were “broadly consistent”?

The gender pay gap also has a direct impact on the pension gap between men and women. Since workplace pension contributions are paid as a percentage of salary, women also receive less when they are paid less.

Investment platforms are certainly not the worst in financial services. The track record in the asset management industry is equally hopeless – BMO Asset Management has a 32 percent gap, Schroder Investment Management 27 percent, Vanguard 22.8 percent and Baillie Gifford 18.8 percent. HSBC beats the party with a difference of 51.1 percent.

The investment industry states that there are systemic problems that work against them. Financial services have traditionally been a male-dominated industry. Those in higher positions are usually men, while lower-paid women in customer service skew the numbers.

Historical trends can explain the first year with terrible data. Possibly from the second year. But if little progress has been made by the third year, you wonder if anything is being done at all to improve it.

Historical imbalances also do not explain the difference in pay gap between companies with relatively similar business models. If Hargreaves Lansdown has succeeded in narrowing the gender pay gap, why has Interactive Investor increased?

Nor does it explain the pay gap between employees in the same roles. Interactive Investor’s pay gap across different functions was 3.3 percent in 2017.

That means it paid women 3.3 percent less than men for equivalent jobs. In 2018 the difference was 6.1 percent. In 2019 it reached 7.3 percent. It claims that the pay is “broadly consistent across roles.”

But if you found out that a colleague is doing the same job as you and you get 7.3 percent less, would you be happy with the explanation that your salaries were “broadly consistent”?

I worked at Interactive Investor and I certainly did not feel treated differently because of my gender. So it pains me to emphasize his record. But I draw attention to these figures because that is precisely why all companies are legally obliged to report them.

Hargreaves Lansdown deserves congratulations for going from worst to worst. It has taken action to improve its recruitment process. AJ Bell is starting to get through, although since it started out as one of the worst, it has got to go further. Fortunately, Fidelity’s numbers are heading in the right direction.

Tomorrow Interactive Investor will publish its Great British Retirement Survey, in which it presents bold ideas to improve women’s financial outcomes. Maybe he should consider doing the same closer to home.

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