Many retail investors find it difficult to choose financial products and seek the advice of professionals. Women are increasingly becoming an important client segment for the financial advice industry. To the extent that women follow the advice they receive, the quality of this advice can have important consequences for gender inequality in wealth and women’s economic empowerment.

Do women get worse financial advice? We arranged for trained undercover men and women to pose as potential clients and visit all 65 local financial advisory firms in Hong Kong, China. This is what we found: 40% of financial advisors give suboptimal device by recommending only individual or only local securities. The advice given by low-fee security firms (brokerages) are worse than the advice given by high-fee financial planning firms (private wealth managers), but, surprisingly, security firms do not differentiate amongst genders whereas financial planning firms do. Female clients who signalled that they were highly confident, highly risk tolerant, or had a domestic outlook, were especially likely to receive suboptimal advice from financial planning firms. Our theoretical model explains these patterns as the result of statistical discrimination interacting with advisors’ incentives.

Policy insight: When regulators develop policies to ensure that the genders get good equally good advice from finance professionals, it may be useful to look at the incentive structures embedded in different business models in the financial advice industry.