Women are increasingly participating in financial markets as they accumulate personal wealth. However, they often face discrimination when seeking advice on investment decisions. Taking a novel perspective, HKUST’s Utpal Bhattacharya and Sujata Visaria and their colleagues set out to determine why financial advisors treat female and male clients differently.

To explore gendered differences in financial advisory services, the authors conducted an undercover audit study in which trained men and women visited all 65 financial advisory firms in Hong Kong while posing as prospective clients. “This [approach] allows us to cleanly separate how advisors responded to the auditor’s gender and their signaled attributes,” the authors explain, “and whether the same attribute elicited different responses depending on client gender.” They varied three attributes of the simulated clients—risk tolerance, confidence, and geographic outlook—to determine their effects on the advice received.

“Our data suggest that, on average, retail clients in Hong Kong receive advice of poor quality,” the authors explain, observing that many advisors recommended only individual risky securities and/or local securities, regardless of the clients’ attributes. Interestingly, not all advisory firms gave suboptimal advice to female clients. Securities firms, which earn revenue mainly from trade commissions, did not appear to differentiate among clients by gender. However, financial planning firms, which earn revenue from fees, despite generally giving better advice, “were significantly more likely to give suboptimal (single-security or home-biased) advice to female than to male auditors,” particularly those “who signaled that they were risk tolerant or confident, or … had a domestic outlook.”

The authors explain this unusual finding by hypothesizing that clients, especially female clients, going to financial planning firms are, on average, less financially literate, and the advisors exploit this by selling them more sub optimal products.

These findings shed new light on the patterns of gender-based discrimination in the financial advisory sector.