What’s in a name? A rose by any other name would smell as sweet – except for the name “robo-advisor.” As far as Sallie Krawcheck is concerned, that is. To her, the tag “robo-advisor” has the whiff of stinkweed on a humid July day in New York City.
That’s why she calls her firm’s online entry into the robo market a “digital investment platform” or “digital advisor.” Launched in May and targeted specifically to women, Ellevest is meant to “close the gender investing gap” in which women have been marginalized, Krawcheck, chair of Ellevate Network, tells ThinkAdvisor in an interview.
In our chat, the former head of two mammoth wealth management units – Merrill Lynch and Citi – not so much answers that seemingly baffling question: “What do women want?” as she tackles “What do women need” when it comes to investing.
The Ellevest co-founder and CEO, once dubbed “the most powerful woman on Wall Street,” punctuates serious business talk with sardonic humor, a trait that likely served her well in coping with two public firings from her aforementioned wirehouse posts, in 2011 and 2008.
She’d made a name for herself turning around companies. Then, in 2013, Krawcheck became an entrepreneur. That year she bought the professional women’s network 85 Broads, renaming it Ellevate a year later. In 2014 the firm debuted a mutual fund, Pax Ellevate Global Women’s Index Fund (PXWEX), which invests in the top-rated companies in the advancement of women.
Now comes Ellevest. The automated platform is designed to make investing more relatable to the female client as a means of meeting concrete needs and achieving future goals. Women have no interest in the male approach to investing, which pivots on “picking winners” and “outperforming the market,” Krawcheck argues.
Moreover, the traditional approach to investing has largely ignored women’s unique investing needs, according to hundreds of hours of research Ellevest conducted prior to its launch.
Last fall, the firm raised $10 million in Series A funding, led by Morningstar and including financial heavyweights Mohamed El-Erian, chief economic advisor at Allianz and former PIMCO CEO; Ajay Banga, president-CEO of MasterCard; and Robert Druskin, chairman of DTCC, former chairman-CEO of Citigroup Global Markets Holding Co. and former chairman of E-Trade.
Ellevest’s co-founder and chief operating officer is Charlie Kroll, founder of the software startup Andera.
Though woman-targeted robos have preceded Ellevest into the digital arena, Krawcheck isn’t simply hopping on a bandwagon. Long an advocate of harnessing the power of technology for financial services, at Merrill, she kicked off the online Merrill Edge initiative. Later, she was a board member of Motif Investing, a Web-based service.
And as far back as 1999, Krawcheck, then a research analyst with Sanford C. Bernstein & Co., told this reporter, for a profile in Research magazine, that online investing was an important and rapidly growing trend.
Nearly a year and a half before launching Ellevest, she said, in another interview with this reporter, that those who write off robo-advisors are “dismissing an important set of capabilities to leverage the advisor’s time.”
Ellevest turns out to be a user-friendly Web-based service that provides customized portfolios that are designed using goals-based investing. It charges an annual fee – prorated monthly – of 0.50% of an account’s average daily balance. The relatively conservative portfolios are built to at least meet goals in 70% of market environments.
After decades working at big male-dominated Wall Street firms, the New Orleans-born, Charleston, South Carolina-bred Krawcheck has a twofold mission: To help women globally advance in the workplace and to teach them how to invest.
ThinkAdvisor recently spoke by phone with the forthright Krawcheck, whose New York City-based firm resides in the Flatiron District, aka the birthplace of the Big Apple’s tech activity that’s known as “Silicon Alley.” The neighborhood used to be called the Toy District and before that, the Photo District. Like her office locale, Krawcheck has gone through some interesting evolutionary changes herself. Here are highlights of our conversation.
THINKADVISOR: You say that with your digital advisor, women don’t have to worry about financial jargon and performance numbers — you aim to take away anxieties about all that. Ellevest reminds me of the common situation in which a wife is worry-free about investing because her husband takes care of everything.
SALLIE KRAWCHECK: You hurt me, Jane. I hate your analogy.
I’m just doing my job.
All women should be in control of their money regardless of their marital status and how fantastic their marriage might be. I came from a broken marriage. I thought I’d be married to my husband till we were 115. That didn’t work out. He’s now with my ex-friend. But many women are okay with being in the dark about money and letting their husbands handle all things financial.
I think some of that is generational. For younger women, being strong is beautiful, which is different from how women felt several decades ago.
So whom are you targeting?
Ellevest isn’t for the woman you were talking about. We’re not speaking to her. We’re speaking to the woman who could well be married but who likely has earned her own money and likely is making decisions about her and her family’s money.
Still, women have anxiety about the act of investing, as you acknowledge. What does Ellevest do to alleviate that?
Our research found, and I’ve seen this from my years in the industry, that men will invest through jargon; women will not. We try to get rid of jargon and use plain English concepts that women will understand.
Are you appealing more to single women, divorced women, widows, as well as married women?
It’s more of a psychographic than a demographic. It’s Beyoncé, not Celine Dion: This is a woman who’s in control of every aspect of her life but not yet in control of investing her money. It’s about having agency over her money. Ellevest is very different from other Wall Street female initiatives that [depict] us drinking Chardonnay and talking about our emotions around money.
Many women are averse to concepts and marketing specifically “for women.” How do you overcome that?
When we did the first bit of research about our [then-upcoming] investment platform for women, 55% of [respondents] said “Fantastic”; 45% said, “Meh. I don’t know.” There’s this gender bias that “for women” has to somehow be “pink it and shrink it.” But once we began to explain why [Ellevest] was for women – like, the fact that women live longer than men, women’s salary curves are different through the course of their lives vs. men’s and that those issues [and more] have an impact on how much she should be saving and investing to achieve her goals, the feedback went to almost 100% positive.
Ellevest’s Form ADV (as of July 5, 2016) indicates that total assets under management are $136,185, total number of accounts is 40 and average account balance is $3,405. Are those figures accurate?
We’re new. We’re not giving out AUM. We still have a wait list of clients.
How would you describe demographically the clients you’ve signed up?
It’s very early, but [as of now], these are professional women. These are not women who have inherited $20 million. But they’re past the pay-off-the-credit-card stage and into the this-is-starting-to-matter stage. In fact, we tell people with credit card debt not to invest with us – they need to pay that off. We’re seeing women become clients who are as young as 19 and [seniors] that are in their 60s.
How is Ellevest chiefly different from other robo-advisors?
To put together financial and investing plans for women, we’ve built a proprietary algorithm that takes into account the fact that her salary peaks sooner than men’s and that she lives longer than men, both of which, of course, have substantial impact on her financial plan.
What’s special about Ellevest financial plans?
We took away a bunch of stuff that she tells us she’s not interested in, such as outperforming the market. We do a liability-based investing plan in which we help her determine what goals she wants to achieve over the course of her life and construct individualized portfolios unique to her goals. The target is to get her to her goals, or better, in 70% of market environments.
What sorts of investments can folks make with Ellevest?
We invest in stocks, bonds and alternative asset classes using low-cost ETFs. Stock classes include U.S. and developed, and emerging market international equities. Bond classes include U.S. and international bonds, governments, corporates, municipals and high-yield issuers. Alternative asset classes include global real estate and commodities. Where does risk tolerance come in with Ellevest?
My view is that no one understands their risk tolerance. We’re asking her to make decisions about things that are in her control and that she understands. As a fiduciary, it seems to me, we should let her know how much risk she can afford to take – not ask her some question about what her big blob of risk is.
But investors still need to deal with the issue of risk. How does Ellevest?
We give her a risk budget and tell her how much risk she can afford. If she doesn’t have an emergency fund, she can’t take any investing risk – it needs to be in cash. If, on the other hand, she’s in her 20s and has 40 years of work to go and her only goal is retirement, she can afford a lot of risk to get the return that has historically been available for taking on greater risk.
What if she suddenly receives an inheritance and wants to invest more aggressively than she originally indicated?
She would update her profile and financial plan because financial plans aren’t forever. It’s not: “No changing your financial plan for you!”
“No soup for you!!”
(Laughs). Obviously, this is dynamic because of life changes. We actively reconstruct her portfolio over time so that as she comes closer to achieving her goals, her risk is reduced. Those are important differences not only from other [robos] targeting the female market but from [robos] overall. We have four patents pending.
How else isn’t Ellevest set-and-forget?
We let her know when and if she’s off track in reaching her goals. We send her emails that will tell her if she is and what action she needs to take in order to get back on track.
How does Ellevest differ from Betterment and Wealthfront?
We’re a couple of generations ahead. We put together a holistic financial plan where women can make trade-offs among their goals like, “I want to start a business sooner.” Others who do goals-based-type planning digitally tend to do one goal at a time. We help women see the tradeoffs to get back on target and reconstruct their portfolios to increase their chances of reaching their goals.
Can Ellevest clients invest in the Pax Ellevate Global Women’s Index Fund, which invests in companies like Microsoft, Yahoo and Johnson & Johnson?
No, not through the digital advisor, though it’s something they’ve said they want to do.
How’s the fund doing?
Great! We’re just passing the two-year mark, and we’re nicely outperforming.
Can an Ellevest client ever talk to a human advisor?
A client can talk to a human; we don’t have human advisors. We’re giving advice through the website. I’m obviously a fan of digital advisors – and I’m making a pretty big bet on it!
Right. But robo-advisors are still quite controversial.
We can go back and forth on whether there should be a [human] advisor in front of this or whether [everything] can be delivered directly to the client. Both can co-exist – and both can exist for the same client. I think the either-or discussion in our industry is a complete waste of time. Employing technology to leverage the brainpower of individuals is the winner.
You’ve expressed distain for the term “robo-advisor.” Still hate it?
I don’t think it’s accurate, and it’s sort of dismissive. It’s not a very appealing name. My guess it was the industry being pretty dismissive [to have coined that term]. Who would want a “robo-advisor,” for goodness sake!
The state of Massachusetts has said that digital advisors don’t have the capacity to be held to the fiduciary standard of care. As a fiduciary, what do you think?
[Using] our best research and our best thinking to leverage the brainpower of humans though technology, that’s got to be in the best interest of the clients. It’s just got to be because computers can process so much more data and information than humans can to combine all of that. I do believe you still need human judgment, and we have it. Where does that enter the picture?
Our chief investment officer is Sylvia Kwan, who has a PhD from Stanford [and is a CFA charterholder]. She’s been at this for more than 30 years; I’ve been at this for close to 30 years. Morningstar is our lead investor and our partner. So we have people with real experience and real gravitas. I believe that’s important, given our fiduciary responsibility to the client.
In what sense is Morningstar your partner?
We use data capabilities from them, as do others. But we also spend time with them debating and discussing investing issues. We’ve been to Chicago on several occasions having pretty vibrant debates based on analytics. For example, “We’ve got 22 ETFs in our asset allocation. Hey, guys, what do you think in terms of the research about how much better 22 is than 18?” So — things that geeks like us talk about.
What sort of content will you have on your site?
We want it to be meaningful for her. It’s about investing mistakes women make. They’re different from men’s mistakes. So you’ll see things like “The Real Cost of a Career Break.” If you’re making $85K a year and take a two-year career break, you think it’s costing you $170,000. But it actually costs more than $1 million because you miss getting raises and Social Security contributions [etc.].
I see on the site that you’re looking for a senior writer. One requirement is “The ability to make our readers laugh while they learn more about personal finance.” Where does the funny stuff come in?
I’ve always loved to laugh when I learn. It doesn’t have to be so dire, does it? Our site isn’t a hilarity, but there’s a sense that we don’t have to be such sticks in the mud.
I note that two of the “perks” at Ellevest are a “chocolate drawer” and a “wine fridge.” Nice. So — wine on the job?
I don’t think anybody ever drinks it on the job. But at 6:00 or 8:00 at night, you’ll see somebody having a glass of wine. Why not? Life is short, Jane. And then you’re dead. Right?
Are you 51 now?
Oh, God. Shut up.
— Related on ThinkAdvisor:
- 7 Reasons Women Make Better Money Managers Than Men
- The Unsinkable Sallie Krawcheck
- Krawcheck: Want to Shrink Your Business? Ignore Women