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Krawcheck’s Ellevest Expands Into Financial Planning (and They’re Hiring)

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Sallie Krawcheck, who 16 months ago introduced a female-focused robo-advisor, Ellevest, is expanding into financial advisory and financial planning with two new initiatives for high-net-worth individuals, she tells ThinkAdvisor in an interview.

The Ellevest CEO and co-founder, former head of Smith Barney and Merrill Lynch Wealth Management and former Citi chief financial officer, is testing what she’s dubbed “Prime” offerings and seeking to hire at least one financial advisor and a financial planner.

Requirements for the advisor spot include no fewer than five years’ experience and a book of business of preferably female clients. Financial planner requirements include active Certified Financial Planner designation and no fewer than seven years’ industry experience, at least partly working in a private practice.

The expansion follows new funding of $32.5 million Ellevest received this past August from Rethink Impact, PSP Growth and PSP Capital, and Salesforce Ventures, among others, and including returning investors Morningstar, Khosla Ventures, Mellody Hobson and others. Of the total, $9.6 million was from conversion of a previously announced convertible note.

Ellevest manages $54 million for more than 100 clients, up to 10% of whom are high-net worth individuals, according to the robo’s most recent Form ADV, filed on Sept. 17.

Krawcheck’s two-fold mission is to help women advance in the workplace and to teach them how to invest. Women, she says, have been marginalized by the “gender investing gap.” She aims to close it.

How? Instead of pivoting on picking winners and outperforming the market, as men generally invest, the Ellevest approach concentrates on goals-based investing geared to women’s concrete needs and view that lies ahead. It considers women’s longer lifespan and their salary curves, different from those of men.

From 2004 to 2011, Krawcheck was known as “the most powerful woman on Wall Street.” Her high-profile stints ended with elimination of her post at Merrill Lynch and dismissal from Citi. She’d started out as a gutsy research analyst with Sanford C. Bernstein & Co.

In 2013, she launched a comeback by acquiring the professional women’s network 85 Broads, a year later renaming it Ellevate Network. Then, with Charlie Kroll, founder of the software startup Andera, the long-tech-minded executive co-founded Ellevest. Kroll serves as president.

ThinkAdvisor recently interviewed Krawcheck, 52, on the phone from her company headquarters in New York. Not shying from her trademark humor, she highlighted her key strengths as “guts, energy and clean living.” Here are excerpts from our conversation:

THINKADVISOR: What are Ellevest’s new “Prime” offerings for high-net-worth individuals?

SALLIE KRAWCHECK: One thing we’re testing is Ascent, which is financial planning. The other, which doesn’t have a name yet but that we’re beginning to test, [provides] financial advisors as well.

This is a result of the new funding Ellevest just received?

Of course. But it’s because of a couple of things. The feedback we’ve had about the digital investment platform has been terrific. In addition, women have asked us to do more for them: They want financial plans and financial advice. So the raise was based on driving the growth in digital but also [because] we’re testing and expanding into financial advisory and financial planning.

Will those initiatives be part of — “a hybrid” — or separate from the digital platform?

We’ll see. It’s hard for me to believe they both won’t have some digital component, but we’ll be figuring that out with the [clients and potential clients]. We test and learn and iterate and change. We build our business with women, not at women. 

But are the new initiatives aimed mainly at women?

As a business, Ellevest is women first. Our target audience is women. We have men as clients too. And we’re very happy to have gentlemen clients, but we always are first and foremost talking to women.

Will an Ellevest advisor meet face-to-face with clients?

We’ll see. I don’t know why not.

What else are you doing with the new money?

It’s not sexy. We’re using it to run the business — to pay people and so on.

You’re not making enough?

Gosh no! We’re losing money. We didn’t run out of money. We’ve done a couple of raises before. We’re spending money to grow the business.

That makes sense.

We’re expected to lose money. Betterment and Wealthfront are losing money too. The reason startups like us have to raise money is because we don’t have [that much in] revenues yet. It’s not unusual for a new business to lose money. In fact, when Merrill starts a new business, that business will lose money until it gets to an asset size and revenue base to support the cost base.

What do your investors get out of investing in Ellevest?

An ownership percent of the company, and we get ourselves to growth and profitability.

Been challenging to raise new money?

Not challenging to find money, but challenging to find money from the right investors. Who are the investors who’ll bring more than simply money to the table? For me, it’s important that we have investors who not only tell us they believe in and are aligned with our mission but who have proven they are. We’re building a business for the long term. We want to build an iconic company, and that’s going to take some time.

What’s so different about your female-focused robo-advisor?

There are plenty of women’s initiatives [in general] out there. But they haven’t made a dent in the gender investing gap. We believe that given the work [research] we’ve done with women, we can help close the gender investing gap. We believe that the other women’s initiatives haven’t had the right solution.

What’s the core thing you do differently?

It’s not one thing. The industry historically has identified the problem as “how do you market to women?” So there have been many marketing initiatives. But they haven’t changed the underlying product. We’ve changed the underlying product. It doesn’t matter how good the marketing is if you’re not taking into account fundamental differences, such as that women live longer than men.

How is advising women different from advising men?

The asset and wealth management business is a little like the medical community in that so many prescription drugs and literature around health have been geared toward men — and that’s been detrimental to women. For instance, if a woman goes to the emergency room with symptoms of a heart attack, which are very different from those of a man, she’s often told she’s having an anxiety attack. The financial services business is geared more toward men [simply because it’s a male-dominated industry]. So we’ve done research to build a business that appeals more to women.

Why haven’t more women introduced female-focused digital platforms?

Part of it is because there aren’t many women in senior roles in the industry, and there are few women in senior roles in the tech industry. So if you don’t have many women in fin and you don’t have many women in tech, you don’t have many women in fintech. And: No one is as crazy as I am to do this kind of thing!

How do you engage with women to find out what they’re looking for? Do you hold focus groups?

Yes, but focus groups are almost as close to a waste of time as you can possibly get. Participants tend to influence each other. So we do more one-on-ones. You don’t get one opinionated person at the beginning talking, and everybody in the focus group following them. We do some surveys, which are semi-useful.

Anything else you use for testing?

We put a lot of things on, a third-party company where women can actually engage with the product, though it isn’t functional. It’s a cheap and cheerful way to do very rapid testing.

You don’t ask clients to provide their level of risk tolerance. How come?

Research shows people don’t have enough information about that. If a woman tells us her goal is to start a business in four years and have a baby in five, it doesn’t matter if she says she wants to take on a lot of risk. As a fiduciary, our promise is not to give her a portfolio aligned with a lot of risk; our promise is to work as hard as we can to get her to her goals. Likewise, if a person tells us they’re very conservative, but we know that won’t get them to the retirement they want because they won’t be able to save enough, we tell them investing that way isn’t in their best interest.

You have a patent pending on your approach to risk management. That’s one of the differences you bring to the table. What else can you say about how that works?

[The idea is] making sure the investor has the right amount of risk at every point. That involves glide-pathing her to her goals. So you might have a heavily equity-based portfolio when you start investing for retirement, but you don’t want to have the same portfolio the year before retirement. We also shoot to get investors to their goals or better in 70% of market environments. If they fall off-track, we reach out to give them personalized tips on how to get back on.

Have you made any mistakes with your digital offering since launch?

There are plenty of mistakes all the time, but happily they’re not company-destroying mistakes. We’ve changed part of the product flow because women were finding it confusing or because it wasn’t working that well. We’ve made some mistakes with people we’ve hired.

You told me previously that women have asked if they can use Ellevest to invest in the Pax Ellevate Global Index Fund (PXWEX), a mutual fund you debuted in 2014 that invests in the world’s top-rated companies advancing women’s leadership. Can they now?

Not yet.

How’s the fund doing?

It’s outperforming the MSCI World Index by, I think, 200 basis points year-to-date. Not bad.

You’ve been an advocate of the fiduciary standard for at least a decade.

Yes, that’s when I was running a business [Citi] that wasn’t a fiduciary.

What’s your take on the Labor Department’s fiduciary standard rule?

The entire industry should go to one standard yesterday. A broker-dealer and an RIA should both have the same standard. Having different ones are confusing for investors. If the single standard is the fiduciary standard, [we] should also take whatever practices make sense on the broker-dealer side and bring them to the fiduciary side if they add value for the client.

You’ve always spoken your mind. Anything else in the financial arena that needs fixing?

I don’t like what’s going on in the venture capital world, where women are receiving [only] 3% of venture capital dollars despite the fact that research tells us businesses with greater diversity outperform. I don’t like reading about the continued sexism.

On a lighter note: I see on your website that you continue to provide employees with several perks, including a chocolate drawer. Chocolate must be what you’re spending all your money on!

No, not true. We also spend our money on wine. Chocolate and wine are very important. And we have very good coffee. We have the trifecta: coffee, wine and chocolate.

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