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Krawcheck: Pandemic Could Set Women Back Decades

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The coronavirus pandemic has dealt women a severe economic blow causing “a backward shift” in their financial advancement that “will have ripple effects for years” and has potential to set their economic progress back decades. This female recession, or “she-cession,” as it’s been dubbed, is “horrifying,” Sallie Krawcheck, CEO and co-founder of Ellevest, worries in an interview with ThinkAdvisor.

Compared with men, women have lost more jobs in the pandemic because, says Krawcheck, formerly head of the wealth management units of Merrill Lynch and Citi, women are “over-represented” in service industries, those hit hardest by the scourge. 

Further, fewer women than men are securing new jobs; and many women, working from home since the virus hit, have lost job productivity and are missing out on promotions.

A critical aspect: Women working remotely are also bearing more child care responsibilities than men. Partially as a result, 865,000 women left the workforce in September. That’s four times as many versus men who dropped out, according to the Bureau of Labor Statistics and the National Women’s Law Center.

“For some women, the damage will be long-lasting,” argues Krawcheck, once known as “the most powerful woman on Wall Street.”

One reason for her grim forecast is that amid the pandemic, many women ceased contributing to their 401(k) retirement plans or ran up heavy credit card debt — or both. Some withdrew savings from their 401(k)s to live on.

Four years ago, Krawcheck co-founded New York City-based Ellevest with fintech entrepreneur Charlie Kroll — who left the firm last July — with a mission: “To teach women to invest,” as she frames it.

The firm, growing steadily, has expanded its services from low-cost digital investing — via ETFs — to include a private wealth option for high-net-worth and ultra-high net worth clients with an account minimum of $1 million.

Ellevest has just raised $7.5 million in funding from Allianz Life Ventures, a part of Allianz Life Insurance Co. of North America. Other investors include Mellody Hobson, president and co-CEO of Ariel Investments; Mastercard; Morningstar; PayPal Ventures; and Pivotal Ventures, funded by Melinda Gates.

Krawcheck, chair of the Ellevest Network of Professional Women, which she founded in 2013, began in financial services as a research analyst covering the brokerage industry.

In the interview, she discusses Ellevest’s consistent growth during the pandemic and the firm’s new products and capabilities introduced this past summer. At that time, the company also expanded the Ellevest Intentional Impact Portfolios — for Private Wealth Clients — to include a racial justice lens.

According to Ellevest’s Form ADV of June 2020, the firm manages $634 million in client assets. In view of its rapid growth rate, that amount is now likely to have surpassed $850 million.

ThinkAdvisor recently interviewed Krawcheck, speaking by phone from her Manhattan home. Discussing her goal of “getting more money into the hands of women,” she has firmly rejected the conventional Wall Street wisdom that women are risk-averse. Rather, she contends: “The industry hasn’t done a good job of engaging women and helping them to understand risk.”

Here are highlights of our interview:

THINKADVISOR: Women are in a “she-cession” that has shaken their financial stability, you say. Why did this happen?

SALLIE KRAWCHECK: It’s horrifying. Women who shifted to working from home have lost productivity. Men have gained productivity. Compared to women, men have been promoted during the pandemic at a rate of about 3 to 1. We believe that as women had to move into the home because of the pandemic, the traditional gender roles reasserted themselves. It’s been truly unfortunate. 

Why have women lost jobs at a faster rate than men?

Because women make up a greater share of service workers. And for essential service workers, of whom women are a bigger share, it’s been a greater health risk for them too. 

You call what’s happened to women a “backward shift.” Women have been making good progress over the last four decades, have they not? 

Women still earn 82 cents to a white man’s dollar. And what’s particularly unfortunate is that women started the pandemic with 30 cents of wealth to a man’s dollar. That was already going backwards. Now we’ve gone backwards even further. Women don’t invest as much as men do. Women have more student loan debt. Women don’t have as much savings as men do.

This “backward shift” is “unprecedented and will have ripple effects for years,” you’ve said. When will women return to where they were financially before the pandemic?

For some, the damage will be long-lasting: They’ll return to the workforce, but they’re never going to get back the [lost earnings on their retirement savings] because they didn’t make contributions to their 401(k)s. They’re never going to get back the money spent for [goods and services] they ran up on their credit card to keep the lights on. Some of this is lost for their kids, too, like [educational] enrichment they planned for them but were unable to provide.

How has Ellevest fared during this difficult year?

We’ve been growing. We’ve had net inflows every single week since the beginning of the year — including all through the pandemic. 

To what do you attribute that?

There was a hypothesis that [our firm] could potentially grow during good markets but that in a bear market, we’d lose assets. But we found that during the worst of the pandemic, the attrition rate on the accounts never went beyond 5% annualized. Many of our clients had set up recurring deposits, and they stood their ground. They didn’t panic. They continued with their long-term financial plans.   

Did that surprise you?

No. When I’ve run other businesses, I saw the research that said women tend to stand firm in tough markets. But it’s one thing to read the research and another to actually see [what’s happening in real time]. But I thought the bear-case scenario was erroneous in the first place.

So you weren’t too worried?

In the heat of the moment last spring, when the markets were in freefall, of course you’re nervous. Although [I’ve] been through many [market] downturns, you still get nervous every time. 

But why did Ellevest do so well during the pandemic?

One reason was that we dropped everything: our product plan. We said, “We’ll figure out what the next products will be on the product road map when we get through this.” I requested that the company stand by and answer every single money question from our community [numbering more than 3 million clients, corporate investors, social media followers, et al.], whether it was “I just lost my job. Help me!” or “What do I do with my student loan debt?” We set up a special mailbox. 

Are you back on track with your product plan?

Yes. Spring was a pause on the product road map; summer was an acceleration. We launched a new “Money Membership,” which includes banking; and we significantly expanded [career] coaching. For our Private Wealth business, we added a racial justice lens to our Ellevest Intentional Impact public equity portfolios, which invest in companies that advance women and are divested of companies that have policies and practices that hurt women.

How much emphasis do you put on clients’ retirement planning?

A lot. This is where gender difference is really key because women live six to eight years longer than men; 80% of women die single, whether or not [that’s by choice]; and women outsource their monetary life to the men in their lives. When they get it back, 74% have a negative surprise.

Are women hesitant investors because they’re afraid of taking risks?

[Before launching Ellevest], we questioned the industry’s conventional wisdom that women don’t invest as much as men do — beyond investing in 401(k)s, generally — because they’re risk-averse. We believe that women are not risk-averse. We want women to understand the risk they’re taking.

Hasn’t the financial services industry explained that?

The industry, which has been built by men and for men, hasn’t done a great job of engaging women and helping them to understand risk. We wanted to change women’s risk profile. I said there’s another hypothesis as to why women aren’t investing as much. So we started our digital offering. We said we could do it better and cheaper.

What’s one unusual thing Ellevest does in the digital investing space that’s distinctive and helpful to investors?

We have a nonbinary option in our onboarding process — which asks about gender — and in constructing the investment portfolios. Our point of view is that nonbinary individuals don’t have salaries that are as high as white men and could have longer lives as well — so, the same issues that women have. We have specific input into the investment algorithm that addresses [gender identity]. 

You just got $7.5 million in funding from Allianz Life Ventures. How will you specifically apply that money to expand?

We’re going to use it to grow. Since we launched four years ago, we’ve built a very strong infrastructure scaffolding. So this funding isn’t for a set function. It will be used to continue to research and grow [our offerings]. 

What’s the secret to your success?

Looking back on my training as a research analyst, everybody has access to the same data; the [difference is] how you put it together — how you paint the picture. Analysts have the same pieces of the mosaic, but you put them together and it’s a dog, let’s say; and I [in contrast] put them together and it’s a bouquet of flowers. They’re the same pieces, but we form what we see in them, and the patterns look different.

Is that part of your secret?

It’s a bit of how I approach my career and my strategy. The industry says that women are risk-averse. I try to turn that in a different way. So if you’re looking at the industry in a fundamentally different way, different opportunities pop up. 

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