Sallie Krawcheck was the consummate Wall Street insider. Until she was out — twice.
Now Krawcheck — who says she was pushed out from CEO jobs at Citigroup and Bank of America Merrill Lynch wealth management units for being a woman, among other reasons — may be on the way to building the first successful woman-focused online advisor, and perhaps the first large woman-focused advisor of any kind.
Her investing firm, Ellevest, which launched three years ago against a sea of doubters in the financial industry, appears to have captured an audience of wealthy women interested in Krawcheck's message of investing-as-empowerment, which resonates in the era of MeToo. (She revealed in a 2017 book the sexual harassment she endured on Wall Street but never spoke up about.)
Ellevest is still tiny in terms of assets under management, at just over $280 million. But Ellevest, which is No. 45 on the 2019 CNBC Disruptor 50 list, is growing faster than the online advice industry as a whole, based on data and analysis from Backend Benchmarking. In March, Krawcheck landed $33 million in funding, bringing its total to $78 million. Melinda Gates, through her firm Pivotal Ventures, which has a focus on funding female entrepreneurs, was one of the investors.
Krawcheck has refashioned herself as an outsider, out to crack the code on making investing friendlier to women. That mostly means framing it differently and adding some services, like goals-based investing and career counseling, that are thought to be particularly valuable to women. From a woman's perspective, investing is not about beating the market, or winning the loser's game, or about any game at all, she says: It's about reaching your goals (which might include making a lot of money) and not being talked down to.
Krawcheck recently took on the idea that buying coffee will sink all of your savings goals, which has become a go-to refrain in clickbait personal finance journalism and from major Wall Street firms.
"Just buy the f***ing latte," Krawcheck recently advised women in a commentary she wrote for Fast Company, a screed that was penned after JPMorgan Chase Bank tweeted out a series of (since deleted) messages insinuating that reckless personal finance habits were the cause of millennial money problems.
Krawcheck's raw retort stands out, but she was completely serious about the damage that kind of advice can do. Most financial advice geared toward women — like the idea that women should give up frothy drinks — is patronizing. Even financial advice that is meant to be gender neutral doesn't recognize that the world isn't gender neutral. She believes that telling women to change how they behave is a red herring, when in fact it's the system that needs to change.
"All this nonsense about lattes and shoes is shifting the attention — and thus the blame — for the underlying systemic money challenges women face to the women themselves. The pink tax, the wage gap, the debt gap, the funding gap, the domestic work (and emotional labor) gap and — my personal crusade — the investing gap. "
"I started out by thinking that money should be fair, too," Krawcheck said. "Then I decided to go where the research led."
She asked why women wait longer to invest, keep more of their money in cash, often dislike their financial advisors and end up poorer than men in the end. Women on average have saved 43% less for retirement than men, a 2018 study from Prudential Financial found. Women end up with less in savings — they're more likely to be poor at the end of life, too — because they take time off for caregiving.
Ellevest still has a long way to go. It reported $283 million in assets under management in 1Q 2019, up from $91.4 million in 1Q 2018. More than a third of its assets, $84 million, come from 43 high-net-worth individuals, according to its latest Form ADV.
Online financial advice pioneers Betterment, Wealthfront and Personal Capital all have substantial assets: $16.4 billion, $11.5 billion and $8.6 billion, respectively, according to Backend Benchmarking. But these other online advisors were founded roughly a decade ago — a decade of huge stock market returns with little bull market interruption, while Ellevest is only three years old. They also do not offer what Ellevest does: attitude.
Krawcheck says one big problem with the whole investment world, even new iterations with their illusion of "fair," is they are built to be comfortable for men.
"We are the first to truly engage women around investing," says Krawcheck. "What we are doing is so much harder than what (other digital start-ups) had to do. Their ... pitch was, 'Hey, dude,' look at this great way to invest.'"
Her pitch to women: 'You've been told your whole life that you're not good with money, that money's not for you. That's not true. And come invest with us.' "
Other financial companies, from independents to giants, have tried to create a market out of women, who control $11.2 trillion of investable assets.
There are professional women in top positions at some of the world's largest investing companies, such as the president of Fidelity Investments' personal investing business, Kathy Murphy. And the issue is getting more attention at boutique financial advisory firms run by men, such as Ritholtz Wealth Management. It hired Blair DuQuesnay in 2018, and the firm — known for its consistent presence in the financial media — ended up on the New York Times Op-Ed page this past January with a commentary written by DuQuesnay titled, "Consider Firing Your Male Broker."
In her piece, DuQuesnay pointed to research showing that female investors are more likely than men to focus on overall financial goals rather than going for shoot-the-lights-out performance, and a study by the Warwick Business School that concluded women outperformed men at investing by 1.8%. "Whatever the paths taken, the future of finance should be female. It wouldn't just be more fair. If the years of data are any indication, it's a future in which all of us would make more money, " the female Ritholtz investment advisor concluded.
New York City-based Ellevest is seeing month-to-month double-digit growth in assets and saw record net inflows in December, which was a tough month for the market as a whole. But merely surviving as a women-focused company is a challenge: Ellevest is the last woman standing after the failures of other women-focused companies and efforts, including Citi's Women & Co. and WorthFM. The Citi effort had high-powered names attached, too, headed by Lisa Caputo, Hillary Clinton's White House spokeswoman from the 1990s.
Migrating clients to an online environment is not the biggest challenge. Legacy players like Schwab and Vanguard moved into the digital advice space, building massive businesses by appealing to their existing clients. Schwab Intelligent Portfolio Products has $37.7 billion in assets; Vanguard Personal Advisor Services manages $130 billion. Wealthsimple, based in Canada, has $89 million in assets, according Backend Benchmarking's 1Q 2019 report, and it just raised another round of funding led by Allianz.
"The challenge is, you have to have the financial and tech expertise. ... You have to be able to raise venture capital money," Krawcheck says. And "you have to be a woman."
The most shocking thing about Wall Street and the digital advice industry is that the first two challenges have been easier to meet than the final one.
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Portfolios at almost all the online advisors are a mix of basic, low-cost ETFs, which means returns track the market, minus fees. Companies compete with different levels of advice, from robo and human counseling to smart marketing and by adding features to their platforms that allow them to draw customers without spending too much money.
"You have to scale, and scale significantly," says David Goldstone, research analyst at Martinsville, New Jersey, Backend Benchmarking, publisher of the Robo Report.
Vanguard's assets are enormous, in an industry becoming increasingly dominated by a few giants, but its growth rate is slower than that of Ellevest: Its Personal Advisor Services had $101 billion in assets at the end of 2017 and as of the end of March 2019, $130 billion.
Krawcheck said Ellevest compares favorably with the industry on cost of acquisition. She said it will be profitable sometime after it reaches the single-digit billions in assets. The online financial advice start-up business has not shown that it's profitable yet. At their last funding rounds, both several years ago, representatives for Wealthfront and Betterment said the companies were not profitable. Personal Capital is the most likely to be profitable, but it has a fee schedule that starts at 0.89% of assets under management, requires a $100,000 minimum and all of its clients have access to live advisors, more closely resembling a full-service advice firm, said Goldstone.
Ellevest has three products: digital-only portfolios and advice for 0.25% a year; a hybrid product that includes career counseling and human advice for 0.5%; and a high-end service for people who invest $1 million or more.
Personal Capital had assets under management of $800 million at about three years. By that measure, Ellevest is behind. But it is winning important votes of confidence.
In March, Ellevest announced $33 million in funding, bringing its total to $78 million. The latest investors include former Obama White House advisor Valerie Jarrett; Wynn Resorts co-founder Elaine Wynn; former Google and Alphabet chairman Eric Schmidt and Melinda Gates' firm, Pivotal Ventures, which has a focus on funding female entrepreneurship.
Gates said at the time of the fundraising, "When the status quo isn't meeting women's needs, it deserves to be disrupted, and that's what this platform created by women for women aims to do."
The key issue for any finance company — exacerbated for online financial advisors — is creating a sense of trust. It takes some time for an independent advisor to build enough of a brand identity to establish trust. Ellevest has built a brand identity as a fighter for women, but the psychology of money and gender is complicated for a robo-advisor to master.
Jeannette Bajalia, president and founder of Women's Worth, a Jacksonville, Florida-based planning firm created in 2009 to focus on women's financial needs and purpose-driven investing, said there is a role for digital advisory firms to play now and into the future, but the financial planning needs of women is not the best place to start. Bajalia said the tagline of Ellevest alone — Invest Like a Woman — points to the problem. Planning is the first step, not investing, and digital advice tools are not yet equipped to do that well for the majority of women.
Bajalia said many of the women who come to her firm are already in their 50s — facing the end of a career, or life change such as divorce or widowhood, may need to pick up again with a career they left decades ago while raising children, or are single moms who put kids through college and may not have the same level of assets as a married couple. These life situations are not a good match for an online investing tool that lumps every client into model portfolio baskets.
"There is still that need for us as women, we are creatures of connection. Where is the relationship in digital?" said Bajalia, who also is president of traditional planning firm Petros Planning. "You can't have that kind of dialogue in online investing. It is just too linear. It's not just investing."
Krawcheck has spoken in the past of how her own divorce influenced her thinking. Ellevest does emphasize goals, like buying a house or taking a vacation, from the beginning. Goals-based investing is thought to be one way to reach women.
Bajalia's manages money for 700 families in Northern and Central Florida, and she said about 70 percent of the financial plans have come through the Women's Worth brand since 2009. Her brand also is now being used by female advisors around the country in their planning businesses. Bajalia said the new digital advisory tools do make sense for young women of the millennial generation who may have basic, long-term savings goals in line with any younger investor.
Cindy Hounsell of nonprofit WISER (Women's Institute for a Secure Retirement), said young professional women she recently shared the stage with at an event about longevity planning mentioned how much they liked the "robo" apps, including micro-investing site Stash and Betterment. But they did not mention Ellevest, and it is a much harder sell to say there is "an algorithm for women," Hounsell said. "Maybe it is just not the right time yet. But what I've learned about the psychology of women and investing is that it is a lot more complicated."
Where Hounsell has seen success with the branding of a financial advice business as women-oriented is in bricks-and-mortar, and on a local basis. "We have all these wealth managers, call it 'Money Something for Women,' and they flock to it. When it is the local person in Pittsburgh they can talk to, they are rushing in."
The recent growth and the latest funding round are signs that Krawcheck is making inroads among wealthy women who are increasingly aware the way finance has historically turned a cold shoulder to women in creating messaging and products that don't take their needs into account. That cold shoulder, unconscious in the case of many companies, has had a big cost for women.
"Ellevest has been vocal and active about addressing issues that uniquely or disproportionately affect women, such as the wage gap and pink tax, without patronizing, oversimplifying or relying on gender-based tropes," said Marina Shtyrkov, research analyst, wealth management with Boston-based financial services consulting firm Cerulli.
The conventional wisdom on Wall Street is that low fees and high returns matter most. But for women, one of the key obstacles to investing has been the discomfort produced, paradoxically, by the idea that fees and returns matter more than feelings, specifically the feelings of comfort and confidence. The obstacle Krawcheck is grappling with is whether it is possible to create a brand and company that delivers low fees, high returns and women-centered comfort and confidence.
For the moment, she has a couple of feet on the ladder.