Women seeking out professional investment advice have never
been in a more powerful position. Women now control half of all personal
wealth in America — $14 trillion — and are projected to control $22
trillion by the year 2020. Numbers like these have sent traditionally
male-dominated financial firms into a frantic scramble to figure out how
to tap into this largely underserved market.
They're going to have to move fast. There's a growing number of
promising new digital investing platforms that are tailoring their
services solely with the needs of female investors in mind. Two of these
new platforms are launching this week, including
Ellevest, a new venture created by Wall Street powerhouse Sallie Krawcheck. Ellevest
(pronounced el-ah-vest)
already has an impressive list of backers, including its lead investor,
investment research giant Morningstar, which kicked in $8 million of
the $10 million the company has raised so far. Allianz Chief Economic
Investor Mohamed El-Erian, Mastercard CEO Ajay Banga, and Karen
Finerman, president of hedge fund Metropolitan Capital Advisors, are
also throwing their weight behind the platform.
Krawcheck's Ellevest joins women-centric investing platform
SheCapital and The Daily Worth’s Worth Financial Management,
which is also due to launch this week. Each of these platforms is still
relatively new, and it’s too soon to tell whether the “for women, by
women” approach will resonate with their target audience. Krawcheck says
what they share in common is that they aren't buying into the
stereotype that women aren't interested in investing.
“The [investment] industry speaks a different language than
women,” Krawcheck told Yahoo Finance. “Women don’t invest because we’re
not providing them with an experience that speaks to them.”
According to a
recent study
by investment manager BlackRock, men are more likely to say they
consider themselves “investors” and enjoy investing than women. Women overall are still less likely to invest
than men, despite research showing women live longer and will need to
save more to fund longer retirements. This investing gap has proven to
be as stubborn to shrink as the wage gap, persisting even as women have
emerged as the primary breadwinner in 40% of homes in the U.S. today and better savers than men.
"If we really want to close the gender investment gap we need to rethink [how we are giving advice]," Krawcheck says.
Krawcheck, who has held leadership roles at Bank of America and
Citigroup, is no stranger to the gender-based investing space. In 2014,
she launched the first-ever gender-specific mutual fund, Pax Ellevate Global Women’s Index Fund (PXWEX),
which only invests in companies with women in key leadership roles
(current top holdings include Microsoft, Yahoo Finance parent company
Yahoo, Inc. and Procter & Gamble).
To sign up for Ellevest, you’ll have to join a lengthy wait list.
We took a look at Ellevest ahead of its launch to see how it works.
Ellevest does charge a fee for its services — 0.50% of assets
invested per year, which you’ll pay on top of whatever fees are
associated with your individual investments. All assets will be managed
by a team led by Chief Investment Officer Sylvia Kwan. Because of the
low-cost digital approach Ellevest has taken, that fee is much lower
than the 2%-3% cut many investment managers charge. But a fee is a fee
and it eats into future returns. Krawcheck says they factor their fee
into every savings projection users get, so there are no surprises.
Ellevest’s fee is higher than roboadvisors like Betterment
(0.15%-0.35%) and Wealthfront (0.25%). But Ellevest doesn’t require a
minimum to start investing, which might give them an edge. You need $500
to open an account with Wealthfront and you have to make a $100-a-month
auto-deposit commitment to Betterment to score the 0.35% fee
(otherwise, it charges $3 a month).
Among the female-centric advisory platforms on the market,
Ellevest’s fees are among the lowest. Investors need $5,000 in assets to
open a SheCapital portfolio with a 0.50% fee. SheCapital charges a lower fee of 0.35%, but clients must have at least $1 million in assets. WorthFM charges $2 per month for investors with less than $5,000 in assets. The fee is 0.50% once investors are over the $5,000 mark.
Says Krawcheck: “We want to be the best value. We don’t necessarily want to be the cheapest [option].”
Joe Mansueto, chairman of Morningstar, said he sees their
investment in Ellevest as a natural alliance. “This is an investment in a
firm that is doing something a little different than what we do. We
don't have anything like this targeted to women,” Mansueto says. “It’s
not just pure investment advice. It’s more goal-based [advice], all
wrapped up in a really nice user experience.”
Like Betterment and Wealthfront, two of the leading young
companies in the online automated investing industry, Ellevest
emphasizes investing in stock and bond ETFs that offer broad market
exposure. It offers a host of Vanguard stock mutual funds and half a
dozen bond funds. Most of their 21-item menu of investments includes
broad-based Vanguard index funds in a variety of flavors (funds that
track the total stock market, U.S. midcap stocks, small-cap stocks,
emerging markets, and developed markets, as well as a half dozen bond
funds).
Based on how much you want to save and your time frame,
Ellevest will automatically allocate your assets. For long-term goals
like retirement, Ellevest will be more likely to put the majority of
your investments in stock funds. A short-term goal like a wedding or
vacation fund will be more likely to be stashed in bonds or cash.
Where Ellevest differs from competitors is how it tailors to
clients. The platform uses a goals-based approach to investing. Users
select different goals — buying a house, going on vacation, starting a
business, saving for retirement — and tell the platform which goals have
the highest priority. You can tell Ellevest how much you want to save
and how often.
Ellevest also keeps track of the likelihood that you will
achieve your goal. If you start to fall off track, Ellevest will either
make specific investment recommendations or ask you to increase your
contributions. (They will have help available by phone as well).
Based on financial information you submit (salary, current
assets, etc.) the platform uses an algorithm to produce an investment
plan it thinks is most likely to help the woman achieve her goals
according to her timeline. If your goals are a little too ambitious for
your earnings potential, Ellevest will sideline lower-priority goals and
focus on high priorities.
Part of the algorithm is based on automated investing
methodologies Morningstar has long used in its investment advice
offering. CIO Kwan’s team will also keep watch over users’ portfolios,
making adjustments if they are unhappy with their performance.
What you won’t find during the signup process is the standard
list of “What type of investor are you?” questions that firms use to
determine risk tolerance. Krawcheck would rather establish trust with
women so they allow her team to decide how risky she can afford to be.
Part of the reason is that women tend to take on less risk and that can
work to their disadvantage as investors. In order to achieve long-term
investing goals, women could use an extra nudge from a team of
professionals who know what they’re doing.
“It doesn't make sense for you to invest one way because you're an
introvert and another way because you're an extrovert,” Krawcheck says.
“You invest to achieve a goal and not to match your personality.
Instead, we base asset allocation on her unique goal and its
characteristics.”
Culled from yahoo finance
