On Wednesday, former Citigroup CFO Sallie Krawcheck announced the launch of her digital investing platform, Ellevest, at TechCrunch Disrupt NY 2016.
Ellevest, which helps clients invest their money through portfolios of low-cost ETFs, draws comparisons to automated investing platforms like Betterment, Wealthfront, and Personal Capital, with one immediate difference: Ellevest is explicitly for women.
In an interview with Business Insider, Krawcheck reflected on some initial pushback that creating the product specifically for women was sexist. “In my opinion, it’s gender biased not to,” she said. “Now that we know what the industry is offering for women today doesn’t really work for them, why wouldn’t we really target and personalise what we do for women?”
But creating an investment platform for women isn’t as simple as “pinking and shrinking it,” a common marketing concept Krawcheck dismisses. To create Ellevest, Krawcheck’s team — which now numbers about 15 people in its Manhattan office — spent hundreds of hours speaking to women and figuring out where, exactly, traditional investment products and avenues fell short.
Krawcheck remembers her time on Wall Street, where companies devoted massive resources to investment upside, and only a scant fraction to protecting the downside. But through Ellevest’s research, it found many women are significantly more concerned about the downside. They don’t want to “beat the market” — they want to know that they won’t lose everything.
“What she really wants to see is how bad can it get,” Krawcheck said. “This is what keeps her from investing.”
Bearing that feedback in mind, Ellevest takes a different approach to risk. Typically, some degree of risk tolerance is up to the investor, who’s meant to provide a gauge of how much risk they’re comfortable taking.
“I would actually argue that Wall Street does it wrong,” Krawcheck said, “because the idea that you would even know how much risk you want to take is ludicrous. The research shows that no person does. And in fact, even if you were financially sophisticated, and you have a good handle on how much risk you can stomach, unless I know your goals I don’t know how much risk you should take.”
Ellevest folded this belief into its product, which isn’t based on the amorphous goal “building wealth” and steers clear of “beating the market.” Instead, when a user registers, she inputs information including her level of education (to project earning potential), current salary, time line, and major life goals.
The Ellevest platform then estimates how much money each goal would require and guidelines on how to make that happen through investing. Users can then adjust the projections according to time line or cost, to see how, for instance, two fewer years saving for a house would affect the money available to start a business.
Then, the user sees a projection for each goal calculated by a Monte Carlo simulation, including the Ellevest standard, which is a 70% likelihood of reaching the goal, the more typical 50% likelihood of reaching the goal, and the 99% per cent likelihood — what would happen in the case of very poor markets. In other words, “how bad it can get.”
“This is a diversified investment portfolio,” said Krawcheck. “So when you say to her, ‘this is in a terrible environment, it gets that bad over time,’ she goes, ‘I can do that.’ So for her, risk is just a different concept than a standard deviation of volatility around — it’s, ‘How bad can it be?’ And when she sees that, she’s good.'” Krawcheck calls this “risk-aware,” a departure from the accepted wisdom that women investors are “risk-averse.”
The focus on life goals rather than numbers is also research-based.
“Our original ethnography really displayed to us a few different things, and the first one was when it came to investing, she just didn’t see herself inside of what traditional investing looks like because there’s not a benchmark,” VP of product design Melissa Cullens told Business Insider.
“She has a set of things she wants to achieve in her life and the way that the market works, as far as she’s concerned, is you throw your money in and it’s Wolf of Wall Street time, and you hope for the best. That just doesn’t match with how she plans for the rest of her life.”
Along with its research findings, Ellevest takes into account the established facts of how women’s financial experiences differ from men’s: longer lifespans, different salary arcs, and the possibility of extended time off from work. “If you think of gender-specific as, ‘We’re going to talk down to people,’ sure, that’s biased,” says Krawcheck. “But as, ‘We recognise that you’ve got some differences and we’re going to talk to those differences,’ then I think it’s a good idea.”
Ellevest creates portfolios comprised of 21 diversified ETFs. It charges 50 basis points (.50%) a year, pro-rated and paid in monthly installments (you can calculate your own cost on the site) and has no minimum investment or balance. And yes, if you’re curious: Men may use it, too.