I never became a Sex in the City fan. I watched half an episode to see what all the fuss was about, but it didn’t grab my attention. Still, the series was on target with their message about female empowerment concerning life, relationships, social issues, and other. Fast forward and America is on the cusp of electing its first female president, Hillary Rotten Clinton (I’m neither a Clinton or Trump supporter). If Hillary were to win, it would be one more step in the right direction for America and the world since women still lag behind in critical areas such as equality, rights, and pay. Michelle Obama is also doing her part through Let Girls Learn; an initiative to ensure adolescent girls get the education they deserve. These examples highlight that women are just as vital as men in all facets of life and work and, it’s about time.
I’m an equal opportunity kind of guy. My online investing course is targeted at both genders, and I think everyone should value and develop their financial literacy because investments and stock markets don’t care if you’re male, female, black, white, tall, short, etc. They will move as they wish based on various factors, for instance, economic data. Ellevest, whose goal is to redefine investing for women, is a new kid on the robo-advisor block. At first glance, they appear to be Sex in the City meets Betterment/Wealthfront, but how do they measure up?
Ellevest was founded by former Citigroup and BofA C-Suite executive Sallie Krawcheck. According to her bio, “Her life’s mission is to help women to reach their financial and professional goals. Krawcheck says the “by men, for men” investing industry has historically kept women from achieving their financial goals (not a statement that highlights self-accountability which I advocate). Ellevest is a platform designed for female investors, but they accept male investors too. They’re committed to helping investors reach their goals, and they provide tools to understand life’s financial tradeoffs.
Three Critical Investing Factors
It’s relatively easy for me to evaluate a wealth management company and its merits. I assess customer value based on three key investing factors including investment strategy, portfolio methodology, and fees. A fourth consideration would be innovative and helpful tools to assist investors, for example, Personal Capital offers a free tool to gauge, monitor, and optimize your financial holdings.
There are two main approaches to investing: passive and active management. Passive investing is achieved by investing in the collective wisdom of the market, for example, buying an index fund that replicates the holdings of the S&P 500. Active investing is an attempt to outperform the general market, for instance, purchasing a fund run by a portfolio manager with a focus on exceeding the S&P 500. A portfolio manager attempts to beat the market by using fundamental and technical analysis. While active management sounds nice in theory, professional money managers often underperform their benchmarks while attracting relatively high fees (and six to seven-figure compensation).
There’s a lot of research available on the passive versus active debate and many prominent investors including Warren Buffet are for this approach. As astute investors continue to move money away from actively managed funds, companies such as Vanguard, BlackRock (iShares), and State Street (SPDRS) have benefited in the trillions from new deposits. In short, the smart money is on passive investing.
Ellevest has gone the way of other automated advisors in sticking with low-cost index exchange-traded funds or ETFs. Of the 21 funds they use to construct portfolios, 14 of them are Vanguard funds. Betterment and Wealthfront also favor Vanguard funds.
No matter how you spin it, portfolio construction is based on an investor’s profile. An investor’s profile consists of a few data points including goals, risk tolerance, time horizon, age, and investing experience. Robo and traditional advisors frequently use questionnaires to assign profiles to investors, for example, Julie is moderate while John is aggressive. An investor’s profile leads to a suitable asset allocation model between stocks and bonds, for instance, a conservative investor attracts a weighting of 70% bonds and 30% stocks.
Ellevest highlights their portfolio methodology in multiple ways. They’ve collaborated with Morningstar Investment Management to construct portfolios based on an approach called Liability Driven Investing (LDI). Secondly, Ellevest does offer more ETFs and asset classes than their competitors for broader diversification, for instance, commodity and real estate categories. However, these additional asset classes aren’t likely to appeal to their target market as much since female investors tend to be more conservative. Lastly, they focus on goals-based investing to increase the likelihood of reaching goals, not just maximizing returns.
Of the three critical investing factors, fees are what you can control the most. While I recommend passive investing, markets will still move up and down. As a result, your asset allocation will change by the second no matter what you do or by how small. Conversely, fees have a tremendous impact on returns which investors usually underestimate. You don’t want to be the investor who’s paying 1% to 3% when you could be paying 0.2% for a comparable solution.
Ellevest charges 0.5%. Yes, you read correctly. Their fee is lower than using a traditional advisor but much higher than both Betterment and Wealthfront. Also, I find their pricing page to lack depth, for example, instead of bunching “other online only advisors,” why not go head-to-head with Betterment, Wealthfront, Charles Schwab, Personal Capital or Vanguard Personal Advisor? They probably opted not to because their value proposition would quickly fall apart.
|Ellevest||Betterment||Charles Schwab||Wealthfront||Vanguard PA|
|Account management fee||.5%||0.15% to 0.35%||Free||Free to 0.25%||0.3%|
*ETFs incur their own expenses stated as a percent, for example, 0.21%. This is an additional cost to an account management fee.
Is Ellevest the Answer?
No, I don’t believe Ellevest offers enough value and innovation to justify their relatively high fees. They talk a good game about changing the game and redefining investing through “no jargon, no playing stock for sport, no patronizing, and you got this,” but jargon and playing the market is what some women may want. That Ellevest has “built a whole new approach” isn’t true. Had they been the first to launch automated investing or something truly unique, they could make that claim. Instead, they’ve repackaged robo-advising for the female demographic with some fluffy investing nuance. Moreover, it’s unclear if they offer tax-loss harvesting, a feature that involves selling losing investments so that investors can write off the loss on their taxes which has become a standard on online investment platforms.
Ellevest touts a personalized investment plan whether you become a client or not, but an investment plan isn’t hard to create. To draft one will take some effort and common sense on your part. On the other hand, if you go with a lower cost robo-advisor, you can apply the difference in fees toward getting a comprehensive financial plan from a fee-only financial planner or use a service such as LearnVest. At least this way you’ll get a complete plan which tackles multiple aspects of financial planning.
As stated, Ellevest wants you to “take control of your financial life.” What follows is five steps with step five being “Go have a glass of wine and enjoy yourself — we’ll let you know if you fall off track.” While the headline is correct, perhaps drinking enough wine will mask the above average fees they charge. This subtle attempt at sisterhood and girl power isn’t the answer to investing success. Between other online financial advisors, hundreds of low-cost ETFs, and target date funds; there are more intelligent ways to invest your hard-earned dollars.