I never became a Sex and 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 so on. Fast forward and America is on the cusp of electing its first female president, Hillary Clinton (Update: Clinton lost). 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 areas such as equality, rights, and pay, which shouldn’t be the case. Also, Michelle Obama is doing her part through Let Girls Learn; an initiative to ensure adolescent girls get the education they deserve.
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 and the City meets Wealthfront, but how do they compare?
Ellevest was founded by former Citigroup and BofA C-Suite executive Sallie Krawcheck. According to her bio, her “professional 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. 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 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 instance, Personal Capital offers free tools to gauge, monitor, and optimize your financial holdings.
There are two main approaches to investment strategy: 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 such as 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 analyses. While active management sounds nice in theory, professional money managers often underperform their benchmarks while attracting relatively high fees (and six to seven-figure salaries).
There’s a lot of research available on the passive versus active debate, but many prominent investors including Warren Buffet recommend taking the passive approach. As astute investors continue to move money away from actively managed funds, companies like 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 passive, low-cost index exchange-traded funds (ETFs). Of the 21 funds they use to construct portfolios, 14 of them are Vanguard funds. Wealthfont and Betterment 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 percent bonds and 30 percent stocks.
Ellevest highlights their portfolio management approach 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. 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 “goal-based investing” to increase the likelihood of achieving financial goals and not just maximizing returns.
Of the three critical investing factors, fees are what investors 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 strategy or portfolio methodology is implemented. With that said, fees are what they are and have a tremendous impact on returns, which investors usually underestimate. You don’t want to be the investor who’s paying 1 to 3 percent when you could be paying 0.2 percent for a similar investment.
Ellevest charges 0.50 percent to manage client assets. Yes, you read correctly. Their fee is lower than using a traditional advisor but much higher than both Wealthfront and Betterment for similar services. Also, I find their pricing page to lack relevant details. 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. (Update: Ellevest now highlights how they compare against other robo-advisors.)
|Ellevest||Betterment||Charles Schwab||Wealthfront||Vanguard PA|
|Account management fee||.50%||0.25% to 0.40%||Free||Free to 0.25%||0.30%|
*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 financial planning nuance. Also, Ellevest doesn’t offer tax-loss harvesting, which is standard with most online investment platforms. Although they make an argument against tax-loss harvesting, why not offer it and let their clients decide?
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 (see my video YouTube). Moreover, if you choose a lower cost robo-advisor, you can apply the difference in fees and get a comprehensive financial plan from a fee-only financial planner. That way, you’ll get a complete plan that covers multiple aspects of financial planning, not just investments.
Ellevest wants you to take control of your financial life. However, 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 fund of funds; there are more intelligent ways to invest your hard-earned dollars regardless of gender.
Read My Complete Guide to Robo and Do-It-Yourself Investing