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, career, relationships, social issues, and so on. Ellevest is a robo-advisor that seeks to “redefine investing for women.” At first glance, they appear to be Sex and the City meets personal finance but how good are their services?
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.
To get started, an investor builds a profile in five short steps. Ellevest will suggest personalized investment portfolios for each of your goals. As a fiduciary, they’ll act in your best interest (some investment advisors don’t act in their clients’ best interests).
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 critical 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.
- Investment Strategy
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 seeks to outperform the general market, for example, purchasing a fund run by a portfolio manager with a focus on beating the S&P 500. A portfolio manager attempts to beat the market by using fundamental and technical analyses. While active management sounds attractive, 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 withdraw money 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 low-cost index exchange-traded funds (ETFs). Of the 20 funds they use to construct portfolios, 14 of them are Vanguard funds. Wealthfont and Betterment also favor Vanguard funds.
- Portfolio Construction
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 investor profile questionnaires to create investors profiles. For example, Julie is a moderate investor while John is an aggressive investor. An investor’s profile leads to a suitable asset allocation mix of stocks and bonds. For instance, a conservative investor attracts a weighting of 70 percent bonds and 30 percent stocks.
Ellevest has collaborated with Morningstar Investment Management to construct portfolios based on an approach called Liability Driven Investing (LDI), which is an extension of Mean-Variance Optimization (MVO). Secondly, they 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. Markets will move up and down regardless of your investment strategy. As a result, your asset allocation will change by the second no matter what. In contrast, 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 has three pricing tiers of 0.25%, 0.50%, and an unknown percent based on assets under management. (Previously, they had one fee of 0.50% but have changed their offerings.) Depending on the arrangement an investor chooses, services might include access to certified financial planners (CFPs), executive coaches, and so on. Note: ETFs incur their own expenses stated as a percent, for example, 0.21%. This is an additional cost of robo-advisor account management fees.
Executive Coaching, WT%?
Ellevest offers executive coaching to help clients negotiate raises, nail interviews, switch industries, “Hit the ground running at a new job,” and return to work after a career break. Instead of just focusing on financial matters, they aim to be a talent/HR coach too. This doesn’t make any sense, and I don’t see the connection between selecting investments and giving someone career advice. They are two different fields altogether.
I don’t believe Ellevest offers enough value and innovation to justify their existence. 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 copycat services offered by others. Ellevest doesn’t offer automated tax-loss harvesting, which is standard for most online investment platforms. Instead, they argue against automated tax-loss harvesting and offer a tax minimization methodology of their own.
- At 0.25%, Wealthfront offers more than Ellevest and is led by Burt Malkiel, author of the bestselling investment book, A Random Walk Down Wall Street.
- At 0.50%, Betterment offers just as much and charges less at 0.40%.
- For asset management of over a million dollars, Personal Capital and Vanguard Personal Advisor are better options than Ellevest.
Ellevest wants you to take control of your financial life as they suggest with their slogan, “Invest Like a Woman. Because Money is Power.” However, this subtle attempt at sisterhood and girl power isn’t the answer to financial success. Ellevest is substandard compared with other robo-advisors, hundreds of low-cost ETFs, and fund of funds. There are more intelligent ways to invest your hard-earned dollars regardless of gender.