Roboadvisors are so 2015. Roboadvisors for women are what all the cool kids are talking about in 2016. Roboadvisors are, at the core, software. So, can this software be designed to serve women better?
I’ve had several people ask me about Ellevest. Is it better than Betterment? (Let’s call these roboadvisors Generation W, for women, and Generation 1.) I already wrote about the promise, and the limitations, of Gen1 roboadvisors. The question now is: do GenW roboadvisors offer anything helpfully different or more?
First I had to find what GenW roboadvisors exist. Everyone mentions Ellevest (presumably because its founder, Sally Krawcheck, is a marketing genius with a bunch of money behind her and, apparently, the Best PR Team on the planet), but are there others?
I was able to find one other viable choice: WorthFM. Neither of these services is openly available yet…I had to get on the waitlist for each. (Which, among other implications, means this blog post can’t evaluate my actual customer experience.)
A third, SheCapital, for example, shut down this last summer, after being open for a year…and attracting fewer than 10 investors.
The last I could find, Women Investing Now, is a going concern, but, frankly, it doesn’t seem ready for prime time. Its website design isn’t up to snuff, some of the buttons don’t even work, and I couldn’t find the fees on the website. Lastly, I’m unclear about what I could expect as a consumer.
I tried to find what other people have to say but could find almost no impartial analysis of this new generation of roboadvisors. You can throw a dart blindfolded and hit an article about Ellevest or Sally Krawcheck, but very little in the way of third-party reviewers figuring out “How are these tools different from Gen1 roboadvisors?” and “Are they really better suited for women?”
This lack of coverage is, in fact, one reason I would hesitate to jump into these tools myself too quickly.
My favorite part of this tool, the thing that distinguishes it from other tools, is their Money Type Assessment. It asks you questions that you’d never ever see in a traditional roboadvisor:
It’s hard for me to enjoy my money when I know others have far less than me.
More important than money to me is the autonomy to live my life on my own terms.
and then asks you to agree or disagree. (Notably, it doesn’t actually ask that, it asks you to rank these statements with responses like “Totally like me” and “Totally not me.”)
At the end of the questionnaire, it ranks you among 5 money types and, on the basis of your dominant type, gives you (generic but spot-on, in my case) advice that goes far beyond your investment asset allocation.
For what it’s worth, I am:
- 83% Producer
- 54% Nurturer
- 50% Visionary
- 14% Independent
- 8% Epicure
How do you compare?
I couldn’t, unfortunately, tell how the tool uses the results of this questionnaire, aside from the immediate feedback about your Money Type. But this is definitely the larger psychological context of investing that makes it better. Emotions! Money attitudes! Of course!
Of course, emotions and money attitudes are not unique to women. Would you believe that 100% of people have emotions around money, some helpful, some hurtful? So, ideally, everyone would do this sort of introspection.
Other Things I Like
WorthFM allows you to save for short-term goals with just cash. Which is how I recommend my clients save for any goal under 3 years. Betterment, by contrast, has a “safety net” goal that they proudly invest in 40% stocks. Hunh? That’s a different conception of “safety net” than I would ever use for my clients. In 2008-2009, a portfolio 40% in stocks could have lost 20% of its value. Ouch! Maybe this is why Betterment is sometimes written BetterMENt, because this pro-risk approach is stereotypically male.
The fees are relatively low and transparent. $2/mo or 0.5% for balances over $5000. This is higher than Generation 1.0 robo advisors, which charge 0.15%, but maybe there’s is a bit more value being provided here.
Simple, straightforward, no-hand-waving-special-sauce investing. They have 5 investment models, each consisting of 8 ETFs and cash. Basically, it’s my investment approach.
And if it’s important to you what your companies look like: The leadership team is 100% female. Which is awesome. Also 100% white (I think). Not as awesome.
Ellevest focuses on women being “risk aware” (as opposed to “averse”), and that feeds into several conservative assumptions: about a woman’s salary growth, about investment returns, about how likely you are to reach your goal, etc. This resonates with me, because I believe that, in many ways, “financial planning” is synonymous with “risk management.”
Like WorthFM, their fees are transparent and low (compared to the average financial advice industry).
There’s too much of the usual investment BS for my taste. “Oh, we spend more time and we’re more clever with our investment research.” I’m sure their Chief Investment Officer is smart. I’m also sure she’s not smarter than all the other CIOs out there.
Here are some of their advertised differentiators:
- Customized portfolios. “Ellevest has hundreds of unique portfolios, that are tailored to women’s specific goals and timelines.” I see no financial value to everyone having a unique portfolio. The performance of the markets is simply too uncertain to think that owning this subset of it instead of that one, or 50% instead of 55% of stocks is an investment difference that’ll make a meaningful difference to your success. It’s always possible that the uniqueness comes from something else that I’m not thinking of.
- A goals-based approach. I’m not sure how this differs from what Betterment offers.
- “Personalized Investment Plans. We provide deposit, savings, timeline, and portfolio recommendations for achieving each of your goals. The projections we show you are based upon these recommendations, as well as personal information such as your salary, growth in your salary based upon a gender-specific, education based salary curve, and your assets.” Now this is unique.
- “Higher likelihood of meeting your goals. Other advisors offer a 50% likelihood of achieving the forecasts they show, or better. Ellevest’s recommendations are determined using a higher, 70% likelihood. That means you can feel more confident of reaching your goals with the investment plan we recommend.”
I don’t know where that 50% comes from. I know in all the retirement projections I’ve ever been a part of, we’ve shot for 90%+ likelihood. But perhaps that’s because there’s no “do over” for retirement. Whereas missing the timeline for your vacation or new home isn’t quite as devastating.
Also, my perspective might be skewed. I operate in a small part of the financial advice world: fee-only is small enough, then planning-focused fee-only is microscopic. Perhaps all those other planners are content with 50% planning.
- “Ongoing management and alerts. Ellevest’s portfolio recommendations generally get more conservative as you approach your goal. This helps reduce the chance of losses due to market movements. Ellevest also monitors your portfolio daily, and rebalances, if needed. If you fall off track, we’ll email you and give you a “heads-up” to let you know what to do to get back on course.” The “getting more conservative as you approach your goal” isn’t unique to Ellevest, but I don’t know if any other roboadvisors gives you advice for how to get back on track. That’s kinda cool!
Ellevest’s leadership team is pretty diverse: men and women, some women of color. Which is say, way ahead of the rest of the broader finance industry. Admirably, they seem to want to run their business in a woman-friendly way. Their “careers” page lists these benefits: Unlimited Vacation and Flexible Schedule.
I did find a little tiresome all the blatant “Look, we know women! We give women what they like!” copy on Ellevest’s website. Can’t we serve women, be pro-women, without talking about it all the damn time? I don’t know…maybe it’s necessary to counter the otherwise male-oriented rest of the finance industry.
I was genuinely irritated by the multiple references to drinking wine and liking chocolate…because, you know, that resonates with all women. Their employee benefits, for example, while generally attractive, include a “Chocolate Drawer & Wine Fridge.” (Good grief… Anybody got a reuben around here?)
- What risks are there with such new businesses? SheCapital shut down after a year. What happens if your roboadvisor does? While your money should never be at risk, there are other risks. If the service shuts down, you have to go in and assume control of your investments (and will you have any idea what to do?). Perhaps most importantly, you don’t actually know how the service is going to work until we start hearing reviews by users.
- What happens if you’re a woman, but share your life and finances with a man? Can you use this service to improve your joint situation?
- Are the fees reasonable? Gen1 roboadvisors charge 0.15 – 0.35%. Why do Ellevest and WorthFM cost 0.5%? They’re both fundamentally software solutions (and therefore easily scalable). On the other hand, they might very well provide more value to you than Gen1.
- Can they surmount the “no human interaction” thing? There are some things that robots simply can’t help you with, in particular, reassuring you during difficult times. Robots can send you well-phrased, automated emails, but nothing can replace an actual human, who knows your strengths, fears, and idiosyncrasies.
- How can they incorporate non-quantifiable parts of your financial life? In particular, your career? How can roboadvisors of any stripe sufficiently combine your career reality with your financial reality? WorthFM, for example, talks about “paint[ing] your full financial picture,” and the associated graphic shows 401k, debt, real estate, savings…and not anything career, which you might argue is the single most important part of your “full financial picture”!
Ellevest does explicitly address the career issue by using conservative estimates for women’s salary growth, which is useful, but it doesn’t help any individual woman to improve career or pay prospects, which is essential.
What Would I Advise?
These tools have real promise to integrate emotion with investments more effectively and, in Ellevest’s case, to incorporate hard data about the average woman’s career into their financial projections. That can absolutely make these tools more effective for women.
If you’re familiar with the work of Richard Thaler, the father of Behavioral Economics, you can see that Gen1 roboadvisors are designed for “Econs” (the term coined by Thaler to describe the unrealistically hyper-logical, unemotional personage that traditional economics and investing research assume). GenW roboadvisors clearly are trying to talk in a more “Human” way.
It does seem like Ellevest has created a fundamentally different investment engine, to reflect women’s reality. WorthFM, from what I can see so far, has more of a women’s wrapper on a traditional roboadvisor.
Bottom line: These roboadvisors are potentially more usefully comprehensive in their outlook than Gen1 tools. Being “robo” advisors, of course, they still suffer from the same “no human” limitations that Gen1 roboadvisors do. And while Betterment has been around for a few years, and we can see what people’s experiences are, these GenW tools have not. Anyone who’s been in software for more than a couple weeks knows that it doesn’t always work the way you designed it to. I’d wait and see.
Who Would Benefit from a Roboadvisor (of any stripe)?
I think that many people are attracted to roboadvisors because they think they can’t get the kind of help they need from human advisors. Those concerns are valid.
- People think they can’t afford or even find “traditional” financial advice and investment management. Most fee-only advisors charge a percentage of assets they manage, and therefore don’t want to talk to you unless you’ve got at least $250k, $500k, or $1M to invest.
- People love the flexibility of a virtual relationship. Typical advisor meetings are still in-person and infrequent.
- People appreciate the speed and efficiency of an automated relationship. Often the advising process still involves paper, or locally installed software, or one-off processes that don’t scale.
Technology and a cultural shift are allowing some advisors (like all my colleagues in the XY Planning Network) to upend these traditional restrictions on financial advice and open up the profession to more of you. Roboadvisors have their place, but realize that the face of human advisors is changing, too.
Question: What holds you back from using a GenW Roboadvisor? You can leave a comment below.
Do you want a financial planner who can not only help you invest in a low-cost way, but who focuses on your larger financial picture, including your career opportunities? Reach out to me at firstname.lastname@example.org or schedule a free 30-minute consultation.
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