Sallie Krawcheck has yet to bring her infectious hold on fellow UHNW women to mass affluent women and their expensively long life spans

October 6, 2016 — 7:44 PM UTC by Janice Kirkel

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Brooke's Note: Hi Sallie. You probably think we are such glass-half-empty reporters in how we cover your company. Try not to think of it that way. We are mostly just awed by the degree of difficulty that you have chosen as measured by the pioneering thresholds you'll need to reach for success. As far as I know, no financial advice firm has ever succeeded by marketing to women. No robo-advisor has ever achieved break-even status. And no twice-fired head of stockbrokers at two wirehouses has ever entered the startup realm and survived to thumb her nose at those former employers from Silicon Alley. We can hardly help but be on your side. But as the VC dollars dedicated to your effort mount, and your fellow women-facing robos fall by the wayside, so must our skepticism.

The recent $9-million round of funding for Sallie Krawcheck's women-oriented robo-advisor, Ellevest, proves, if nothing else, that the former chief of the stockbrokerage units at Merrill Lynch and Smith Barney has perfected the art of raising venture capital from high-powered women.

But attracting a critical mass of workaday women investors to make the new venture a going concern? That's another matter altogether. See: As a self-aware Sallie Krawcheck launches at TechCrunch Disrupt, Ellevest embraces the peril of selling algorithms to women 

The high-wattage roster of accomplished and monied women onboard for this round, announced in September, include tennis great Venus Williams; Mellody Hobson, co-founder of Ariel Investments; Theresia Gouw, leader of Aspect Venturesand Sonja Perkins, founder of  Broadway Angels, an all-woman angel investment group.

The problem is not the seed money but the firm's AUM. As of May, Ellevest had just $136,185 in assets under management over 40 accounts, according to its latest Form ADV, signed by Charles Kroll, co-founder and president. See: Relying on men but 'losing sleep' Sallie Krawcheck seeks to robo-reap women investors with Ellevest

Critics suspect that Ellevest's chronic challenge may be -- ironically -- due to a misapprehension about what women want.

“This shouldn’t be about women, it should be for everyone who needs this,” says Min Zhang is a former PIMCO analyst and founder and CEO of Los Angeles-based Totum Wealth, which "empowers digital client engagement and suitable advice for financial advisors."

Min Zhang: If the aim is to help people why exclude some just because of their gender?

“It’s using gender to sort of segment your market. It’s stereotyping and also just a marketing tactic,” she says. See: Yodlee schools RIA tech startups at The Vault and RIABiz stops by

All investors matter

Repeated attempts to arrange interviews with Ellevest principals to catch readers up with the progress of the firm were met with responses about scheduling problems that led to postponements. The email string ended with an apologetic 'no.'

However, in sponsored content (i.e. paid content) for InvestmentNews and the Huffington Post, Krawcheck argues that the business case for investing in women is overwhelming, citing a recent study by the Center for Talent and Innovation finding that 77% of women say they want to invest in companies with diverse leadership teams.

Women may want to invest in women but how important is it that they be advised by them?  In a LinkedIn interview with Williams and LinkedIn executive editor Daniel Roth, Krawcheck says: “We all know about this gender pay gap that exists. Very few know about are talking about the gender investing gap and this is something that can cost some women tens of thousands, hundreds of thousands some women millions of dollars over their lives.” 

Zhang isn’t buying it.

"I don’t see gender as being a divider here. If the aim is to help people why exclude some just because of their gender? It’s the same as if I start a gay-only robo site. How does being gay … or your race … change the way you invest?” See: Advisor spotlight: How a former JPMorgan bond saleswoman transformed an iconic advisory into a business http://riabiz.com/a/2012/4/30/christopher-street-financials-president-becomes-the-talk-of-the-town

LGBT niche

Well placed to respond to that point is Jennifer Hatch, president of Christopher Street Financial, a New York-based RIA/broker-dealer, under current management since 1997, which advises $415 million of assets and serves the specific needs of the gay and lesbian community, especially as they pertain to issues surrounding marriage equality. See: Advisor spotlight: How a former JPMorgan bond saleswoman transformed an iconic advisory into a business

Hatch says that over time, and with legal advances, those needs have changed.

"LGBT clients have different legal, financial and tax needs … but as marriage equality took hold … for those who have availed themselves of legal marriage … the needs have become more similar to mainstream investors." 

Still, Hatch says, her firm has been rewarded for the focus on its niche.

Jennifer Hatch: Even the advent of gay marriage doesn't stop people from wanting to get advice and patronize firms that are like them.

"Even with the advent of gay marriage, that doesn’t stop people from wanting to get advice and patronize firms that are like them … an LGBT firm … there’s definitely a desire by a certain percentage of people in any community to work with people who get them, understand them. Generally speaking LGBT tends to be people who are politically progressive and appreciate biz with organizations that reflect their world view." See: How Morgan Stanley and a lesbian super-producer came to grief in South Carolina and why she alleges bias

When considering Krawcheck's new enterprise, it's the “robo” factor that gives Hatch pause -- but she still thinks a women-focused RIA is an idea with promise.

"If robo advising is stripped down to its investment aspect it’s less clear what the benefits of that relationship are (since they’re not working with a human). I personally, just thinking from the perspective of an investor, would be attracted to an organization focused on women’s investing needs and interests … even in a computer relationship I would feel more valued personally … attracted," Hatch says. See: A $4.7-billion RIA-under-investment-bank in NYC softens its macho edge by headhunting a top woman from GenSpring

Robo to robo

Granted, Ellevest is late to the party on the robo advisory front. Krawcheck filed with the SEC in November 2015 but only announced the launch in May. Ellevest also arrives with higher fees than digital forerunners Betterment and Wealthfront, both in business since 2008. See: 'Bristling' at 'pink-it-and-shrink-it' pitfalls, Sallie Krawcheck files an ADV

In the statement announcing the latest funding,  Krawcheck says that in order to bridge the “gender money gap,” and presumably outdo such competitors, it conducted “hundreds of hours of research with women to co-create with them a platform that better serves them. This includes a proprietary algorithm that incorporates women’s unique salary peaks and longer life spans.”

Tina Powell: We had product, price and promotion … we needed placement.

Still, the track record of gender-specific digital advisors is not encouraging. SheCapital, founded by Tina Powell, launched in August 2015 only to close its doors in July. Its $1.3 million of assets were transferred to Beacon Wealth Management in Hackensack, N.J., where Powell is director of business management. See: Orion draws a record pack of hackers to Utah to code, bond -- and compete

Powell started SheCapital with her own money. She declined to say how much but did say that "a lot of the expenses went to compliance."

Powell says that if she had to do it all over again, she would make sure she had an enormous team of web developers and engineers “who could be nimble and flexible and show different variations that would lead to conversion.” See: How one 'robo-advisor' got $25 billion on its platform with a Mint.com mindset, 401(k) friendliness, a merger and 16 years of work

Powell points to the distribution networks that other women-oriented robo-advisors such as the Ellevate network website for Ellevest, and the DailyWorth site for WorthFM. See: The overnight maturation of In|Vest 2016 was like green bananas going straight to brown for some but Joe Duran made sure it bore fruit

“Those communities were formed years ago,” notes Powell. “We had product, price and promotion … we needed placement.”

Zhang says she's not especially familiar with the case of Tina Powell and SheCapital, but that there are certain universal truths that cannot be circumvented for any startup. “You either need sufficient funding before you get to revenue or profit, or get traction and adoption fast, which allows you to raise more money if you are not charging enough."

Life algorithms

It’s hard to imagine that the sophisticated women who made up the series B round of funding for Ellevest aren't familiar with the story of SheCapital. The sheer heft of the $9 million round is enough to make one think that Krawcheck, rather than her product, is the attraction.

"When I heard the idea I thought it was genius," Williams said in the LinkedIn interview. "I wanted to become involved because I believed in Sallie." 

Zhang says that most startups fail not for lack of a distribution network but “because the market does not see the value in the product or service and won't use or pay for it –- that’s something a network or marketing dollars cannot solve."

Venus Williams (with Sallie Krawcheck looking on): I wanted to become involved because I believed in Sallie.

Anyone can have an algorithm, says Zhang. And as for unique salary peaks and longer lives, “income peaks are different for everybody.”

Furthermore, she says, longer life expectancy for women is not exactly classified information.

“The algorithm is a model with fundamental assumptions. It’s important to be thinking about [longer life] but at the same time it’s just one parameter of that model.” See: Forget their reputation; rich women are more fearless investors than supposed

The first $10 million round was led by Morningstar Inc., which participated in the second round as well. Other first-rounders included Contour Ventures and Karen Finerman, co-founder of Metropolitan Capital Advisors; Andrea Jung, CEO of Grameen America; and former CEO of Avon Products Inc.; and Mohamed El-Erian, chief economic adviser at Allianz and the former co-CEO of PIMCO.

For Ellevest, the news will be assets-under-management  dollars surpass the VC dollars invested in attracting them. 



Share your thoughts and opinions with the author or other readers.

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Jeff Spears said:

October 6, 2016 — 9:25 PM UTC

I'm rooting for Sallie! Why? Because I have sat in enough meetings where the male "advisor" ignores the woman and focused most of his attention on the man. There are several successful female focused RIAs but they emphasize education and communication. Both seem to be lacking in a Robo model. My guess is if Sallie tweaked her business model to include human female advisors the line of potential recruits would be out the door! Who wouldn't want to be trained by and work with Sallie?
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Amanda Steinberg | WorthFM said:

October 7, 2016 — 2:14 AM UTC

Janice and Brooke, while your assertions around lack of success regarding previous women-focused ventures failing seem valid on the surface, you're missing some key distinctions that make any FinTech venture successful. In the emerging-mass affluent financial space, of which there are few players overall, positioning around any niche, be it female or otherwise, doesn't determine success. The two factors that matter most are cost per client acquisition and long-term profitability. SheCapital and the thousands of other startups that will never hit your radar failed to thrive because they couldn't create a conversion funnel at a sensible cost. That’s not a desire or top of funnel problem, but pure mechanics. Few founders, especially those with non-tech backgrounds, can engineer this form of success. Second, pricing pressures in non-HNW financial space are very hard to turn profitable, making everything from capital raising to short-term profitability especially difficult. But I promise you this: women are completely disenamored with traditional finance. Only 15% of clients of today’s leading robos' clients are female, meaning that tens of millions of affluent, self-directed women seek better peace of mind and contextually relevant services that don’t exist today. Our platform WorthFM has 40,000 women on the waitlist and we’re meticulously optimizing our onboarding and overall service methodology to mirror what they want from their financial services provider. Even if Ellevest and WorthFM don’t succeed, there’s a widely ignored demographic controlling $5TR in assets that someone soon will serve, and profitably, but by and large the bias against women’s specific culturally-derived cognitive dissonance around money is a giant pain point to be solved and perhaps the largest overlooked market opportunity in finance today. Anyone who solves the client acquisition problem and enhanced service model will eventually do it. I invite you to reconsider the critique as you missed the core distinction that make any FinTech venture successful – rapid, low-cost client conversion. Gender is simply one significant and widely misunderstood differentiator in an industry that’s long been inhospitable to women.
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Stephanie Sammons said:

October 10, 2016 — 10:35 PM UTC

I think Jennifer Hatch hit the nail on the head with "there’s definitely a desire by a certain percentage of people in any community to work with people who get them, understand them". Women's needs, goals, and desires ARE different. Regardless of the investment process or algorithm applied to get them to their goals, it's truly the front-end acquisition process and ongoing support that matters most...high trust, high tech, and high touch. Sallie is smart, intuitive, and very in touch with the clients she serves. Do not underestimate her!

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