Former Wall Street CEO reveals how most financial products designed for women completely miss the point

Former Wall Street CEO reveals how most financial products designed for women completely miss the point

The Conscious Investor

  • Sallie Krawcheck has led Merrill Lynch, Smith Barney, and Citi Private as CEO. She is now the co-founder and CEO of Ellevest, a digital financial advisor for women.
  • According to Krawcheck, the problem with many investment products designed for women is that only the marketing has changed. Sometimes in a condescending way, "Don't buy shoes; invest in the market."
  • Krawcheck says women invest differently than men. Women have different goals, financial needs, and lifespans than men.
  • Ellevest's impact investing portfolios invest in companies that advance women. Companies with greater diversity in leadership tend to have higher returns on equity, greater client and employee engagement, better long-term perspective, and more innovation.
  • Krawcheck says a lot of other great things happen when you get more money into the hands of women: Women are more likely to repay their loans, they are more likely to spend money in the community, and they are more likely to give to non-profits.
  • When asked what she thought was holding women back within corporations today, her answer was simply "Men." She went on to explain that it is human nature to recognize talent in people that remind us of ourselves.

The following transcript has been lightly edited for clarity.

Sara Silverstein: Can you talk to me about what the mission of Ellevest is?

Sallie Krawcheck: Ellevest is pretty straightforward: It's a tech-enabled investing platform for women, and its goal is to get women more money. Money is power. The guys have more of it than we do. We will not be fully equal with the guys - who we love - but we won't be fully equal with them until we're financially equal with them. We hear a lot about the gender pay gap; we've heard much less about the gender investing gap, which can cost some women as much or more as the gender pay gap. So, having spent my career on Wall Street, recognizing this gap exists, which women sort of blame themselves for. We took a step back and said, "Let's build an investing platform completely around what women are looking for, go really deep on this thing, thousands of hours." And we found that we invest differently. We're more goals-based than guys are. We have different salary trajectories, different lifespans that have to be taken into account. There are a range of things leading to our success.

Silverstein: You've recently launched a platform of impact portfolios.


Krawcheck: Exactly right. So the other thing we learned is that the significant majority of women - depends on the piece of research, but 86% of women, 84% of women are interested in impact investments. Again, depending on the research, less than 10% of financial advisers have even spoken to them about it, so we saw a huge unmet need out there for impact investments.

Silverstein: And what do your impact portfolios look like?

Krawcheck: Ours are a little different from others. We're providing them today. Let's talk about our digital platform, in the form of ETFs [exchange-traded funds]. Up to about 50% of the portfolio can be impact - it can't get higher because the market is still so new. Like other impact investments, we're all about earning a competitive financial return. Like other impact investments, we're all about advancing social and economic change for the positive. But unlike other impact investments, our means to the end, our way of doing it, is by getting money into the hands of women, and advancing women, and getting money to companies that advance women. What some might call "gender-lens investing," though with really a focus on getting real money to real women.

Silverstein: How do you identify companies that are advancing women? What does that look like?

Krawcheck: Our underlying investments do that for us. We have the Pax Ellevate fund - of which I am, full disclosure, partial owner, and, continued full disclosure, make any earnings that I would have made from that will go to a nonprofit, so I don't get a benefit from it. We also have the SHE Index as well, both of which are part of this, and for those, those companies, those organizations pick them. At Pax Ellevate, it's looking at the percent of women on boards, the percent of women in leadership teams, and then ranking them. So it's not, "Hey, they did this really interesting event with their diversity group" or X-Y-Z interesting. No. Are the results there? And what the research tells us is those companies that have greater diversity in senior leadership tend to have higher returns on equity - not by a little, by a lot - tend to have greater client engagement, tend to have greater employee engagement, tend to have a greater long-term perspective, tend to have more innovation. And so the thinking behind it is those great things happen, those are good for the company, good for the markets, good for the economy.


Silverstein: So it's not just about supporting women to support women - it's because there's also a financial payoff.

Krawcheck: Oh, my gosh - so now you're getting me started! I just talked about the good things that happen when you have greater diversity in companies, but other great things happen with women and money. If you give a woman a loan, she is more likely to pay it back. When she builds wealth from that loan, she's more likely - much more likely than gentlemen - to put it into the community and into her family. When she starts a business - we talked about when she's in management, when she starts a business, her startup typically does much better than male-only-run startups in terms of the returns. When she has wealth, she gives a greater percent of it to nonprofits, so all these great things happen.

Now, what I will admit - I've been on a journey with this myself, right? I was on the journey; there were impact investments. Don't you have to give up return, right? Got over that. And then getting money to women, that feels sort of niche and weird and strange, and why would that make sense? "OK, now I'm seeing the research, I guess I see it." But actually we invest with a gender lens already. It's just we're investing in men. And we love men - we think they're amazing - but one of the key tenets of investing is diversification. So rather than have 100% or 98% or 90% of the portfolio going to men, and to men-run companies, shifting a bit of it can add diversification, I believe.

Silverstein: You have firsthand experience working in an environment that is mostly men. What do you think is still holding the advancement of women back within corporations?

Krawcheck: Men. I mean, I think the answer is pretty clear. It's not that they - it's not that CEOs don't get it, because they get it. And it's not that people don't want to do it; they do. I believe it's the way we have been socialized that leads us to have intuition that is incorrect, that overrules the research we see about the positive effects of diversity. What do I mean by that? That when I look to hire somebody and she reminds me of myself, I just think she's amazing. And even you could say, "Hey, but the research, Sallie, says you should hire somebody completely different." "Yeah but she's awesome." And I can think how she'll do the job.


Another example, we tend to, as corporate America, promote men on potential, and promote women and people of color based on what they've achieved, right? So there's actually a lower bar for individuals who are like those in power than there is for people of difference. So we don't even see this, but it's again because our intuition does not allow us to extrapolate for these people of difference, what we can extrapolate for the majority. I could go on and on, but the intuition of those in power overrides what they see as the research on a day-to-day-to-day basis when they're making individual hires.

Silverstein: It seems that with some of these biases, a lot of people have tried to reach women as an investment group before, but these biases sometimes feed into the products they create for women. What are some of your pet peeves about earlier iterations?

Krawcheck: Well, none of them worked, and I think none of them worked because, number one, they identified the problem as a marketing problem. Women don't invest enough, we need to market to them differently. And by the way, while we're marketing to them differently, we need to tell them how to change, right? So we need to tell them that they need more financial education. And women will say, "I think I need more financial education." Do you know what's more interesting than financial education?

Silverstein: What?

Krawcheck: Everything, right? Women, the industry said, you need more financial education, and we have a women's initiative that has financial education. Women would say, "OK." They take the book home, they take the website home, and, you know, then doing the laundry is actually more fascinating. It was really marketing, and it was about how to change. Some of it, in the early days, was condescending: "Don't buy shoes; invest in the market." Probably because it went through the lens, not of women themselves, but of the male executives who were saying this. You know, this is what I think women are looking for. They didn't attack the underlying issue. They assumed the product was fine. So the mutual funds are fine, the ETFs are fine; we'll just market them differently. And we at Ellevest attack the underlying offering.


We found that when women think about it, when men think about investing, they think about outperforming and winning and money and how much they make. Women actually think about reaching their goals. If I invest, can I retire at the age of 65? Well, can I take the trip around the world in 10 years? Can I buy the house in five years? But when they go to some of the traditional offerings, they're thinking buy the house, and then they're met with, "Would you like a mutual fund or an ETF?" So it was just so out of sync for them that they stood back.

Silverstein: What advice do you have for people who want to see these changes and to see women advance in their company?

Krawcheck: Yeah, I'd come to Ellevest. I think that would be my advice.

Silverstein: Thank you so much.

Krawcheck: Thank you.