CHICAGO–Everybody knows. Especially when it comes to financial products and services for women. Except they don’t know anything at all, according to one person.
And it isn’t just in serving women where what “everybody knows” is often not just wrong but opposite of what is actually true, including long-held assumptions, Sallie Krawcheck told credit unions gathered here.
Krawcheck is co-founder of Ellevest, a robo-advisor investment platform and financial literacy program primarily for women. The platform was launched in 2014, in part with venture capital provided by Melinda Gates's Pivotal Ventures. As of 2021 the New York-based firm had more than $1 billion in assets under management.
In remarks to Co-op Solutions’ THINK Conference here, Krawcheck, who has led investment firms that include Merrill Lynch, Smith Barney and Citi Private Banking, said Ellevest is the first financial company built for women by women. She said the organization has successfully identified a gap in the way the financial needs of women are met, in large part by learning and recognizing that what “everybody knows” isn’t known at all.
A Shared Belief
“We have a shared belief that nothing bad happens when women have more money,” said Krawcheck, noting that women earn approximately 82 cents for every dollar earned by white males.
What does the research show happens when women have more money?
According to Krawcheck, the data show that when women have more money, societies are more moderate, women are better off, their children are better off (their daughters “definitely”) and men are better off, as women control 80% to 85% of shopping decisions. Moreover, non-profits do better as women donate more often than men.
“Is it any wonder that when women have less money we have the racial wealth gap and more anger in this country?” Krawcheck asked.
Krawcheck said the THINK meeting’s theme, “Rethink Everything” was apropos to a lesson that has been a foundation for her career.
“One thing I have been fortunate enough to do in my career is to question the ‘everybody knows’,” said Krawcheck. “The ‘everybody knows this is the right business strategy, this is the way to do it’.”
Krawcheck explained she began her career as a sell-side equity research analyst on Wall Street where one has to be very comfortable being a contrarian.
“They way you are successful is to say, ‘Wait a second, I think I see something…The thing people are missing is.’ I made my career as a research analyst in the run up to the Internet bubble before it burst of 1999-2000. I was a research analyst on American General, which was growing very rapidly. I thought I saw a deterioration in the lending business and it turned out the business they were getting into was subprime.”
And when subprime lending crashed, it took American General with it, but also helped to make Krawcheck a star.
Krawcheck said Wall Street is full of examples of “everybody knows,” including on the street itself, which is full of analysts with conflicts of interest.
The Next Big Thing
“We tried to bring that ‘everybody knows’ to the startup world to see something that others didn’t,” Krawcheck stated.
With a career at some of the biggest brands in investing, Krawcheck enjoyed plenty of success before, as she explained, "I was invited to leave Merrill Lynch in a re-org.”
“After leaving Merrill people said, ‘Why don’t you start an investing firm for women?’ And I said that is offensive. Women don’t need some junior varsity, dumbed down, ‘We’re women investing together’ thing,” Krawcheck related, sharing her position was one of those “everybody knows” things.
Instead, she planned to wait on the “next big thing.”
“And then one morning when I was putting on my mascara, which is when all good ideas come, all of a sudden it was like the mirror started to shake and I had a big idea,” Krawcheck said. “The big idea was the retirement savings shortfall, some would call it a crisis. It is a gender issue. It is a women’s issue. That’s because we women live six to eight years longer than men. Eighty percent of women die single, and 90% have to manage our money alone whether we want to or not. So, if there is not enough money to fund retirement it will ultimately be a women’s issue.
A Negative Surprise
“I’m working on the next idea, and the idea didn’t come to me right away,” Krawcheck continued. “The traditional way of managing a household’s finances is the man is the CFO and the woman is the treasurer who does the budgeting, the coupon cutting. She outsources her money management to him. Then that money comes back to her during what is typically the worst week of her life, either something happened to him or he’s leaving for the young hottie or your leaving him for the young hottie--which may be the best week of your life—and I’ve seen it with friends of mine now. She says ‘Where is the money?’ As she is preparing for the funeral or divorce, it’s ‘Where is the bank account?’ Seventy-four percent of women have a negative surprise at that point.”
Krawcheck said throughout their lives women are bombarded with messages that they are not good with money, with most media reporting around women and investing being “negative” in tone, while 72% of articles directed at men are positive.
“For her the message is about scarcity. For him the message is about abundance,” Krawcheck said.
Growing Wealth Gap
All of this is occurring at the same time the gender wealth gap continues to grow, Krawcheck said.
“As I finished up my face and went on to the hair, I asked, ‘why is it widening?’” she shared. “Because women are not involved in investing and keep most of their money in cash, which means they are moving backward. Women have more credit card debt. Women pay more in credit card interest even when they have the same credit scores. And I thought someone should do something about this, maybe form a company focused on women and money. But that sounded hard. I thought who the hell is going to do this. And I guess it’s me.”
Krawcheck said she spent much time thinking about the issue, noting that many companies have run “invest like a woman” initiatives.
“We said, here’s the issue. They assumed, as everybody knows, that the industry’s products are enough and what we need to do is market to women,” Krawcheck said. “We know women aren’t as good at math. We know women don’t have as much financial education as men. We know they take longer to make decisions…We know these things. But what if none of those are true?”
Happy to Take Risks, But…
Krawcheck said she and her company spent two years doing research on how women engage with their money and then sought to build a company that, first of all, reflects women. Today, 80% of our Ellevest’s leaders are women, 75% of its overall staff is female, and 50% are people of color. She said the company put together a diverse group and then worked to “go deep.”
One thing it did not do was focus groups.
“We do one on ones. Focus groups will lead you down a primrose path of whomever spoke first,” she said.
What those one on ones discovered, according to Krawcheck, was that women aren’t “risk averse,” even though “everyone knew it”—they are “risk aware.”
“We’re happy to take risks, we just want to understand it. How much can I afford to lose? What are my chances of getting to my goals. That’s what we learned about women,” she said, adding the “everybody knows” assumptions are deeply rooted when it comes to women and numbers. Boys in middle school, she said, are not better at math than girls, but the assumption leads to females being steered away from math-related careers.
“The hypothesis here is not that there is something wrong with men, but they have built an industry for themselves. So, what can we build to help them get engaged with their money?”
All of that led to Ellevest.
Other Findings
Among the findings in Ellevest’s research, according to Krawcheck, are:
- Nearly all women when asked ‘What do you want in investing?’ say they aren’t looking to beat the market. Instead, “what motivates women are their goals. They want to buy a house. They want to retire and travel, start a business. If you can help her visualize her goal and then quantity those goals based on her unique characteristics and put together an investment portfolio that helps her achieve her goals, bam!”
- If a man is asked about his risk tolerance he will make an educated guess and keep going. “If you ask a women and she doesn’t know, she will stop, close the app and leave.”
- Men will invest right through jargon even if they do not understand it. Women will stop and say, “I’ve got to figure that out.”
Lessons in Pricing & Value
According to Krawcheck, there is no investment minimum with Ellevest. But it has moved to subscription-based pricing for its services, while also adding more financial education, a debit card and coaching. Overall, it has tripled much of its pricing, but that has only led to surging growth in users, while its cost of acquisition has declined by 50%-75%.
“What (the Ellevest investor) said was, ‘I get the $5. I get the exchange of value’,” said Krawcheck.
Krawcheck said there are also market assumptions that women have “emotional blocks” when it comes to money, but the real issue is women are looking for help in resolving challenges and reaching goals.
“Women said, ‘I totally have issues around money, but I’m not coming to your app to solve them. I want to buy a house in four years’,” she explained.
Let the Data Speak
Overall, Krawcheck said she and the company have learned to let the data speak.
“Coming out of pandemic, we did another round of research and she comes back and kept saying she wants to earn more money at work, wants to move forward. It was the number-one thing she wanted from us,” said Krawcheck. “And it was not just our research, it was everyone’s research. Gen Z’ers said, ‘Let’s go get career coaches.’ I said that doesn’t compute. But then I said, ‘Back-up Sally. Let’s hire one career coach and two certified financial planners.’ It was an absolute home run. Today have workshops around numerous issues. But what we found is they weren’t looking for the financial education in a vacuum, they were looking for the information, the individual coach, and for us to help solve it.”
Krawcheck urged credit unions to also listen to the research, and then to go one step further.
“Let the research speak to you. Be open to questioning the things you think are never going to work. There are these opportunities all around we’re not seeing. The fact people will tell you ‘no’ only means the opportunity is in front of us. There were so many negative articles when we launched Ellevest, that others have tried this and we will fail. I think we threatened people because we were so clearly here for women and we were tech first.”
Emerging Generations & Opportunity
Looking to the emerging generations Krawcheck said they “care very deeply about why they do it, it’s not what you do. I would say the financial services industry writ large has done a relatively poor job of stating its mission, and restating its mission and living that philosophy. I hope Ellevest has been very clear about its mission of getting more money into the hands of women. Our people are passionate about it.”
If there is a lesson for credit unions and their strategies and related marketing, Krawcheck suggested, it is, “If you talk to everybody, are you in fact talking to anybody?
“We are now two steps along in personalization,” Krawcheck continued. “The next step won’t be this old-fashioned target me based on my age or wealth, but engage with me based on my interests and where I am. Get the solutions and advice to me almost before I need it. And don’t bother me with that other stuff.”
A Positive for Credit Unions
As for credit unions themselves, Krawcheck believes CUs are in a very good place.
“You all start in an absolutely amazing position, which is having your members’ trust. When you have that, they are open-minded to you. It’s terrific position to be in in financial services. I urge all of you to lean toward your customer base, be ready to listen, and put it to work for great change for helping all of our members achieve if not financial independence, absolutely financial wellness. It’s more important than ever.”