Coincidental timing that the same week we launched Ellevest Intentional Impact Portfolios — a way private wealth clients can invest to make the world better for women — this shocking-but-not-surprising story about misogynistic (and, frankly, creepy) behavior in the private wealth industry came to light. But it makes you (or at least me) think. Note: An edited version of this was published in Fortune. — Sallie
The highest-profile #MeToo news in the past couple of weeks was further revelations of Matt Lauer’s allegedly criminal behavior, demonstrating that we still have the capacity to be surprised by these revelations.
Less widely remarked-upon — but perhaps more notable — were comments made by Ken Fisher, a self-described “self-made multi-billionaire” and CEO of investment manager Fisher Investments, at a financial services conference. They included his talking about genitalia, saying he wished he’d had more sex, and that winning asset management business is akin to “getting in a girl’s pants.”
Not even a woman’s. A girl’s. Ick. This is one creepy man. A creepy man whose company has been entrusted with $112 billion in client assets, for public pensions and individuals.
There have been a few announcements of investors pulling their money from Fisher (amounting to less than 1% of assets), while the press initially focused on “conference culture” and how to make women feel welcome at industry conferences — at which men are the majority, at which alcohol can flow freely, and at which the distance from the watchful eyes of the human resources departments can lead to bad behavior.
But it’s bigger than that: It’s about women feeling — and being — welcome not just at financial services conferences, but in the financial services industry itself.
Who thinks Ken Fisher’s disrespect for women stops when he walks off stage and into his company’s headquarters?
The numbers across financial services are numbing: Today, women make up just 10% of mutual fund managers and manage just 2% (just 2%!) of mutual fund assets, despite research that shows they are as good or better money managers than men. Women financial advisors face the biggest pay gap of any profession. Some 60% of female financial advisors report that they have personally experienced sexual harassment at work, and nearly 80% of people in the industry believe that sexual harassment is a problem.
Even worse, there is little positive change: Diversity in financial services is not getting better. In the years after the financial crisis, it actually went backward. And by the end of 2015 (the latest period for which numbers are available), the GAO reports that the number of women in “senior-level management positions” in the industry had held constant since 2008 at just under 30%, with many of those in support positions — important roles, but not ones that hold decision-making power.
And then there’s the fact that the financial services industry has been almost completely silent during the #MeToo crisis. Even with that staggeringly high stat on harassment in the industry — and the fact that those of us in the industry know that there isn’t just the one person like Ken Fisher — the response we have seen has been little more than a muted game of Diversity Bingo.
(What, you may ask, is Diversity Bingo? It’s the things executives say to dodge accountability on diversity. For example, B12: “Diversity isn’t just the right thing to do; it’s also the smart thing to do.” G42: “We’re taking action on diversity, but we know we need to move faster.” I22: “We want to promote more women. We just don’t want to lower the bar.” O58: “Here’s a fearless girl statue. Pay no attention to the fact that we’re being sued for gender pay discrimination, or that we’re suing the girl’s sculptor to prevent her from making a living by selling replicas of her work.”)
OK. Not great for women in the industry, for sure.
But it’s even bigger than that.
Because who thinks the Ken Fishers of the world suddenly stop disrespecting women when they start making their investment and business decisions?
The ripple effect of executives’ decisions can be enormous, because the financial services industry serves as the lifeblood of our economy. That can look like a Fisher Investments deciding where to invest its clients’ money and thus which companies have the capital to grow and which don’t. Or it can look like a big bank deciding on the parameters for its mortgage lending, or who gets credit cards, or which small businesses to fund.
Financial services companies can decide to continue to do business with a Jeffrey Epstein even after he had been convicted of sex crimes (which they did), to lend to gun manufacturers (which they do), and to underwrite the initial public offerings of companies with “frat boy cultures” — WeWork, Uber — at nosebleed valuations (which they fell over themselves to lead).
In other words, financial services companies, in their roles as capital allocators, make the ultimate decisions along many lines on who “wins” and who “loses” — who has the capital to grow and who doesn’t — in our economy.
And women have, on average, lost. They pay higher rates on mortgage loans than men do, even with the same credit scores and even though they are statistically more likely to repay them. Women small business owners receive smaller loans than men do, at higher interest rates, and they are more likely to be turned down.
In the investing industry, women are losing, too. 84% percent of financial advisors are men. Given how male-dominant the business is, it is likely no surprise that women are “more dissatisfied with the financial services industry than any other industry that affects their daily lives,” and 75% of women under 40 do not have a financial advisor at all. The result: Women invest less of their wealth than men do. This gender investing gap is one driver of women having less money for retirement, even though they live longer.
Given the lack of diversity in the industry, it’s perhaps not surprising that men default to decisions that privilege men. But even that doesn’t fully capture the issue, as distressing and unfair though this may be. Because of the risk and financial leverage in the big banks, miscalculations in their business decisions means they also have the ability to bring the economy to its knees through a financial crisis. Which of course they did, the after-effect of which has been yet further increased wealth disparities.
Think that linking the financial crisis and the financial services industry’s lack of diversity is a step too far? Well, who thinks the financial crisis would have been worse with more women and greater diversity in senior-level, decision-making positions?
No one. And research backs this intuition up, showing that homogenous groups tend to over-trust each other and thus can take on more risk.
Who is tired of all of this state of affairs?
We all should be.
But there is a path forward. One that doesn’t involve waiting for these companies to decide to truly drive change. We can take our money out of banks and investing companies that do not support women and put it in those that do.
Here are some questions that get to the heart of whether these companies are serious about equality in their workplaces:
Four questions to ask financial services companies
1. Do you require your employees to sign agreements mandating arbitration for sexual harassment claims?
THIS is the reason that we have not had a full accounting during the #MeToo movement of sexual harassment in financial services. This is why sexual harassment in the industry continues; it’s because so many of those who have suffered it are forced into arbitration, and so many who receive settlements are forced to sign confidentiality agreements.
2. Do you go beyond the platitudes of “Diversity Bingo” and have equal numbers of women in your senior leadership and in p&l roles?
Request concrete answers instead to: What percent of your senior leadership team are women? What percent of your client-facing employees and employees with p&l responsibilities are women? What percent of your financial advisors are women? What is your racial make-up of each of these?
Anything below 50% women is too low. This is even more so because the research tells us that these firms will not be “lowering the bar,” but instead “raising the bar” — for their investment performance as well on their leadership team — by moving to full representation of our population in their senior roles.
3. What is your gender and racial pay gap?
You don’t measure it? Then you have one. You don’t report it out? Then you have one. Anything less than full equality here is unacceptable, because it is straightforward to measure and to fix.
4. If you have an investing business, do you invest with an eye to gender?
If they don’t, then industry statistics show that they overwhelmingly invest in men. This is despite the unfairness and despite the research that shows that diverse leadership teams can be superior investments, both in established companies and start-ups. (Some of this research even comes from the large banks’ own research departments.)
Ken Fisher’s response to the backlash — and that of Fisher Investments — has followed a sadly predictable route of first pushback, then a standard apology and promise to do better, then the establishment of a “diversity task force.” Bingo.
Is this a company that should be entrusted with $112 billion in assets that will fund our country’s retirements? I am increasingly hearing from women — and our allies — that they are tired of supporting the people and companies that make us squirm in embarrassment at a conference. And none of us should allow our money to be managed at a company at which we wouldn’t let our daughters work.
Clients of Fisher Investments: The next move is yours. Will you follow the institutional investors — Michigan, Boston, Philadelphia, Oakland — who have begun to pull their assets? Customers of the financial services industry: Let’s do this thing.
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Ellevest Intentional Impact Portfolios are separately managed equity accounts that are sub-advised by Ethic, Inc., an SEC-registered investment advisor. As sub-advisor, Ethic constructs and manages portfolios of individual stock positions benchmarked to an underlying index and customized to specific values criteria. The sub-advisor seeks to deliver equity market returns that track closely with a designated equity benchmark (domestic and / or international) while outperforming on impact across key sustainability criteria as defined by Ellevest and / or the client.
Ellevest Intentional Impact Portfolios are expected to comprise around 300 US-listed equities (including ADRs as applicable) chosen through an outsourced multi-factor optimization software and sustainability data science developed by Ethic to minimize tracking error.
The sustainability criteria is based on risks in the following categories: Ethics and Fraud, Greenhouse Gas Emissions, Exploitative Products, Product Quality and Safety, Working Conditions, Labor Relations, Workplace Diversity, Waste, Water, Human Rights and Community, War, Firearms, Low Employee Representation (gender), Low Management Representation (gender), Low Board Representation (gender).
The primary benefit of Ellevest Intentional Impact Portfolio is that it provides broad market exposure with a goal of keeping average tracking error low over the long term, less than 1.50%, while divesting from companies that do not meet the strategy’s sustainability parameters. The tracking error may be meaningfully higher if the equity allocation is transitioned over time due to tax or other considerations.
Some of the key risks for the investing in Ellevest Intentional Impact Portfolio include:
Market RiskAs with all publicly traded securities, the SMA is exposed to market risk, the risk of losses arising from fluctuations in market prices caused by factors independent of a security’s particular underlying circumstances.
Active RiskAlthough the SMA is constructed to minimize tracking error relative to its benchmark, there is no assurance that the strategy will generate market returns within the estimated tracking error. Because the SMA is designed to capture investment returns associated with gender diversity, and high environmental and governance standards, the SMA may exclude, overweight, or underweight individual companies and/or sectors of the market. As a result, the SMA will not fully participate in the market returns of a general investment strategy. The SMA may over or under perform a general market strategy.
Sub-Advisor RiskThe success of an account’s investment through sub-advisors is subject to a variety of risks, including those related to the quality of the management of the sub-advisor and the ability of such management to develop and maintain a successful business enterprise, and the ability of the sub-advisor to successfully execute, operate, and manage the intended strategy at or below the target tracking error.
Business RiskThe fund’s strategy relies on key personnel, their expertise, relationships and networks. A loss of one or more key personnel may adversely impact the strategy.
Ellevest Intentional Impact Portfolios give clients access to broad equity market exposure. The target tracking error for the Portfolios is under 1.50%. Reporting on Ellevest Intentional Impact Portfolios will be provided to clients no less than annually.
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