Ellevest

Magazine

What to Look for in a Digital Investment Advisor

By Sallie Krawcheck

When it comes to choosing a company to help you invest your money, you have a lot of options. That’s true today more than ever, because you no longer have to rely on the financial advisor your partner, your parents, or someone you work with uses. Digital investment advisors (aka “robo advisors”) are growing fast.

What to Look for in a Digital Investment Advisor

That’s good news. Digital advisors can live in your pocket, and you can access them any time. Many of them are easy to use, and some are designed specifically for people who hadn’t found what they were looking for from traditional investing firms (like how Ellevest is by women, for women). All of that should mean that more people will start investing.

But “more options” also means “more decisions.” So here are the four things I believe are most important to look for when you’re choosing a digital investment advisor.

1. A strong, diverse leadership team

Diversity

This isn’t first on the list by chance — I really, really believe that it should be your first filter.

I’ve heard people say, “Diversity is nice to talk about, but at the end of the day, I don’t really care what the team looks like as long as they manage my money well.” To that, I ask: What about this research and this research and this research (plus plenty more) that show how diverse teams make better decisions and achieve superior business results? Can a team made up entirely of people unlike you really manage your money “well”?

It’s also very worth noting that women tend to outperform men — as both individual investors and professional money managers. You’re going to want some of them on your side.

Experience

This might sound like an obvious requirement, but not everybody got that memo. We did, though. Two examples: Sylvia Kwan and Neshie Tiwari.

It took me a year to find a chief investment officer for Ellevest. I wanted someone who had decades of experience at quality firms and is wicked smart. I got it in Sylvia: She worked previously at Schwab and Financial Engines, she’s a CFA charterholder, and she has a PhD from Stanford University in engineering economic systems and degrees in applied math and computer science from Brown (nbd).

And we are so lucky to have Neshie as our chief compliance officer — she has over a decade of experience in roles with that title. She helps keep the company aligned with the federal rules that apply to registered investment advisors — and there are a lot of them. (Read: The job’s a BFD. And she’s really good at it.)

2. Advice built with your best interests in mind

Personalized investment portfolios

This is the 21st century. Technology is amazing. There’s really no excuse for digital advisors not to use your real-life information in order to recommend an investment portfolio for you. And yet some do not — they just offer a limited selection of portfolios that you can choose from based on your “risk tolerance.”

Even the digital advisors who do use your demographic info ignore a big factor: your gender identity. As far as we know, Ellevest is the only one who does this. Which is wild, because it can make a big difference when it comes to money.

Case in point: Women’s salaries peak years earlier, we get paid less overall, and we take more career breaks. As a result, while women live six to eight years longer than men, we retire with two-thirds as much money. Our algorithm takes these things into account in order to try to help close that gap.

Conservative projections

Compare Ellevest’s investment forecasts to those of some other digital advisors, and you might find that theirs are higher than ours. In other words, given the same timing and dollar amounts for deposits, they might show you a higher “future number” than us.

We do this on purpose. We know that you depend on our forecasts to know whether you’re on track to hit your goals. Those advisors’ higher forecasts might sound nice in theory, but what if there’s also a bigger risk that you’ll never hit them at all? Not helpful. We think it’s better to be conservative so that you can plan your future more confidently.

So our portfolios are designed to help you reach each of your goals in the majority (70%) of market scenarios (or better). Because their projections aren’t as conservative, certain others are only aiming for 50%. That’s a coin toss.

What’s the difference? We include as many real-life considerations in your projections as we can reliably predict, like taxes and any fees that you'll have to pay in the future.

3. Clear, competitive pricing

Registered investment advisors are held to the fiduciary standard, and part of that means they have to be clear about how much they charge. So seek that information out — and not just what’s front and center on their main website. Dig into whether their advisory fees are competitive, whether they charge things like rebates or commissions, and how much the underlying fund fees are. Get the whole story.

4. Values that support women+

Fair sexual harassment policies

This one’s worth reaching out to the company’s customer service team to ask. Unfortunately, it’s common practice (at least in the US) for companies to force employees into confidential arbitration.

That means if a person wanted to bring sexual harassment charges against someone else on the team, they’d have to do it behind closed doors, privately, rather than bringing the issue to court. That protects the employer and the person who was accused.

As of 2018, more than 55% of employees in the US (that’s an estimated 30 million women) had confidential arbitration clauses in their employment contracts. No good.

Ways to invest in your values

What we do with our money can literally change the world, and what you choose to invest in — or not invest in — is a big part of that. At Ellevest, we choose to invest in women and companies that support them. That’s why we offer Ellevest Impact Portfolios, which are built to help you invest for your goals and to advance women.

Gone are the days when the prevailing belief was that if you wanted to invest in the causes you care about, you had to sacrifice the chance to earn competitive returns. Today, you’ve got more and more investment options dedicated to investing for impact, at more and more affordable prices. That leaves no excuses for digital advisors — whether its ESG investing or gender-lens investing or some other socially conscious cause, they should offer impact investing.

Political donations

It’s not that a company’s leaders and investors shouldn’t make political donations. But if those dollars are supporting policies and values that run contrary to your own policies and values, then it’s worth considering whether that company is going to truly be on your side. Plus, do you want your dollars supporting those values? You can start by looking at the Federal Election Commission’s public records.

These four things aren’t always easy to find, but it’s worth digging. Is it on their website? (If they aren’t highlighting these things on their site, then you can probably assume it isn’t important to them.) Are their leaders talking about these things on social media or during speaking engagements? And if you reach out to their customer service team, have they been given the resources and information they need in order to answer your questions?

A company that checks all those boxes is one who will put you first.


Disclosures

© 2019 Ellevest, Inc. All Rights Reserved.

All opinions and views expressed by Ellevest are current as of the date of this writing, for informational purposes only, and do not constitute or imply an endorsement of any third party’s products or services.

The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.

The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person.

Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time.

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Sallie Krawcheck

Sallie Krawcheck is the Co-Founder & CEO of Ellevest. Her life’s mission is to help women to reach their financial and professional goals.