Earlier this year, Ellevest cofounder and CEO Sallie L. Krawcheck vented her frustration with patronizing personal finance advice in a column titled, “Just buy the f***ing latte.” Krawcheck, who previously served as CEO of Merrill Lynch Wealth Management and Smith Barney, recently spoke with editor-in-chief Stephanie Mehta about why Wall Street has failed female investors and how to get women into the markets.
Fast Company: I’d love to start with something that I think we share, which is a frustration with the sophomoric way that women, particularly younger women, are advised on personal finance . . . I remember my first job. The men and the women, we all sat in the same room and got [standard] advice around 401(k) planning. What is the role that the workplace can play in all of this?
Sallie L. Krawcheck: What the research tells us is that, when that information is made available in that very easy, approachable … women put in a higher percent of their salaries into their 401(k)s than men.
You asked the question, “What can the workplace do?” But isn’t it funny? You would have thought that [people running] Wall Street and the investing industry, the most capitalist of the capitalists, the most profit-seeking of the profit-seeking, would have solved this problem, would have said, “Oh, look. Over there, there is a $7-trillion investible asset market called women, $11 trillion, $12 trillion, when you add in the money they jointly control with their spouses. Let’s go after this.”
In fact, there have been any number of marketing initiatives for women, but the investing industry and Wall Street hasn’t made the leap. It’s not just telling them something. It’s actually reengineering the underlying product.
FC: What do you think has prevented Wall Street from going beyond the mere marketing message and actually doing the hard work it takes [to understand women investors]?
SK: Yeah. Well, it’s probably not a coincidence that an industry in which 86% of financial advisers are men, and 90-ish% of traders are men, and 90-ish% of mutual fund managers are men, and 95% of hedge fund managers are men . . .
FC: Not to mention the executive suite at the top of these organizations.
SK: When you have an industry that is so un-diverse, [it’s] no surprise that it does a better job, I think, for the gender that it represents than for women, and that its attempts to engage with women have been superficial and, frankly, have been all about women changing themselves. Again, we’re back to: “Don’t buy the latte. Invest in the market. Don’t buy the shoes. Invest in the market.” There was one, not so long ago, an event [called] Facials and Stocks. Now, I personally love a good facial, but don’t patronize me, right?
All right, so what did Ellevest do? The first thing was me getting over the [notion that], “Oh, it’s women’s fault.” I grew up in the industry and so, over the years, had socialized the [perception that] women are risk averse. If they’re not investing, they must be risk averse. It’s their fault. [We said,] “All right, back up. Back up. Rather than try to get them to change, what can we change?” We changed about, I’d say 100, but dozens of different things in the underlying product.
We’ve done now thousands of hours of research with women, and the number of women who . . . told us their goal was to outperform the market with their investments . . . was one. What compels women to invest is, “What can my life be? I would love to buy a home in five years. Can I afford it? I’d love to have a baby in two years. Can I afford it? I’d love to retire at 62 and travel the world. Can I afford it?”
Men tend to want to take on more risk in order to get a return. Women [think], “Yeah, fine. I’ll take on risk, but I don’t want to take on more than I have to in order to get to my goal.”
FC: What has the process of raising venture capital been like? This is another industry that has come under fire. Less than 3% . . . of all venture dollars go to women-led companies.
FC: These are supposed to be, again, capitalists betting on the future.
SK: Capitalists betting on the future, driven to get the best returns. The industry, overall, has earned market-like returns, stock-market-like returns with multiples of the risk, so you think they would look and say, “There’s a group whose companies tend to earn superior returns, women CEOS, with less volatility. Let me go invest in them.” Yet again, this drive [that] VCs call pattern recognition but which [actually] is “Let me do what I’ve done before” is so great that we’ve seen maybe some beginning of some shifts in where the allocation of the dollars are but nothing like where it would be if it were truly capitalist, right, if it was money truly chasing returns.
I was CFO of Citi. I’ve raised $77 million of venture capital, so I’m one of a small handful, at best, of people who have [been] senior level [at a] publicly traded company and raised venture capital dollars. It’s fascinating because, of course when I was CFO, I thought, “Oh, it’s got to be so easy to be raising money in the private markets.” Then you look over at the public companies, “Oh, you know, so easy to be profitable and make money every day,” and, “You have a bad day, you still made money.”
Both have true inefficiencies to them. In running a public company through the stops and starts of the quarterly earning cycle [we dealt with], “Hey, [we] don’t want to do anything that’s not right, but we’re running a couple pennies behind on consensus estimates, and maybe we just won’t do this initiative.” The things that [have] years-long payoffs are easy to cut when you’re at a publicly traded company, particularly if it doesn’t impact earnings for years and years.
Then, over here, raising substantial venture dollars, I think it’s getting easier for women at the seed and Series A [rounds], but Series B and C—whoa, that is tough. That is tough. . . . There are real inefficiencies on both sides.