Why Ellevest Makes Me Mad

I've got a chip on my shoulder when it comes to Ellevest.

Facebook's ad algorithm seems to think I'm into investing these days. No shit, right? It's a step up from offering me antidepressants and engagement rings like they used to.

 An ad for Ellevest keeps popping up: "Invest like a woman!" it says.

When I see this ad, I can't help but comment about how deceptively expensive the service is, I promise it's not because I'm mean-spirited or trying to pick a fight with its founder, but I hate seeing people get hoodwinked- especially women.

Investing is Gender Neutral


My first reaction was, "An investment platform for women? What's next, an investment platform for people with blue eyes?" As much as Ellevest tries to convince you that women have different investment goals and needs, there are only three variables to investing and none of them are gender. Specifically, they are:

Risk tolerance
Time frame
Percentage Lost to Fees

Taking those factors into account, the only thing left to do is maximize your returns. Whether you hope to spend the money during maternity leave, use it to live longer, or use it to buy a golden jock strap (or whatever it is men buy), once you maximize your returns based on risk tolerance, time frame, and percentage lost to fees, you're good to go.

Being a woman, the fallacious argument that your gender marker should determine your investing habits grinds my gears, but that's not the most dangerous thing about Ellevest. It's that third factor: the percentage lost to fees.

AUM Fees Seem Small, But Add Up Quickly


Taking a look inside Ellevest, the underlying funds are good ones. I see Vanguard funds there, and other low-expense passive index funds. So the fees on the actual funds aren't too bad. A+ for the funds.

Ellevest charges a different kind of fee on top of that: an Assets under Management fee, or AUM fee. This means that they take a percentage of every dollar in your account, every year.

AUM fees are the worst because the more you save, the more those fees kick you in the pants: meaning, the closer you are to retirement or your other financial goals, the bigger those fees become. Ellevest's website cites a figure of 10k, saying they cost $50/year. This is deceptive.

The fees grow with your savings.

Nobody can retire with 10k. You need at least a few hundred thousand in your account by the time you retire. A more normal retirement figure looks like 600k- which will generate about $24,000/yr in safe returns in perpetuity.

The yearly Ellevest fee on that kind of mature account would be $3000/year. Spend just ten years in retirement from age 65 to 75, with no change in account balance, and you've given away $30,000.

On Ellevest's website, it claims its AUM fees are lower than what a traditional investment advisor costs, but this is not comparing apples to apples. Ellevest is a robo-advisor, so let's compare them to other robo-advisors: Wealthfront and Betterment, both of whom charge .25% - half of Ellevest's AUM fees.

This makes a big difference in the run-up to retirement, where, as The College Investor writes, "If you contribute $250 a month for 35 years and earn 6.25% interest after fees, you’ll earn $372,814. If you pay 0.25% less in fees, you’ll earn $394,141, or $21,327 extra. The more you contribute, the more important it is to minimize those fees."

Anyone who knows me knows that I'm a dividend investor in the streets, but a Boglehead in the sheets- even though my weapon of choice is Fidelity, because I'm all over their low-fee, commission free ETFs. I recognize the danger that fees can present to your long term investing goals, and here it is: $21,327 vs another robo-investor, or over $42,000 vs a no-AUM-fee platform like a Vanguard three-fund portfolio.

All this being said, Ellevest isn't the worst choice you can make. The underlying funds are good, and the investing world is overrun with worse stuff. There exist front-loaded, high expense ratio actively traded mutual funds sold by advisors who charge a 1.5% AUM fee. These nasty things, like Primerica, take all the problems I just expanded on with Ellevest and multiply them threefold. With Primerica, you're buying your advisor a yacht; with Ellevest, you're buying your advisor a Toyota.

A Very Expensive Safe Space


So why am I putting all this energy towards hating on Ellevest rather than going after something quantifiably more evil, like Primerica?

It's because they're targeting women, and taking advantage of female ignorance to sell us something which already has a lower cost, gender-neutral equivalent.

Ellevest's marketing is all about how women are shut out of investing and has some subtle safe-space innuendo. Straight from their website:

"...Sallie Krawcheck [CEO of Ellevest], realized the investing industry has been, frankly, “by men, for men” — and has historically kept women from achieving their financial goals. "

Let me be clear, my fellow ladies: nobody turned me away at the door to the Fidelity branch because I showed up in a dress.

There isn't a "click to continue if you're male" button on the personal finance or investing subreddits.

I opened up my Scottrade account online without having to deal with anyone, man or woman, sexist or not.

When I googled "Lazy Vanguard Three Fund Portfolio" nobody checked my driver's license for my gender.

Now that I've gotten into Personal Finance blogging, I've met tons of other women who started out with zero knowledge or confidence, just like me, and have become leaders by example as they inspire their families and followers to investment success and financial independence.

Sallie Krawcheck has a lot more experience than I do, certainly. I'm just a bookkeeper and an investing hobbyist, I don't have licences, I don't have large assets under my management. But I have a calculator, and can google different robo-advisors, which is really all you need to see that Sallie Krawcheck seems to be looking to make a buck off women first, and empower them second.

Ellevest is a hell of a lot better than a lot of stuff out there... yet it grinds my gears all the more because Ellevest coddles women's fears about investing with the promise of a safe space, while at the same time milking them for twice the fees of comparable services. They're creating the very problem they claim to solve.

Let's not make a gender gap where there doesn't need to be one.

XOXO,
Meow

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Disclaimer: These are my personal opinions and not intended as advice. You really ought to use critical thinking and check stuff out for yourself, or hire someone who is both qualified and has a fiduciary duty to you- not just someone who is trying to sell something. These are my personal opinions- and it is also my personal opinion that you should get a second opinion whenever you can, and. for goodness' sake, think before you take advice from someone who is trying to sell you something! 

2 comments:

  1. Great article! Thanks for your honesty and willingness to share. I look forward to more of your articles. As a "newbie" to the investing world it is refreshing to read an article that is straightforward and easily understandable without excessive " investment lingo" and abbreviations that I have to constantly try and decipher before being able to understand the salient investment information.

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    Replies
    1. Thanks Joanne! I'm not too far out from being an investment newbie myself, but I am finding the journey quite empowering!

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