Sallie Krawcheck is on a mission to close the gender wealth gap

“One morning as I was putting on my mascara, I had this lightning flash of insight,” recalls Sallie Krawcheck, who was once referred to as "the most powerful woman on Wall Street". “Suddenly it just hit me that the retirement savings shortfall in the U.S. is actually a gender issue: that it’s more likely to negatively impact women. We women live longer, have to deal with the gender pay gap, the gender wealth gap, and on the whole we take more career breaks. At a fundamental level, assuming you’re average, then you die with too much money as a man and too little money as a woman. As I thought through the potential solutions, a key one is to help women invest more, to help them build wealth.”

Krawcheck (57) knows a thing or two about investments. She comes from the highest echelon of America's tough financial world, and throughout her career she managed Citigroup's Smith Barney investment house - at the same time as she served as Citigroup's CFO - and later headed Merrill Lynch, after it was acquired by Bank of America. She was a regular member of Wall Street's "power lists", and was included in the list of global influencers of "Time" and ranked 7th on the Forbes “most powerful women” list in 2005.

Sallie Krawcheck

Krawcheck also understands a thing or two about gender gaps on Wall Street, as someone who throughout her career has had to repeatedly prove herself and maintain her position in a world of powerful men. That's why when she decided to improve the situation of women and help them accumulate more capital - and by virtue of this also more power - she gave up her other occupations and set out to lead her own revolution.

At the heart of the revolution is Ellevest, a digital investment platform for women, which already manages $1.5 billion in assets. Ellevest’s application is based on an algorithm that weighs all of the investor's criteria for finding an appropriate investment portfolio, including choosing a pension fund and life insurance. It also offers financial courses, career coaching and a supportive community. Its main goal is to "erase the gender wealth gap".

The emphasis on wealth is important because, according to Krawcheck ,“in terms of the gender pay gap we have made some progress, but the gender welath gaps are actually widening. According to data from the Fed, overall in the U.S., a woman owns 34 cents to an average (single) man’s dollar. This wasn’t just the result of the pay gap, but also of the fact that women tend to have more debt than men, more student loan debt and more credit card debt, and weren't investing as much as men were. And so they had the headwind of the cost of the debt without the tailwind of the returns that so many people have gotten from investing over the past 50 years."

But why do you need a unique investment house for women? In the end money is money, it's not like gender medicine where there are different body parts.

“Sure, money is money, but come on, women, let’s go!”, she says, sarcastically. “But what we have is a situation where despite all kinds of initiatives, they have stayed away from investing and kept the majority of their money in their checking accounts. And when the industry addressed the problem, the discussion was essentially about how women need to change- because money is money, so get yourself moving. How many times have we heard that we’re risk averse? But if you step back, is it a coincidence that this is an industry where 98% of investment dollars are managed by men? Where 99% of companies managing those investment dollars are owned by men? Where 85% of financial advisors are men? Huh!”

And how is Ellevest different from other, male dominant investment firms?

“Our first hypothesis was that the industry isn’t centered on women, but rather on men. And so what if we focus on women? We have found through thousands of research hours about a thousand differences \[between men and women\]. So one example, if you ask a man his risk tolerance in an onboarding process and he's not sure, he will take an educated guess and continue on. A woman will simply leave it, and in a best case scenario come back to it later, because she is socialized to only answer important questions if she has an educated answer: ‘I gotta get this right, that seems important’. And she leaves, and then she comes back much, much later or doesn't come back. Another example: a man hits jargon, he continues on, he sort of figures out what it means from the context and he keeps going, while a woman stops, because that seems important.

“That builds up to other things that are really foundational, such as: should your investment plan be personalized for your gender? You’re damn right, it should be! And believe me, I wasted literally years fighting this. People were like, why don't you start an investing firm for women? And I was like, ‘that is so stupid, how dare you even suggest such a thing?’ Which of course also shows how we all have been socialized to think of businesses for women as being sort of second rate, a sort of junior varsity.”

So what do we do so that women don't abandon registration for an investment product that requires endless scrolling of terms like "leveraged mutual funds"? We simplify it. Ellevest breaks down the professional jargon into everyday terms, and offers goal-focused investment plans, rather than time frames as is customary: there is a plan in which the client invests according to an amount and a target date that she defines; a plan to accumulate an amount equivalent to 24 months of salary; a plan to accumulate initial capital to purchase an apartment (20% of the average property value in your neighborhood); and of course a pension plan. The app's interface alerts the user if there is a risk that she won't reach her goal for any reason—if she missed a deposit, her salary was cut, etc.—and offers her "corrections” to get back on track.

And not only are the investment tools different, but also the style of investing in Ellevest is not traditional, that is, it is not masculine.

"Men's investment mistakes have to do with being too active," Krawcheck says. "While the research shows that taking actions when the markets are down, for example, is almost always a mistake. Or they make emotional decisions, such as falling in love with Bitcoin. Men have a tendency to fall in love with their winning horses, and stick with them for too long."

And how are women investors different?

“Women have a stronger preference for impact investing (investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return). They are much less likely to be active traders. As a result, they tend to miss the big ups and downs of investing bubbles.

“The flip side of women being less likely to be active traders is that they are thus more likely to be long-term investors and to stay the course during tougher markets. These last two things mean that women tend to earn higher returns as investors, whether they are individual investors or professional investors.”

And what are women’s common investment mistakes?

“The mistakes women make are that they just don't invest enough, because when they do invest their returns are actually statistically significantly better than their male counterparts."

Thanks to Covid and Trump

Ellevest was founded in 2014 with seed funding from Melinda Gates and Eric Schmidt, and launched in 2016, just before America thought it was getting its first female president. Its stated goal was to conquer the US household assets controlled by women, which was estimated at $11.2 trillion at the time, and according to a McKinsey analysis, is expected to grow to $30 trillion by the end of the current decade. "It’s all about getting more money in the hands of women, that’s our mission" says Krawcheck. "It involves growing as a company, recruiting bigger clients and eventually becoming an IPO".

But the path to success was not easy. “When we launched Ellevest, we got push back from the traditional industry. We got hate mail from some of my Wall Street friends,” she told CNBC recently. “If you just look at the statistics, women raise 1% of Series B dollars overall, and 1% of fintech dollars overall. The chances of us getting here were infinitesimal. We wouldn’t have been able to do that if we weren’t having business success, because you have to have the business success to get the funding. But we did that by getting the funding and engaging women to invest in the company itself, as opposed to going the traditional venture route.”

And it worked: Ellevest is currently considered one of the fastest growing digital platforms. In April of this year, it completed a second fundraising round of $53 million. And its 120,000 clients are loyal to it even in times of crisis. The average monthly deposit decreased in 2020, but the flow remained positive, compared to the other equity funds on Wall Street, which bled $241 billion that year due to the Coronavirus crisis. This is doubly impressive if you consider that the employment rate of women only deteriorated during the crisis to the levels of the 1980s.

These clients remain loyal to Ellevest. “Going through this recent downturn, there have been every week, double digit billions of dollars of outflows from mutual funds and ETFs. Now that's from the typical investor, who tends to be male. At Ellevest, we've had net positive inflows every single week. And those are women who have a recurring deposit into their account, a little bit out of every paycheck and they just stay the course.”

The crises of the last few years, says Krawcheck, not only did not drive away the old clients, they also brought a lot of new clients. “The Covid crisis, the election of Donald Trump and the moves in different states to restrict the right to choose regarding abortions helped women recognize that Prince Charming probably isn’t about to come riding up on his white horse,” she told CNBC recently. “The impact is long-lasting. even for women who were forced to step out of the workforce and perhaps have returned. They will never get those earnings back. They will never get the compounding of those earnings back.”

And yet, despite the growing awareness of women's need to be more involved in investments, Ellevest is almost the only company operating in the field it invented. Since its establishment, it has had several competitors, including SheCapital, Swell and WorthFM, but they all failed. On the other hand, about a month ago, the largest asset management company in the world, Blackrock, introduced a dedicated investment portfolio model for women - which may give the field a boost toward the mainstream. “It finally happened: A huge asset management company launched an investment portfolio for women,” she tweeted recently on Blackrock’s announcement. “I’m so glad to see another company recognizing that women have to plan their finances differently than men."

"Men didn't want me around"

Krawcheck currently lives on the Upper West Side in New York, with her husband Gary Apple, vice chairman of Investcorp, and their two children. She is the daughter of Jews of Polish descent, who grew up in Charleston, South Carolina, "a city with a larger Jewish community than that you can imagine," she said. Her family used to pray at the Beth Elohim (House of God) synagogue, the first Reform synagogue in the United States, established in 1749, and her father enrolled her in secretarial studies, but Krawcheck had other plans. "I wanted to be a princess, but it didn’t happen, so I went into banking," she says with a smile.

She completed a bachelor's degree in journalism ("It helped me a lot later as an analyst, because these are quite close professions: in both you have to show people what others don't see, to compose a story in a new and thought-provoking way") and a master's degree at ColumbiaBusiness School, and in 1987 she landed at the Salomon Brothers investment bank - which was the most profitable on Wall Street in the eighties and nineties and was purchased in 1998 by Citigroup. "At that time, those who really wanted to challenge themselves after college went to Wall Street," she recalls. "Just as today the destination of many young people is Silicon Valley."

Wall Street.

Krawcheck climbed the ranks meteorically, and at the height of her career led teams of 40,000 bankers and financial advisors, received an annual salary of 7 figures and was even considered a candidate for the position of CEO of Citigroup. But the road there was marked by "overt gender discrimination", as she calls it. "In hindsight it's unbelievable—men just didn't want women around. And it was bad. In one company I had a colleague, who would come to my house and peep through the windows. In another company they would leave photos of male genitals on my desk every morning. I used to be given projects that no one else cared about, and it was hard. But then I found the right place and the right job, and I was even promoted when I was six months pregnant."

That right place was wealth management firm Sanford C. Bernstein of the billionaire Zalman Haim Bernstein, where Krawcheck started as a research director and reached the throne of CEO and chairman. It was an unconventional brokerage firm that didn't insist on graduates of major league universities or Wall Street experience, long before concepts like "diversity" and "inclusion" entered the professional jargon. "Being a woman became an advantage, because I was the only woman competing in that field, so it was hard for people to forget me. No one remembered that guy with the red tie and the glasses, but everyone knew who the girl with the Polish last name was."

And yet, there are plenty of capable women employed in Wall Street. Not all of them, even those with the most exotic names, end up managing wealth management companies as big as you did.

“Career advice for women is always about ‘how to ask for the raise, how to ask for a promotion’. But the one piece of career advice we never give women is: it's not you, it's your boss. But what the research would indicate - and it's true at Wall Street firms and across broader industry - women just don't get the promotions, even though they do work that is good or better than their male counterparts. The fact that 98% of mutual fund dollars are managed by men is not their fault. That's the fault of their bosses. They don’t recognize and reward them. A new CEO of a big Wall Street firm once asked me why there weren’t more women in senior leadership positions. He always assumed that the issue was women left when they have children. But when he did more investigation he realized that they did not leave the company. They stay, they just don't get promoted.. It’s actually the men who leave the company at a much greater rate than women do.

Sallie Krawcheck

"The last honest analyst"

In 2002, Krawcheck moved to the investment giant Citibank: first as the CEO of the investment company Smith Barney, then as the Chief Investment Officer of the Citi Wealth Fund and finally as the CEO of the Wealth Fund. In her last position, she lasted about two years (during which she was paid about $30 million, which earned her the nickname "Sallie Paycheck" in the New Yor tabloids). In September 2008, she was fired with great fanfare over what she describes as a "business disagreement" with Citibank's then-CEO Vikram Pandit.

Those were the days of the great economic crisis and the bursting of the subprime bubble, which caused the various investment plans to lose most of their value, including the solid ones. Since the analysts were wrong in their assessment, Krawcheck believed that the bank should take responsibility and absorb some of the customers' losses. In doing so, she justified the title of "the last honest analyst out there", which "Fortune" dubbed her a few years earlier, but it put her on a collision course with Pandit. He rejected her suggestion, and Krawcheck decided to be bold and brought the issue to the board to discuss anyway. The bank finally agreed to partially compensate the customers - but Pandit did not forgive her for going around him and fired her.

“Those were good times!” Krawcheck laughs out loud when asked to tell about the firings. “Both times I was fired were reported on the front page of the Wall Street Journal which I think is a world record for a woman. But in the end I lost my job and I got nothing, and by the way, the people who left before me got big exit packages. They were like, don’t let the door hit you on the way out’. That was disappointing."

It must have been easy for you to get a new job.

“You know, people at the time were telling me, ‘this is really going to pay off for you, the industry really needs people who are client friendly’. Except it was not really, because I think people also want folks who don’t rock the boat too much, and not those who point out mistakes.”

Krawcheck's next stop was head of Merrill Lynch's Wealth Management & Investment Division, shortly after it was acquired by Bank of America. But here too, at the end of two years on the job, she was fired harshly. “Bank of America brought me in to turn around Merrill Lynch. My team and I got it turned around and then the boss said ‘we're going with somebody different’, somebody who is a 60 year old man. Someone who’s never managed one of these businesses before, but we think he would be better than you. You know, the CEO needs to be comfortable with the team around him. Of course I think that was the wrong decision, but such is life.”

And how did you take it?

“I drank a nice glass of wine,” she says with a laugh. “But that was different, because I remember thinking from the second I was told I ‘wasn't a fit to the organizational culture’, which is just a nicer way to say ‘we don't like you’ – that this is one of the best days of my life, I just don't know it yet, because of course, if they aren't interested in having me here, then I'm not interested in being here. I'm spending more time with these people than my family and I like my family better than I like these folks. And it's also a recognition that success comes in different ways and that was not the end for me - and I was right!”.