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Investing Specialists

Sallie Krawcheck: 'Companies Should Do Better'

The Ellevest founder discusses how advisors fail their female clients, the lack of gender diversity in financial services, and why firms should be working to close the gender pay gap.

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Our guest on the podcast today been called one of the most powerful women in finance. Sallie Krawcheck started her career as an equity analyst at Sanford C. Bernstein, where her reputation for impartial advice and criticism of conflicts of advice in the financial-services sector prompted Fortune magazine to call her the last honest analyst. She later moved to Citigroup, where she served as CEO of the firm's Smith Barney unit, Citi's chief financial officer, and CEO of Citi's, Wealth Management Business. In the latter role, she was an early advocate of a fiduciary standard for the brokerage industry. She went on to Bank of America where she served as president of the firm's wealth management unit. Sallie is currently the CEO and co-founder of Ellevest, a digital financial advisor for women launched in 2016. She is also owner and chair of Ellevate Network, a global network of women committed to promoting gender equality in the workplace.

In the spirit of full disclosure, Morningstar Inc. invested in Ellevest in 2015 and 2019, and Morningstar Investment Management LLC, a subsidiary of Morningstar Inc. provides consulting services to Ellevest for their core portfolios.

Background
Sallie Krawcheck bio 

Ellevest 

Ellevate Network 

In Search of the Last Honest Analyst,” by David Rynecki, Fortune, June 10, 2002. 

BofA’s Krawcheck Backs a Fiduciary Standard,” InvestmentNews, April 20, 2010. 

When Citi Lost Sallie,” by Geraldine Fabrikant, The New York Times, Nov. 15, 2008. 

Sallie Krawcheck Wants to Take Women to the Top of Business,” by Abigail Jones, Newsweek, Dec. 23, 2014. 

Gender Pay Gap/Lifetime Earnings
The Narrowing, But Persistent, Gender Gap in Pay,” by Nikki Graf, Anna Brown, and Eileen Patten, Pew Research Center, March 20, 2019. 

How a Common Interview Question Hurts Women,” by Claire Cain Miller, The New York Times, May 1, 2018. 

Salary History Bans: A Running List of States and Localities That Have Outlawed Pay History Questions, HRdive.com, 2020.

Unlocking the Full Potential of Women in the U.S. Economy,” McKinsey & Company, 2011. 

Education and Lifetime Earnings, Social Security Administration. 

Women and Caregiving, Facts and Figures, Family Caregiver Alliance. 

The Trickle-Down Effect of Caregiving on Women,” by Kathleen Fitfield, AARP.org, Nov. 29, 2018. 

Older Women Workers and Economic Security,” U.S. Department of Labor Issue Brief. 

How to Stand Up for Paid Family Leave,” Ellevest.com, May 14, 2018.

How to Afford Parental Leave and Some Time Off,” by Sallie Krawcheck, Ellevest.com, Oct. 10, 2016.

Diversity in the Workplace/Gender Lens Investing
Gender lens investing definition 

Gender and Diversity Funds: Intentional Or Not?,” by Madison Sargis, Morningstar.com, April 15, 2019.

"2 Options for Gender-Lens Investing," by Jon Hale, Morningstar.com, March 2, 2017. 

Pax Ellevate Global Women’s Leadership Fund 

Why Diverse Teams Are Smarter,” by David Rock and Heidi Grant, Harvard Business Review, Nov. 4, 2016. 

Diverse Teams Feel Less Comfortable—And That’s Why They Perform Better,” by David Rock, Heidi Grant, and Jacqui Gray, Harvard Business Review, Sept. 22, 2016. 

New Research: Diversity + Inclusion = Better Decision-Making at Work,” by Erik Larson, Sept. 21, 2017. 

Women and Investing
Why Women Invest 40 Percent Less Than Men (and How We Can Change It),” by Jean Chatzky, Nbcnews.com, Sept. 25, 2018. 

Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment,” by Brad Barber and Terrence Odean, The Quarterly Journal of Economics, February 2001.  

What Does It Mean to Invest Intentionally?” by Sallie Krawcheck, Ellevest.com, Nov. 19, 2019.

Women Reach Their Peak Salaries 10 Years Sooner Than Men,” by Patricia Nilsson and Hannah Murphy, Financial Times, Sept. 19, 2018. 

Benefits Planner/Life Expectancy, Social Security Adminstration. 

Do Women Take As Many Risks As Men?,” by Doug Sundheim, Harvard Business Review, Feb. 27, 2013.

"Sallie Krawcheck: The Retirement Crisis Is a Gender Crisis, Too," Morningstar.com, July 11, 2015.

For Some Widows, Breaking Up with An Advisor Is Easy to Do,” by Ilana Polyak, Oct. 11, 2014. 

Women Put Financial Security at Risk by Deferring Long-Term Financial Decisions to Spouses, UBS Research Reveals,” UBS.com. 

What Women Want in a Financial Advisor,” by Kerry Hannon, Forbes.com, May 13, 2018. 

Female Fund Manager Performance: What Does Gender Have to Do with It?” by Madison Sargis and Kathryn Wing, Morningstar.com, March 8, 2018. 

Fund Managers By Gender: The Global Landscape,” Morningstar. 

Fiduciary definition 

Let’s Demand Better from the Financial Services Industry,” by Sallie Krawcheck, Ellevest.com, Sept. 20, 2019. 

How Wall Street Keeps #MeToo Claims Out of the Spotlight,” by Rob Copeland, Liz Hoffman, and Rachel Louise Ensign, The Wall Street Journal, Jan. 19. 2018. 

Wall Street Has Been Unscathed by MeToo. Until Now,” by David Gelles, The New York Times, March 16, 2019. 

My Best Career Advice ... Isn’t Career Advice,” by Sallie Krawcheck, Ellevest.com, Nov. 12, 2019. 

Transcript

Jeff Ptak: I'm Jeff Ptak, global director of manager research for Morningstar Research Services.

Christine Benz: And I'm Christine Benz, director of personal finance for Morningstar, Inc.

Ptak: Our guest on the podcast today has been called one of the most powerful women in finance. Sallie Krawcheck started her career as an equity analyst at Sanford C. Bernstein, where her reputation for impartial advice and criticism of conflicts of advice in the financial-services sector prompted Fortune magazine to call her the last honest analyst. She later moved to Citigroup where she served as CEO of the firm's Smith Barney unit, Citi's chief financial officer, and CEO of Citi's Wealth Management business. In the latter role, she was an early advocate of a fiduciary standard for the brokerage industry. She went on to Bank of America where she served as president of the firm's wealth management unit. Sallie is currently the CEO and cofounder of Ellevest, a digital financial advisor for women launched in 2016. She is also owner and chair of Ellevate Network, a global network of women committed to promoting gender equality in the workplace. In the spirit of full disclosure, Morningstar Inc. invested in Ellevest in 2015 and 2019, and Morningstar Investment Management LLC, a subsidiary of Morningstar Inc. provides consulting services to Ellevest for their core portfolios. 

Sallie, welcome to The Long View.

Sallie Krawcheck: So glad to be here. Thank you for having me.

Ptak: So much of your work in recent years has been focused on helping women achieve gender equality in the workplace and in their finances. Let's start with the gender pay gap--how much women are paid relative to men doing a similar job. It seems like that's getting better, but still not where it should be. Can you give us the state of the state?

Krawcheck: Slowly, slowly. First of all, I'd say I love your words, I would probably be even more direct with what I'm spending my life trying to do, which is, you know, at Ellevest we're all about getting more money in the hands of women. And it's about getting women to parity in comparison to men and so on the gender pay gap lot of ink spilled about this. Yes, there's some progress, but it's not nearly enough. We're decades away from white women earning at a similar rate to white men, we are 100-plus years away for black women, and we're 200-plus years away for Latinx women. So that doesn't to me feel very good. I'd say on top of that, there has been so much ink spilled: So many books written, so many articles, so many podcasts, encouraging women, cheering women on, giving women lots and lots and lots of advice on how to be aggressive, but not too aggressive and forceful, but not too forceful and ambitious, but maybe not too ambitious. And I think women are doing their part here. It really is time for institutions to take a good hard look at how they are going to make not incremental changes, but significant changes if they want to be employers of choice and want to bring this to parity.

Benz: Let's talk about the steps that have been taken to address the gender pay gap. Most states have banned the practice of companies asking prospective employees about salary history, for example. Let's talk about why that might help and whether you think that will help.

Krawcheck: Yeah, well, it's a step. It's frankly, one I wouldn't have thought of. But of course, we all, when we're going to give an offer, a salary offer to someone, if we know what they made before, we end up anchoring in it. We just do--well, oh, so they're making $50,000 maybe I don’t have to pay him 60, boy, 51 sounds better. But I think it's just one issue. Another that I would point out is that women are socialized not to negotiate as much, not to be as aggressive. So, I know that I found over the course of my career, if you give an offer to someone and they negotiate, you may give them more money. If you give an offer to someone and they don't negotiate, you're never going to give them more money.

And so, these issues are so challenging because there's an inclination to [say], “Ah, it's the company's fault, and it's his fault. And he needs to…” And you think of it as sort of, caped evildoers paying these individuals less than those individuals; when, in fact, it's a really mess of things. And, so changing it typically is not as straightforward as you know, you got a class and you sort of change everybody's mind. What is as straightforward is just closing it. We actually had, at Ellevest not so long ago, a male engineer prospect--gave him an offer, he negotiated; female for exactly the same type of role--she didn't negotiate. We ended up giving him additional pay because he negotiated; we ended up giving her that as well, because it really is the exact same job.

Ptak: So given the fact that we're on the topic of women advocating for themselves on the salary front, I mean, what are some steps that you would advocate where they can do better and negotiate more aggressively on their own behalf?

Krawcheck: Well see, this is the thing, I think companies should do better. I just do. I think companies should say, here's our pay gap. And we, as a company, recognize that women have been socialized not to negotiate as much. We, as a company, recognize that individuals within this company, within middle management, have been brought up with the view that men are better at x and y. The research is clear that men are promoted. White men are promoted based on potential and women, people of color, women of color, minorities promoted based on achievement. So the bar has historically been higher, for these individuals outside of the business majority. We recognize these biases play into offers and promotions and raises, and therefore we are going to poll all this data. And we are going to close all the gender and racial and ethnic pay gaps. And I apologize for not answering your question. But, you know, if the answer were women doing better and trying harder and doing it a certain way, we would already be at pay parity. Women are doing their part. You know, it's the companies that need to close this darn thing.

Benz: So that pay gap contributes to a lifetime-earnings differential between men and women with similar educational attainment. Let's talk about the role that women's own choices--some of the things that happen in life--contribute to that, specifically the breaks that women take, because that's a contributing factor as well. Can you talk about how that affects lifetime earnings versus men for women?

Krawcheck: So, women's choices, society, through the ages--we live in a patriarchal society, and our society really has dictated and dictates to us that women take more career breaks, that women are the caregiver. They take care of the baby more often, they take care of the parents more often. And it is at that point when she has her first child that the pay gap really opens up. Some of it is also women step out of the workforce for a year or two years, which obviously impacts their earnings not only in those two years but in the years after. The societies we have today, we can talk about it as being a women's choice, but we are the only developed country in the world that doesn't have mandated paid parental leave.

And so a woman has to take, potentially, vacation time if she has it, a disability if she has it, or maybe she has to be at work two days after she has a baby in order to keep her job. And therefore, we may say she has a choice, but she feels like she has no choice but to stay home with her young, colicky child who's just getting his or her start in life.

I don't know that that's a real choice. As you phrase it, it feels like well, I could do this or I could do that. Sometimes, families here today are being driven into choices that are not true choices. They are made from, positions of, somebody has to take care of this child and I don't have the ability to do it while I have to be at work and so they'll leave the workforce. And society still dictates that it's a woman's place, not a man's place, and businesses dictate it because so many businesses today will still provide, if they provide, a maternity leave--they may not provide a leave for the father or the nonprimary caregiver. So, yeah, there are absolutely some choices which are wonderful, which are: I'm going to step back for a period of time; I choose to. But there's some choices that really aren't choices.

Ptak: What are the approaches that you favor for addressing some of the issues that you just mentioned? I think that you alluded to paid parental leave as being an example of something that can help to ease some of these burdens, or at least ensure that the burden doesn't fall so squarely on women as it has in the past. Are there other things that you would favor?<

Krawcheck: Yeah. Well, look, I'll tell you what we've done at Ellevest, and we're a startup. So every dollar is precious for us as we work to reach scale, build a successful business. We have here for both primary and nonprimary caregivers, the same amount, in our case 12 weeks paid parental leave. And the dads and the moms take it. The initial recommendation from our people-ops group was: Well we should have, I can't remember--12 weeks for primary caregiver and six weeks for nonprimary, whatever it was. And as we talked through it as a leadership team and said, we all know what we're saying, right? It's not primary number, it's male and female, man and woman. And we are a company that is all about getting more money in the hands of women, therefore improving women's lives. And we're just about to put in place a mommy track. Where the research is clear that when women take these leaves and men don't, the women are mommy-tracked. Where the research is clear, as mentioned, this is where the gender pay gap really kicks in. So no way, are we as Ellevest going to do this. By the way, the research tells you that paid parental leaves pay for themselves in one year.

I think the mistake--which, obviously Morningstar you'll recognize so well as analysts--the mental mistake we make is that we think of paid parental leave as being an expense when, in fact, it's an investment. Because if you provide this, the parents are more likely to come back and stay. And that if you don't provide it, they are more likely to quit, which means you not only have to replace them, you have to train their replacement. Look, it might not be an investment you want to make, right? “Ah, moms, no!” But it's a smart investment.

Benz: Let's talk about the performance of companies with more women-friendly policies. Ellevate Asset Management has collaborated with Pax World Management on the Pax Ellevate Global Women's Index Fund. What's the thesis behind that index?

Krawcheck: Well, the research is clear that diverse teams outperform other teams and outperform even smarter teams. So, there is power in all kinds of diversity. And you can imagine--I always love to use the basketball analogy, which I won't go through the whole thing--but, essentially, if you have basketball teams, I would argue the most important player is the point guard, and if you have five point guards, you're not going to make the NCAA final, or probably even the tournament. And the same is true for if you have lack of diversity at an extreme, you hire a whole bunch of people who are exactly like yourself. Well, then you're not going to see around corners, you're not going to see opportunities, you're not going to have the debates that lead to fuller thinking that leads to better results, whether that's higher returns, lower risk, greater innovation, greater client engagement, greater employee engagement. These are the things that come from having more-diverse teams, which in turn comes from having family-friendly policies, lower pay gaps, or no pay gaps. So that you're making at least some of the steps towards having a more inclusive environment.

Ptak: Do the data support that companies that advance women perform better than those that don't, based on the research that that you've done or research that's been done by collaborators?

Krawcheck: There's so much research, and I would just put it slightly differently. I mean advanced women, yes, the research talks to diverse leadership teams, diverse boards. Part and parcel of that, of course, is advancing women. And again, it's not this group is better than that group, this group is ... no, its diversity. And, I typically use the example of my old industry, Wall Street. If you just want to sit back for a second and imagine an industry, of which the trading floors were half women, 45%-50% people of color, rather than the more homogenous teams that are on the trading floors today. You know, do you think the financial crisis would have been worse? And intuitively, it wouldn't have been, and the research backs up that homogenous teams tend to overtrust each other, that risk levels rise and fall, outsized risk rises and falls with testosterone levels. And so if you can put in people with different points of view, different risk tolerances, I think we all intuitively know where the research points us. Which is you might not have earned as much in the good times, but you wouldn't have lost as much in the bad times. And certainly in the case of Wall Street, we tend to get lulled into a sort of sense of false security and then every x number of years along comes a financial crisis that wipes out ... Look, in the case of the '07-'08 crisis, I think Merrill lost something like 50 quarters of earnings in one quarter.

Benz: Speaking of how women invest, let's talk about what we know about how women invest. There have been studies that indicate that women don't trade as much as men; they tend to prioritize safety more than men. What do the data show about how women invest and how they might invest, or approach investing, differently than their male counterparts?

Krawcheck: So it's a great question. I'd say the the biggest difference is that women don't invest as much as men do. And I'd say the biggest mistake, when we talk about men and investing, what's the biggest mistake--probably overtrading. Spending too much in fees, believing they can buy this stock at the right time, sell that mutual fund at the right time. And typically, you know, it's hard for anybody to outperform the market over any reasonable period of time. Those aren't the mistakes women make; women just don't invest as much.

Now what that tends to do is to lead to what I consider to be flawed thinking that, Oh! Well, that means women are risk-averse. That's it. They're risk-averse. And what that intuitively positions it as--it says, well, obviously, you know, the way the industry is built is the right way to invest. Therefore, if women aren't partaking of it, they aren't investing as much, then there's something, I wouldn’t say, quite wrong with women. But there's something wrong with women. They are just risk-averse. They just, they need more financial education. They need maybe, they need better relationships, they need to take more risk, they need to, they need to, they need to.

Ellevest was really the first company, the first investing company that said, what if instead of making the assumption that the products and services, the way of approaching the market, are gender neutral? It's just good--men find it just as good, women find it just as good, no problem. What if, instead, at Ellevest we said, what if we change the approach? Maybe it's not that women are risk-averse, maybe they don't like what we're selling. That could be the case. Maybe they're staying away in droves not because they need more financial education--which, by the way, so do men--maybe they're staying away in droves because they're not attracted to watching CNBC and picking which mutual fund and trading. Maybe, maybe that's the case. And so at Ellevest we built something that was 1,000% built around how women want to invest and, no, it's not that they are interested in taking less risk.

Benz: What findings have you built that Ellevest offering around then?

Krawcheck: Well, what we found is that women are not motivated by the trading. They're not even particularly motivated by a goal of having more money. They're motivated by their financial goals. They are motivated to invest if they can see themselves getting to starting the business they're dreaming about in five years. They're motivated to invest if they could see themselves buying the home they want in seven years or having the baby in two, retiring well, taking the trip around the world, short-term, long-term, medium-term investments. Those are the things that motivate them. And they really are looking for someone who they trust, which is hard. Because they [say], “You know, that financial crisis.” We hear from women still, “I don't know that I can trust this industry.” But they are looking for someone who likely is a fiduciary. So, therefore, legally obligated to put their interests ahead of the company’s own; who can put together an investment portfolio that can get them to their goals.

And there are blockers that just stand in the way? “Gosh, this isn't resonating with me. Gosh, I'd love to at least learn about investing intentionally”--as we call it at Ellevest ... we call what we do intentional investing--"I'd like to invest for impact or learn about it. I don't see that that's difficult to get to. I'd like to, if I have a financial advisor, have someone who I feel like gets me.” Easy to say, harder to do--if the workforce doesn't reflect you back to yourself. And we hear a lot from women--not me, I'm not saying this. It's women, you know, telling us they didn't feel like they were understood. They felt like they were made to feel not smart. They were talked to in jargon, I could go on and on and on. But these things really matter. They add up and they really matter such that in the existing industry, women have been staying away in droves.

Ptak: Can you give an example of how you structured your proposition to surmount some of those issues that you mentioned? Like what are some of the differences that a woman using your service would notice between maybe a rival service that's offered in the traditional way?

Krawcheck: First of all, our rival is really cash. You know, that's our biggest competition. It's cash and inertia. And so one difference, which doesn't sound like much but is important, is we talk with her. We don't talk at her, we're not all about how smart we are. We're not all about every last feature that she, we put in jargon so it's not just impossible for her but most people to understand. When I say we talk with her, we are with her on social. We don't see social as being a series of press releases of how great we are. And I know folks are going to listen to this, and they're going to say that's just marketing. But these things, really engaging with her on her terms where she is, and being responsive to her as opposed to just talking about yourself. These actually matter. And then the product. We are the first out of all the women-investing initiatives out there, and there've been probably half a zillion. We are the only ones who changed the underlying product and changed it in the way we just spoke about. We are the only one who takes into account one's gender; that women live longer than men. That matters, obviously. Women’s salaries peak sooner than men, I would argue nonbinary individuals as well. And so typical investment portfolio is fine if you're going to die sooner, but if you're going to live longer, it might not--if you don't take that into account, it might not be adequate.

Benz: And how about that goals orientation? How do you incorporate that idea into the offering, sort of the focus on goals versus just a pure performance focus?

Krawcheck: Our entire reason for being is to get her to her financial goals. And so you will see nowhere on our site, whether we out or underperform, pick relevant index or irrelevant index--the S&P 500. What does it matter? It doesn’t matter. It's not our goal, because we're not just trying to get her more money or the most money. It is putting together diversified investment portfolios--essentially they are individualized target-date funds, which is, she comes through, we help her calculate how much home she can afford. How much she needs to retire at the age of 65 with 90% of her income at the time, annually available to her every year through the rest of her life. How much she should put aside to start a business in x years. A lot of us having to tell her no, you actually can't afford to retire, have the five kids, buy the home, start the business, take the trip around the world, all that's not going to work. And so, at Ellevest also really important and unique to us is she can make trade-offs amongst those goals: This one is first; this one we'll put on the back burner for a period of time; invest both simultaneously, in this way.

So, the portfolios are all about reaching her financial targets, which we help her calculate in the substantial majority of markets. If she's off track, we let her know she's off track and we let her know how to get back on track, which can be enormously comforting if you have a long-term portfolio and the market gets tough to know, “Ah, you know, it felt like I was freaking out. But, you know, I'm off track but not by a lot. Instead of having 70% chance of reaching my goal at 60, it's 50. In order to get back to 70% chance of reaching my goal, I have to invest another $1,000--that feels manageable. I'll retire three days later--that feels manageable.” And, so in a way, I sort of think of Ellevest taking all the sophistication of what our industry does, or what Morningstar does so well, and sort of turning it into plain common sense, in plain English.

Ptak: It seems like one of the more enveloping, I suppose, adjustments that one would want to make to their approach in serving women is to encourage them to invest more aggressively, which I think is a theme that you noted earlier in our conversation. One of the reasons being longer life expectancies. Is that a fair assumption that laces through a lot of what you do at Ellevest in constructing portfolios for the women you serve?

Krawcheck: Well, it sort of feels like we're going back to the underlying supposition of your question is that women don't invest aggressively enough. I actually think it's the women don't invest enough. We see nothing here that says when they do, that they invest less aggressively than men. What we're seeing is not: “Hey, women are investing, but they're just in two-year bonds. That's what they're in. The dudes are all in Internet stocks. But women are just in two-year bonds.” No, that’s not what's happening. Women are in cash. And so to me it's not... they're just not investing. And so when they come here, one thing we don't do is ask them to make decisions that they don't have the knowledge, background, expertise to make, like, how aggressive do you want to be?

So it's really interesting because, and you all probably know this as well or better than I do, that when you ask someone what their risk tolerance is, nobody knows it until they go through an '07 or '08. They just don't; let's just call a spade a spade. We answer it, you know, and what we find in gender difference is men will answer the question and women oh, wait a second, I got to go figure out what it is. I wonder if there's a book I can read. She'll talk to some friends. And so at Ellevest we're like, look, we're all about having you reach your goal. And we're a fiduciary, and we've got tons of experience. And so the amount of risk you should take in your retirement portfolio is this. We don't talk in those words. We say, here's the portfolio, right? And it's got more risk than a home goal that got a five-year time horizon. Or an emergency fund, which has very little/no risk in it. And so by guiding her to this is what you want to achieve, this is what it takes to get there. And by the way, we'll track you the whole way: You should be in between, here's what the growth of the money is, and here's what it should be. You know, 90% of the time, it should be above this and 90% of the time, it should be below that. And if you're tracking within this sort of corridor, you're in good shape; if you fall off, we’ll let you know. Those are the things that get her to invest, as opposed to staying in cash.

Ptak: And so what percentage of the current account holders that you serve came to you 100% in cash?

Krawcheck: Oh, I don't have that. We also take rollovers, etc. But what I can tell you is that we get very few from traditional competitors. I can remember a handful of times, it was like, look, we just had a portfolio come over from--insert name of digital advisor--or look, we just had a portfolio come over from ... our millionaire clients, and we've got any number of those, we’ll see that they'll come over from one of the big traditional firms. But typically, the majority of what comes over are rollovers. So, IRAs, 401(k)s coming over in cash.

Benz: Let's talk about the service. You talked about how engagement is so important, and you know, making sure that you're having that dialogue with women. So, let's talk about the service tiers that you offer to clients. It seems like the level of engagement varies, correct?

Krawcheck: Do you mean by that human interaction?

Benz: Yes.

Krawcheck: So, this all investing firms, in my opinion, are some combination of people and technology. That is what they offer. And we have this great debate in the industry about people versus technology. People, you know, as if there'll be no more people; as if you know, all companies don't use technology. I think it's just a matter of where on the spectrum one rests. And so we have a spectrum at Ellevest and sitting here today, one can get a digital-only portfolio, the cost for it is 25 basis points, certainly you can engage with our customer service folks. I hope it's not for too long, but there can be human engagement. The next offer is a $50,000 minimum, 50 basis points, and you get access to a certified financial planner and executive coach. The next level is $1 million, high-net worth, you get all and a financial advisor. All of those are tech-enabled; at the high-net worth of private-wealth level, the tech is less visible. The tech we're building is really to leverage the financial advisors. And so they might say, well I don't work for a tech-first company. Well you do, you've just got a--I was going to say thicker human layer--but of course that's a poor visual.

Benz: You mentioned that one of the tiers includes the executive coaching. Can you talk a little bit more about that, the extent to which the career coaching is intertwined with the advice you're giving for the investment portfolio?

Krawcheck: Yeah, I was really skeptical of this. Having grown up in the traditional industry, we manage the money after you make it. And those are different skill sets; they're different places. You know, we're good. But the research kept coming back, that women are saying, oh, you can help me with money. Can you help me make more money? And then can you help me invest it? We weren't the first; there's research out there. I think I saw one piece--and I apologize because I can't remember who sponsored it--but it was what is the number-one thing women want from their banks? Oh, I'd like to make, you know, make more money work. And of course, bank's like yeah, not what we do. But we said, you know what, if we're going to be--I would say, I'm a recovering research analyst--we're going to be research-based and this is what's coming up. Let's see, you know, let's sort of test it and it's tested. It's doing well. It's not the primary reason people come to us. But as they are engaging with us, it's been a really interesting added benefit.

Benz: You have talked a lot about how financial advisors don't necessarily serve female clients well. Let's talk about that. What we know about how financial advisors serve women and how we know when women aren't happy with that relationship?

Krawcheck: Well, they leave. So the year after her husband's death, women leave their joint financial advisor at a rate of 70%, 80%, 90%. In a way, it doesn't sort of matter what they say. Just the results are there. I was running these big companies. I remember I'd stand up on stage and be like, well, we brought in this much in assets yesterday and we lost this much to death. Right and sort of this view of--well, that's just sort of the way it is. But the money goes to someone, and what might be viewed as traditional relationships, man and a woman, women outlive their husband by six to eight years. Ninety percent of women manage the money on their own at some point in their lives. And what we hear again and again and again and again and again, to back up those exit numbers, is women say, “I just didn't feel like he was my financial advisor. He and my husband would play golf, and I would go to the meetings and they wouldn't sort of talk to me, and I never really understood, and there was a lot of jargon and now I'm going to take the money and go to the bank and just keep it safe.”

When women outsource the management of their money to their partner or spouse, when that money comes back to them, there is a negative surprise 74% of the time, 74% of the time, that is not chance. That is, you know, she's not involved. Probably the husband, because of societal pressures is acting like everything's OK. And when that money comes back to her, she says, whoa. That's a negative surprise, and I am the heck out of here. I will add one thing--that when I was at these big companies, we would do all kinds of focus groups and tests and all that stuff. And there was a group of meetings we did in which the financial advisor would meet with a couple, and we'd watch it behind the glass, right, to see what the interaction was. And when they would leave, we would say to the financial advisor, what percent of the time do you spend talking to him versus her? And the financial advisor: “Well, we talked about the football game a little bit--55% him, you know, 45% her.” And then we'd run the tape and it would be like 85-15 or 90-10. And they would (overestimate) how much they spent talking to the woman and underestimate how much they spent talking to the man.

Benz: Do you think that the industry is coming to grips with this? Have you seen any positive strides on that front at the major firms where they are perhaps doing a better job of serving not just men but also women and being attuned to their needs?

Krawcheck: I don't know, you would know this better than I do. You know, I'm so busy trying to build Ellevest. Yeah, building a startup is so hard and so all-consuming that I really don't pay much attention to what the competitors are doing or what the more traditional firms are doing. Look, I know there's a lot of talk about it. There's a lot of energy around it. It's just hard. It's hard to change the complexion of a successful business, it's hard. People say to me, “Sallie, you ran Merrill. Why didn't you do an Ellevest at Merrill?” And, no, could not have done it. Innovator’s dilemma, which is that it's a very large, extremely successful business earning multiple billions of revenue, does business in a certain way. And to come in and say, well, let's change that way, focus on an entirely new client base that has different needs than the one that we're serving, go tech-enabled, which, sort of this tech first, which is going to have the benefit of, I believe, more customized investment portfolios beyond what the human brain can put together at a much lower price. Means good for the client, right? Because that money ends up in her pocket but means less profitability for the existing company. OK, so let's change everything. Take a very successful business and if we are successful in transforming it, we're going to earn less. You know, I don't think so.

Benz: You've argued that better gender diversity can serve all firms well, but let's talk about that on investment firm staffs. How do you think that can help them serve their clients better?

Krawcheck: Well, it can earn higher returns. I mean, the research tells you that women are as good or better investment managers than men are. We can debate the research, but I don't see anything that says yeah, women are terrible at this, just the worst. And yet--and these numbers, I'm sure have moved a little bit--90% of mutual fund managers are men and 98% of mutual fund dollars are managed by men. What is so fascinating about it is this is an industry that supposedly is about looking for the highest risk-adjusted returns. And so we've been so overwhelmingly socialized that this is a man's game, that we actually look past the research that points us to a way to improve the results.

Benz: You were an outspoken advocate of a fiduciary standard for advisors while you were head of Citi's Wealth Management business--that was more than 10 years ago. Why has a uniform fiduciary standard been so hard to enact?

Krawcheck: Because regulatory change is hard without a crisis. I have spent some time with the SEC, back in my prior life and getting regulatory change through is incredibly difficult. It typically happens after a financial crisis when there's, everyone clearly sees the need for a change. And there's drive for a change and after that, it just tends to fade away. And so coming out of the last financial crisis, of the things that people said was, oh my gosh, we have to, have to move on…this was not it. But I do think it's just not cool. And look, just to get to one standard, so that the investor doesn't have to try to get it. You know, I'll never forget when I started at Merrill, and there was still some impetus and momentum around a potential change, and asking the lawyers there for, “Yeah, look, I know it's easy, you know, we can have a straightforward statement that a fiduciary is a high standard, but there are lots of differences between them.” Whether it's, advertising: “Could you just pull together all the differences for me just because I really like to understand what those nuances are and how to maybe take the best of one standard and the best of another.” And they pulled together, I think it was 12 pages, of small typewritten differences. And it wasn't just 12 letter-size pages or legal-sized pages they printed out. I haven't seen one since--they printed it on one of those big sheets. So, I used to say nobody in the industry understood all those differences, like nobody. And then how do we expect an individual investor to make an informed decision. Right? You don't. You don't. It's just, it's not fair to the individual investor.

Ptak: And so do you think it's going to take another crisis to enact the the change that we need to achieve a uniform fiduciary standard?

Krawcheck: Well, that's what history would tell us.

Benz: So, there's been a reckoning in some industries over sexual harassment in the workplace. You wrote an essay about why the financial-services industry never really had its own “Me Too” movement. Why is that? Can you sort of restate that thesis?

Krawcheck: I think there are a few reasons an important one of which is that many in the industry require all their employees to sign agreements that sexual harassment will be handled through the arbitration process. That's a problem. And some of the research would tell you that financial services, in particular wealth management, when you survey employees of the industry it would tell you that the incidence of sexual harassment is high in comparison to other industries. And so what I think you see is if this is happening, but it's being quieted by the arbitration clauses and confidentiality agreements that are signed on payouts. That gets to, there isn't a surprise that you wouldn't be hearing much about it. I think the other thing that's happening is that you've seen women in other industries come together and rally around forming a Time's Up chapter.

Benz: Right.

Krawcheck: And rallying around getting more women in the industry, more progress on diversity. So, we've seen it in Silicon Valley, where the women there formed All Raise and are doing a lot of really incredible work to bring other women into the business, to fund women entrepreneurs, to coach women, etc. This just hasn't happened in Wall Street in the investing industry. And I think another reason is because in Silicon Valley, you are more successful if you collaborate that, hah, I'm seeing a great company, let me share it with you. And next time you'll share one with me, and oh, you're seeing something on this company I didn't think about, and I've got experience over here that you don't have. And so there's a collaborative environment.

On Wall Street, it's a competitive environment, and it's competitive across businesses. If I'm a private banker, and I'm competing with you for the client, or I'm an investment banker, and I'm competing with you and a client. And then I would argue, even amongst women in the same company, that if you looked up and you said there are, you know, there's a table of 12 leaders, and there are two women; and there were two women five years ago; and there was two women 15 years ago; there are two women 20 years ago--then you're probably going to think there are going to be two women. And in order for me to get that to the table, I'm not competing against Joe or Jim or Steve or Todd; I'm competing against Susie.

So, you may have heard of the Queen Bee syndrome. You know, that's a woman who doesn't help other women advance. You always hear the sort of judgmental, very judgy--some of the worst people I've seen for advancing women are other women. As if look, blame the women and like, yeah, because it only made economic sense for these women to be queen bees, because they knew if they wanted that seat at the table, who they were competing with. And so I think it's a lot a lot of different things. I think the thing it isn't, is it isn't that the industry doesn't have sexual harassment. It is there are factors that have kept them from coming to light as much in this go- around.

Benz: So, you've obviously had an extremely successful career in the investment industry. Do you have any tips for women in the industry about how to navigate their careers?

Krawcheck: Sometimes you need to recognize it's not you, it's him or her. So there's so much of these--I know what I'm supposed to say in answer to your question. It's supposed to be just work hard, take risk, and you go girl, and don't let them get you down and speak your mind and bring your best self to work. And there's all this stuff, right? I'm just going to be perfectly honest. If you're not getting ahead, it might not be your fault. And the research would tell you that that can very much be the case: that middle management is where diversity goes to die, and that your boss might be a terrifically wonderful human being--man, woman, nonbinary--but they have been brought up in a society in which leaders are men, in which when you picture a CEO, it's a man, when you picture a senior executive, when you picture a trader, when you picture a money manager--all of us picture a white man. And if you are a white man, look, you might be more comfortable promoting people who remind you of yourself. You went to the diversity research symposium, and you went to the unconscious-bias training. But if you are only promoting two people a year or hiring one person a year or three people a year, you can fall back on what feels more comfortable to you.

And so, at Ellevest, we call him or her Todd. Todd, you might work for a Todd and everybody loves Todd. But Todd just never gets around to promoting you. And so I think recognizing when you work for a Todd, and no matter how many more career books you buy, it isn't going to matter. You're not going to change him, and your company--which says it's a meritocracy unless their managers manage--is not going to take him out. Because his results are good. He's hitting a sales plan. He's passing his audits and he's just not making the diversity target. Oh well, but we have lots of things we're trying to do. If you are in a position where you can transfer departments, get a new manager, branch out, leave the company. There are times when I promise you, it is not you no matter what that dog-eared, you go girl, be-your-best book tells you. There are times it is, honestly, you cannot work any harder. It is not you. I bet you no one else has ever given that advice before.

Benz: Sallie, this has been a great conversation. We have really enjoyed hearing about these issues and hearing your enthusiasm for making things better. Thank you so much for being here.

Krawcheck: Thank you for having me.

Ptak: Thanks for joining us on The Long View. If you liked what you heard, please subscribe to and rate The Long View from Morningstar on iTunes, Google Play, Spotify, or wherever you get your podcasts.

Benz: You can follow us on Twitter @Christine_Benz.

Ptak: And at @Syouth1, which is, S-Y-O-U-T-H and the number 1. Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us at TheLongView@Morningstar.com. Until next time, thanks for joining us.

(Transcript has been edited for clarity.)

(Disclaimer: This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording. Such opinions are subject to change. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. and its affiliates. Morningstar and its affiliates are not affiliated with this guest or his or her business affiliates unless otherwise stated. Morningstar does not guarantee the accuracy, or the completeness of the data presented herein. Jeff Ptak is an employee of Morningstar Research Services LLC. Morningstar Research Services is a subsidiary of Morningstar, Inc. and is registered with and governed by the U.S. Securities and Exchange Commission. Morningstar Research Services shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analysis or opinions or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile before making any investment decision.)