Retail platforms for sustainable investing struggle to differentiate themselves – and to attract customers



ImpactAlpha, May 15 – Aligning investments and values isn’t just for the wealthy. Automated investment services, aka “robo-advisors,” and providers of low-cost exchange-traded funds are making sustainable investing increasingly accessible to everyday savers and investors.

New services like OpenInvest, Swell and Ellevest that have come to market in recent years are competing with existing managers like Wealthfront and Betterment that have launched sustainable investing options. Vestive, Good Money, Aspiration, NewDay and others are crowding in as well.

The prize: the huge U.S. retail investment market. More than 43 million households have retirement or brokerage accounts. Registered investment advisors manage roughly $12 trillion in retail client assets. In the mass market, price-sensitive customers mean providers have to offer affordable products and services—and sell in volume.  

Increasingly sophisticated data science, algorithmic design and machine learning make the first part of that equation fairly easy. The fee structures of sustainable investing products like Swell, OpenInvest, or Stash all hug around 0.5%, give or take 25 basis points (Motif charges a flat fee).

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Pitching purpose

To claim customers, new competitors are seeking to differentiate themselves with screens, filters and impact metrics that attempt to make a difference in public-equity markets.

Ellevest focuses on women, with an investment strategy that both caters to women’s career cycles and invests in women-focused companies. It has raised more than $75 million from investors and has grown its managed portfolio to more than $250 million since 2016.

OpenInvest offers customers a choice of investment themes, building portfolios around companies that have taken stances on climate change, criminal justice, LGBTQ rights, and more. Some of its themes are also timely, news-wise. After the U.S. presidential election, OpenInvest launched a “Stand up to Donald Trump” theme that screened out companies that openly fundraised for or supported the president’s campaign. OpenInvest phased out that theme, only to launch a “Transparency in Politics” theme before last year’s midterm elections.

Accessible products

Vestive, among the newest entrants to the market, aims to make sustainable investing as affordable, diversified and liquid as possible. Officially launched in March, Vestive was founded by Mik Breiterman-Loader, who spent nearly a decade at Morgan Stanley helping institutional clients build sustainable investing strategies.

“I knew what we were doing at Morgan Stanley made a lot of sense both financially and from the sustainability side, and I wanted to make that accessible to people,” Breiterman-Loader told ImpactAlpha.

Vestive’s platform invests in highly-liquid, low-cost exchange traded funds, or ETFs, that cover a range of asset classes, geographies and industries. Breiterman-Loader sees these as the best option for everyday investors to “merge financials and sustainability together and still make sense for a whole portfolio.”

Vestive’s customers can invest as little as $50. After a basic survey of investment goals and risk appetite, Vestive’s platform builds a portfolio of seven to 10 ETFs screened against carbon footprint, alternative energy, fossil fuels, women on boards, labor violations, and gun and tobacco firms. Customers pay Vestive a fee of 0.45% to manage their account.

If creating unique investment products is relatively easy to do economically, attracting customers en masse may be less so. Vestive has focused on “older millennials” who have been working long enough to be looking past  student debt to retirement or other financial goals. Its messaging emphasizes building good financial habits, including small but regular investment contributions.

“Our overall strategy is to educate potential clients and gain trust in ways that are cost efficient—i.e. not plowing tons of money in Facebook ads,” Breiterman-Loader explains. “We’re still early on so we’re able to do a lot of things that don’t necessarily work at a huge scales, but make sense for us right now.”

Customer acquisition

OpenInvest, which has been in the market for four years, continues to add new themes to its platform that it believes will appeal to existing and new customers. (It recently developed a “placed-based investing” theme, which effectively screens for publicly listed companies within a client’s selected region of interest.) But it’s also beginning to pivot.

“There’s so much noise in the market,” co-founder Joshua Levin says. “To go out and acquire people head-to-head costs more money than you’ll make.”

This month, OpenInvest rolled out a new platform, called Optimus, for financial advisors looking to offer clients a sustainable investing option. The platform leverages the software and algorithmic design built for OpenInvest’s retail customers to allow advisors to build sample portfolios for clients and demonstrate the impact of its investment selections on taxes, returns and environmental and social causes. Other companies, like Ethic, have developed similar products for financial advisors.

OpenInvest is also looking to eventually sell its software to retail banks and other financial partners who “have the client base,” Levin says.

Levin says OpenInvest’s plan was always to become “multi-channel.” Still, he sounds almost apologetic when talking about OpenInvest’s expansion into a B2B strategy. His time with OpenInvest, he says, has convinced him that it’s the best way to scale values-based investing.

“When we started the company, we originally thought personalization was the roadblock to mainstreaming values-based investing,” he says. The company has since realized, he says, that the primary block is that most people are going to stick with their existing financial and investment products. “So you have to allow people to overlay their personal values on their existing portfolios.”

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