Our ex-Goldman strategist is impressed by a Millennial technology startup that brings personalized ‘values-aligned’ tools to investors.
The way we invest has an impact on the real world and vice-versa. However, it is challenging to know how much impact an individual portfolio can truly have. Being open and transparent on non-traditional investment factors has not exactly been a strength of financial advisors, who often seem more interested in golf greens than green portfolios.
Recently I started looking at a promising alternative. Why? Because I am looking for an affordable path for personalizing investments that reflect my values.
Despite careers in finance and sustainability, I haven’t kept pace with recent developments in low-cost, customizable, sustainable investment alternatives. Fortunately, I met 27-year-old Gabe Rissman, who, with Patrick Reed, co-founded YourStake. This personal investing technology provider allows me to align my values with the stocks and bonds in a portfolio.
These Millennial entrepreneurs hope to capture the hearts, minds and assets of all generations by appealing to our love of personalization and technology and our strong desire to align hard-earned savings with our values.
The ability to bespoke my portfolio to match my personal sustainability preferences was, until recently, only available to institutional investors, family offices and high-net-worth individuals. YourStake, and one of its partners, First Affirmative Financial Network, now makes this possible for all investors. First Affirmative is one of the oldest socially-responsible investing company supporting independent Registered Investment Advisors (RIAs). Together these two firms are at the center of changing investing and capitalism.
Think of previous financial disruptors like Charles Schwab or Vanguard – except with newer technology, a commitment to values-based investing, and a better price for what you get. For an impressively low cost (0.36% fee) and a portfolio minimum of $25,000, using YourStake’s data and tools, First Affirmative constructed and optimized a diversified values-aligned portfolio for me. Your move, Chuck and Larry!
The combination of customer-focused technology, a reasonable price and the opportunity to have greater control over your investments is a heady mix, increasingly for investors regardless of age.
My values: I don’t like guns, private prisons, dirty energy, opioids, hypocrites and autocrats.
I wanted to invest according to my values. I wanted a portfolio selection process that I could understand. I wanted a separately managed, diversified account, which was once only available to institutions and the very rich.
Let’s start with my grandchildren. I wanted to assemble two small, $25,000, diversified portfolios, one for my granddaughter (age three) and one for my grandson (age one), which would reflect my values and my hopes for their future world.
While I may know my current preferences, until now, I did not have time or means to figure out targeted investments based on these preferences. That’s where YourStake and First Affirmative came in.
I am pro-democracy, pro-environment, pro-human rights and pro-corporate transparency. I don’t like guns, prisons, dirty energy, opioids, hypocrites and autocrats. Instead, I admire and support companies that provide solutions for healthier human lives and a cleaner environment. I wanted a portfolio targeting both profit and purpose.
To get the process going, I filled out the 16-question YourStake Questionnaire. It asked me to align myself with statements like “Companies should pay workers a living wage, even if that means employing fewer people” I ticked the “strongly agree” box. Why? Because I think the world — including the U.S. — has a growing global income equality problem that affects our common destiny and prosperity.
To the statement: “I avoid eating meat,” I admit that I ticked “neutral” as I still eat meat, only tempered these days by generous bowls of cold, spicy gazpacho soup.
To the statement: “I own a gun,” I ticked “strongly disagree” for all the obvious progressive, liberal reasons.
The entire process, from start to finish, was short, simple and seamless.
We were now halfway there. First Affirmative’s team took over and created a customized index – a list of stocks and bonds I would need in my investment portfolio. Using a black box algorithm and a portfolio tool called the Values-Aligned Direct Index Solution (VADIS), they mapped my answers and preferences to a universe of more than 2,000 securities and funds.
They suggested a highly diversified — 75% stocks, 25% bonds — portfolio with 214 individual stocks and some bond funds.
The entire process from start to finish was short, simple and seamless. It included a short introductory talk with First Affirmative, followed by 10 minutes to answer the questionnaire. One day later, I received the draft report listing all the portfolio components and weights and an independent report from Morningstar. Then I had a short phone call with the First Affirmative team, including special guest Chief Investment Officer Theresa Gusman, a Wall Street veteran, to slightly tweak the portfolio. My process mirrored what a client would experience with a Registered Investment Advisor (RIA).
I got what I wanted. Frankly, it amazes me that this product and service exists today. It did not exist three years ago.
A conversation with the founder
To better understand this cutting-edge world, I sat down with Millennial co-founder Gabe Rissman.
Billy: What is YourStake? Why call it that?
Gabe: YourStake is a data and technology company founded in 2019, primarily serving financial advisors and asset managers. We help advisors diagnose their clients’ values and align their investments with those values. Everyone has a stake in the system. You have power and control. We help you align your stake with your values and, in turn, your investments.
Does Wall Street not already magically do this?
There is a tremendous gap between what people want and actually do in these regards. In 2020, the CFA Institute reported that only 10% of investors are aligning their personal values with their investments. In 2021, Morgan Stanley’s third Sustainable Signals survey found that 85% of investors are looking to align their investments with their values. We target that huge gap between 10% and 85%.
Is that gap present across generations?
Yes, it is across the board. We have found a lot of passion in the younger generation. But also, the older generations are taking more time to think about their retirement and have the power and desire to take action now on their values.
Take action on personal values or investment values?
Both. Investment values likely refer to goals in terms of risk and return, whereas personal values are what you care about: maybe climate change, reproductive health, fair wages or whatever. These values are seeping into the investment process. Personal values can be expressed in investment values and decisions which have a targeted impact.
Does the name YourStake suggest you prefer stakeholder over shareholder capitalism?
Both are important to us. Stakeholder capitalism is broader and looks at treatment of, impacts on and outcomes for employees, communities, supply chains and shareholders, who, of course, are also stakeholders. Shareholder capitalism can go wrong when it assumes that investors only care about money and profits. When a company asks what shareholders care about, they learn that it is a lot more than just profitability. We think a more-informed shareholder capitalism is going to be great.
How and why did YourStake get its spark and start?
Just as I was gaining consciousness about climate change, my co-founder recruited me to join the Yale Student Environmental Coalition. As a student, you cannot really have that much impact, but our biggest leverage point was with our university around the responsible investment of our endowment.
How did that work out? Were you able to move Yale’s thinking on these matters?
We worked with Yale’s Advisory Committee on Investor Responsibility. We started out pushing for divestment, and the Yale Board did decide to partially divest, but in a really interesting way, one which was progressive over time – they started by instructing their fund managers to consider climate risk, then ask who are the worst actors, and can we improve them? And if we can’t, then we exit, i.e., divest.
How else did the students take action?
In 2014, we bought $2,000 worth of ExxonMobil stock, held it for a year, filed a shareholder resolution, went to the meeting in Houston and presented it, saying that company lobbying was not in line with its publicly stated views on climate change. In partnership with experienced NGOs, we got Yale and others to support the resolution. It received 26% of the vote and eventually resulted in Exxon cutting ties with the American Legislative Exchange Council (ALEC), an organization known for climate obstruction and denial.
When did you launch YourStake? What problem are you solving?
In 2018, we had written a paper on impact investing, and in 2019 we decided to just do it. The big blockers were a lack of transparency, personalization and explainability. So we created the tools and workflows for RIAs to understand their client demand, then do something productive with it. We unveiled our solution at First Affirmative Network’s 2019 Sustainable Investing Conference. They are a great partner. There are 13,500 RIAs in the US, many of whom are independent.
How do you plan to penetrate this market opportunity? What is the value proposition and business model?
Jeff Gitterman, who runs Gitterman Wealth Management, says “all the data in the world does not help an RIA tell a story.” So we built YourStake around the communication side and making solutions understandable for RIAs and their clients.
Our clients are not individuals like you, but financial advisors, RIA’s, and broker-dealers who support you. So we do a lot of one-on-one work with independent RIAs. We put a great tool on the RIA’s desktop and earn a subscription fee.
How mature is the RIA market in terms of sustainable investing?
RIAs are where asset managers were five years ago. Values-aligned investing is here for asset managers because it is already one of the top three client concerns.
I hate to ask it, but is this ESG investing? By the way, I don’t think there is such a thing. I think there are two kinds of investing: rational and informed values-based investing based on traditional and non-traditional data and your grandfather’s old-style investing. I just have to ask!
RIAs will likely not call it ESG investing. They will call it “personalized advice” and “values-aligned” investing. Even “sustainable investing” has underlying implications of good and bad, of sustainable and unsustainable.
Is ESG political?
I think ESG has become political in some people’s minds. I do not find ESG or the concepts behind it to be political. It should not be so, and it is not so. We have found there is a pretty low correlation between people’s underlying values and their political affiliation. Some people expect high correlation, but they are not mostly right. For example, there are people on both sides of the aisle who are defenders of human rights or who care about environmental protection.
While people often coalesce around shared values, there seems currently to be some aggregate or fake news confusion about ESG data. What are your thoughts about divergent ESG ratings? Is it your job to educate about ESG?
These debates are fantastic because they move the field forward in terms of understanding the challenges of ESG data and analysis and discussing what works well, and not, in terms of impact and values investing. All in all, this should lead to better solutions. We are small. Our job is not to convince an RIA that ESG is important. We serve RIAs who want a really good values-based investing tool.
What’s next for YourStake?
We hope to expand into investment stewardship tools. But our mission in two, five and ten years will always be the same: we are guided by the North Star of impact. Our goal is to get our data and tools in as many hands as possible and provide more information for people to understand the possibilities of values investing across asset classes.
In my experience, startups are super hard. How does your team maintain energy and enthusiasm?
My answer is based on what my brother recently heard in an address given by Brian Stephenson, the anti-mass incarceration activist. He described his plans and dreams to the great Rosa Parks, who responded, “Ooooh, honey, all that’s going to make you tired, tired, tired. That’s why you’ve got to be brave, brave, brave.”
Brava, bravo and brave.