Think the personal-finance industry caters only to older white males? A slew of start-ups are breaking into the personal-finance industry by targeting traditionally underserved populations, including women, gays, and teenagers.
Money Markets
A slew of start-ups are storming the personal-finance industry by targeting populations that traditionally have been underserved
What do women really want? Some start-ups think the answer is customized financial advice and business services. Those companies want to be the vehicle through which women do all their money-related tasks: paying bills, buying stocks, seeking loans, selecting insurance, and so on. They insist that women's financial needs are different from men's, especially because women tend to earn less than their male counterparts yet live longer lives. The thinking is that those two conditions have created a distinct marketing niche -- a "niche," mind you, that comprises 51% of the U.S. population.
Do women truly need specialized financial attention? Predictably, the founders of the aforementioned start-ups believe they do. They cite the needs of the aging baby-boomer market -- a megapopulation of educated women now entering their peak years of earning and spending. Those women, the first female generation to wear the proverbial pants of financial planning, will begin to look for advice on the Web and elsewhere. And the information that they'll need will not only cover the basics but also emphasize "more relationship-oriented and life-stage topics than bottom-line transactions," says Liz Davidson, founder and CEO of Financial Finesse, a company in San Francisco that's dedicated to serving women's investment needs.
Such target marketing -- be it to women or to any other population subgroup -- dovetails nicely with the audiences that already exist on the Internet. "For some time, the Internet has been aggregating people in communities," says Chris Musto, director of financial services and an analyst at Gomez Advisors Inc., a research firm in Lincoln, Mass., that focuses on Internet commerce. "So a start-up can work with sites that have already congregated certain groups." Indeed, the Web -- already home to such affinity sites as Women.com Networks, Gay.com, and AsianAvenue.com -- lends itself to businesses hoping to attract a given demographic.
Still, common sense suggests that all personal-finance customers -- regardless of gender, ethnicity, or sexual orientation -- would want the same commodity: trustworthy advice. Yet the specialization of personal-finance businesses, both on and off the Web, is well under way. Name a target market -- teens, Hispanics, newlyweds, high-tech workers -- and you'll find a financial start-up whose raison d'être is serving it.
Wrapping it up
Lenda Washington first had the notion of putting a female spin on traditional investment products during her days at PaineWebber. As a thirtysomething junior broker learning the art of cold calling, she was taught to ask, "Is your husband home?" if a woman answered the phone. For Washington, those days of making cold calls inspired the idea for a business targeting female investors.
Sure enough, Washington's new start-up is now calling on women to buy its first product. The company, Allison Street Advisors, based in Washington, D.C., is selling an investment vehicle called a wrap account, which gives customers with $250,000 in assets access to big-name institutional money managers. (Normally, that kind of access requires $5 million. A wrap bundles smaller amounts into an aggregate that's still worth a manager's time.) For years, brokerages have sold wraps as an investment option. Allison Street's wrap has a novel twist: the managing institutions are owned by women or minorities. Washington hopes her wrap fund will appeal to women, minorities, and institutional investors such as schools and pension funds -- all of whom, she thinks, will appreciate the precept of investing through female- and minority-owned firms.
The obvious issue is, Wouldn't the potential return on investment matter more to an investor than conscientiousness about social causes? Washington, who's African American, doesn't disagree. But she stresses that study groups show that investors have an affinity for advisers of a similar gender or ethnic background -- those "who 'get them' and share common experiences," she says. Her concept is no different in principle from an environmentally aware mutual fund, for which performance is "the meat," but "the social ticket is the gravy," she says.
Getting minority-owned money managers to sign on was the easy part. The hard part has been persuading the Merrill Lynches of the world to offer Allison Street's wrap fund among their investment products. The sales challenge, besides navigating through bureaucratic straits, is convincing brokerage firms that customers will favor Allison Street's wrap if they are deciding between it and an equally performing but less diversely managed fund.
So far, the fund hasn't been around long enough for its popularity to be compared with that of other wrap funds. At press time, the fund retailed only at five brokerages -- including W.S. Griffith, in Hartford -- and had less than $500,000 in assets under management after six months of active selling. But Washington believes the wrap could be a $50-million fund five years from now. Even if the fund isn't a smash with women or minorities, she says, it's sure to lure investors from large institutions. Which means it just might be a hit with anyone who has $250,000 to invest. "White males would also be interested in top managers," she says. "We're not excluding anyone."
Pride of ownership
"You want two guys buying a one-bedroom condo to be comfortable," says Brian Farley, founder of Pride Mortgage Inc., in Provincetown, Mass. "They don't want a starchy banker asking, 'Where's he going to sleep?' "
It's hard to doubt Farley's credentials on the subject. His $1.4-million business brokered $67 million in loans in 1999, and gay men and lesbians constitute a sizable portion of the business's clientele. It's a population that he classifies as very loyal to good service -- and quick to bolt from bad, even when the bad service comes from a company that's gay-and-lesbian-friendly. "If you don't do a good job, it doesn't matter if you're called Rainbow Mortgage," he says.
Though he chose the name Pride in part because it connotes the gay and lesbian community, Farley says, "we don't market solely to them," and his efforts to target that community are no different from any other group marketing at Pride. In fact, the company's eight other loan officers, some of whom head regional offices, have considerable leeway in how they promote Pride's services. The Seattle office, for example, could market to that city's large Asian population. As Farley sees it, the commission-earning officers' motives are simple: to close as many loans as possible. If that means targeting a niche, many niches, or no niches at all, then so be it.
At the same time, Farley's pitch to the gay community is not some affinity-marketing facade. He's well aware of how that community's needs differ from those of conventional mortgage applicants. Besides facing the ever-lingering issue of potential discrimination, gays and lesbians face the possibility of being outed at their workplaces when a lender, seeking employment verification, sends paperwork to employers that lists the names of both applicants. There are also complications surrounding breakups of home-owning couples: an exiting partner will often neglect to notify the lender of the change in status and is still bound to a mortgage even if his or her name has been removed from the deed.
