Insurer Pulls Plug on Socially-Conscious Investment Platform Targeting Millennials

By | July 29, 2019

In 2017, Pacific Life Insurance Co. introduced a socially conscious, online investing platform tailored to thirtysomethings eager to use their assets to make the world a better place. Those investors proved more expensive and rare than the company thought, and less than two years later, the venture is returning their money and shutting down.

The company, called Swell Investing, tweeted Wednesday that it will close August 30. In surveys, people in their 20s and 30s say they’re eager to invest in line with their values, but the short life of Swell suggests that the financial services industry has been wrong about how ready they are to do so — and how prudent it is to help them try.

“When we first set out to build Swell, our goal was to ensure that every dollar invested created a better world,” Dave Fanger, the former Pacific Life executive who founded Swell and was its CEO, said in a statement. It didn’t address the company’s demise but said the team would “collectively continue in some form on this mission.”

The target customer was between age 25 and 44, loved to watch Cheddar, read the New York Times, travel, and wear Patagonia, Fanger said in 2017. Based in Los Angeles, the Swell team built managed accounts focused on green technology, disease eradication, healthy living, clean water, zero waste and renewable energy, and emphasized investors’ abilities to vote their proxies on issues they cared about.

But those customers didn’t materialize. Swell initially focused on pricey marketing to get the word out to retail investors, and while those costs fell as it launched an app and got more well known, it made it tough to grow. Swell’s customer acquisition costs in the first year were as much as $350 per person, though they fell to about $150 this year, according to a spokeswoman.

The average millennial has a net worth of just $8,000, a Deloitte study found in May. The cohort is heavier on debt than other generations and most of their assets are held in 401ks, IRAs and real estate. Some of Swell’s biggest accounts were IRA rollovers, but most accounts were small, according to a former employee who asked not to be named to protect future employment opportunities.

When the company announced its shut down this week, the spokeswoman said it had $35 million in assets under management and 15,000 clients — or a per-client account average of just $2,333. Swell’s annual management fee was 75 basis points, netting less than $20 per account on average.

At the same time, Swell’s focus on impact investments meant portfolios full of newer mid-sized companies, many of which were exceptionally volatile for small retail investors, the former employee said. While too low to cover its costs, Swell’s fee was high relative to other online options. Some robo advisers charge $0 in annual fees. And in the impact space, fees have fallen. Giants like BlackRock Inc. and The Vanguard Group, which have attracted billions in ESG assets after dramatic price cuts on new socially-conscious ETFs.

“Although we believe in the value of sustainable impact investing, the Swell model is not a long-term fit for our core business strategy,” Pacific Life said in a statement. The insurer owned 100% of Swell and will control its remaining assets, including its technology, after it shuts down. Client accounts will be closed and the assets returned, with management fees waived for August.

Swell may also just have been too early. Millennials and Gen-Xers are expected to inherit $30 trillion of wealth in a massive generational transfer over the next 30 years. Swell’s collapse makes clear that just hasn’t started yet.

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