OpenInvest: Put Your Money Where Your Heart Is

VEA Vice Chair Nell Minow interviewed Joshua Levin for the Huffington Post:

A new service allows even small investors to pick companies based on their values by swiping right. It is called OpenInvest, and it is available on iTunes. Joshua Levin, co-founder and chief strategy officer, explained how it works.

Where did this idea come from?

It comes from staring down “the giant paper packet.” If you own individual stocks, this is the thing that arrives at your doorstep, allowing you to vote in major company decisions. These shareholder votes are absolutely one of your most powerful tools to shape the world, often driving major corporate decisions on how to treat people and the planet – everything from climate change policies to treatment of LGBTQ employees and more. The corporations we all own are more powerful than governments and also happen to set the political agenda.

Yet no one fills these things out. It feels like you need a law degree and a free weekend, and none of your friends are doing it, so what’s the point?

Even worse, if you own funds, you’ve most likely signed away your voting rights. For example, in 2015, Vanguard voted against all 200 sustainability-related shareholder resolutions, according to Barron’s.

The shame in all this is that we actually have collective ownership of the economy. Individual investors directly and indirectly own nearly 80% of US equities markets. We’re literally in charge. The CEOs work for us and report to us. They are awaiting our commands. But no one is using their power due to unnecessary confusion, intermediaries, and red tape.

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By disrupting this system, we are kicking off the world’s first digital democracy. We’ve spent years cutting through complexity and special interests on the back-end, to deliver a seamless and engaging democratic system on the front. People will only see the votes that matter to them, get a 2-sentence summary of the issue, vote with a swipe (as easily as picking a date on Tinder), and then share with others.

Does it just offer NYSE and NASDAQ stocks, or are other kinds of securities available?

Yes, OpenInvest portfolios are structured as a blended portfolio of equities listed in the S&P 500 index (which only has stocks listed on either the NYSE or the Nasdaq), but are reflective of the retail investor’s values, combined with a green or traditional bond fund. By design, each user’s equities portfolio will track the performance of the S&P 500. It’s like each person has their own index fund.

The SEC and state regulators have a lot of requirements about the information that has to be provided to investors.  How do you make that work on a “swipe right” system?

OpenInvest is an RIA and Fiduciary that serves the best interests of our clients. We took great pains to provide a robust and fully compliant proxy policy for our users, which explains our approach in full and is amended into our SEC filings. When clients receive a distilled summary of a vote, it is a prompt with a link to learn more through the official corporate proxy statement. When they swipe, the client is informing our vote, which is cast in accordance with this policy. It’s like a digital conversation with a client, who we already know very well. This makes it sound simple, but it took years to develop and is patent pending.

What kinds of priorities can people put into the system to shape their portfolios?

We currently have 11 “themes” – which are both positive and negative filters – that an investor can choose from and mix and match to suit their values. They can also swipe individual names in and out to further customize. The current themes include Carbon Emissions, Fossil Fuels, Deforestation, LGBTQ Rights, Tobacco, Weapons Manufacturers, Women in the Workplace, Divest from Trump, Supporting Refugees, Divest from Dakota Access Pipeline, and Human Rights in the Supply Chain.

What other kinds of information will you be adding? 

Most of our upcoming themes are top secret. But we are on the brink of launching a screen that helps people divest themselves of the prison-industrial complex. We are also adding significant amounts of financial education and video content. How does the rebalancing work?  Is it affected by the limits customers place on their holdings?

The key to maintaining both diversification and values is technology. For example, when the Wells Fargo consumer fraud scandal occurred, many of our customers picked up their smartphones and swiped Wells right out of their portfolios. On the back-end, our systems instantly break apart and rebalance their portfolios to keep them diversified and tracking the performance of the benchmark. It’s the first time anyone can be a social activist investor, while always holding a passive portfolio.

By design, customers can select all of our screens and still hold a sufficiently diversified portfolio that broadly tracks the market. We do have some “power users” who divest from so many things that we have to engage them as a fiduciary. We let them know that they are at risk of creating significant variance (tracking error) from the benchmark, and we do not recommend that they proceed from a financial standpoint. However, if they would like to proceed, we can help them implement. We’re very happy to empower people; they just need to go in with their eyes open.

Do millennials have different priorities for investing than the previous generations?

 

When polled, 84% of millennials want to invest in companies that share their values, according to a Morgan Stanley study. Our internal data also shows, for example, that 63% of Americans under 40 care deeply about climate change, so that greatly affects their investment choices. However, millennials are also the most diverse American generation to-date. They desire customization to their particular values, as well as a visceral connection to their impacts, and an amazing digital experience. Recent tech developments are finally making this possible. We are putting socially responsible investing at the fingertips of the generation who will mainstream this movement.