Frequently Asked Questions

For an overview of investing terms, please see our glossary.

Socially Responsible Investing

What is Socially Responsible Investing?

According to The Forum for Sustainable and Responsible Investment (USSIF), SRI (aka “ethical investing,” “responsible investing,” etc.) “is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.” SRI in equities usually involves either negative or positive screening to identify companies with better social, environmental, or governance track-records.

In layman’s terms, SRI is the same as normal investing; you’re just systematically cutting out the bad guys or overweighting the good guys, depending on your values.

Does ethical investing have an impact?

Ethical investing is akin to voting, ethical consumerism, recycling, etc. Your individual impact may seem negligible. But we often consider these things to be a moral imperative because the aggregate impact is significant. (In fact, SRI has a higher impact than voting – it is unlikely you live in a swing state, and we have an electoral college. Sorry!)

When you avoid buying shares in a company, you reduce demand, which at the aggregate level can negatively impact the share price. This could affect the company’s cost of capital and ability to raise money through issuance of new shares. It also may affect management’s compensation and the ability of the company to attract and retain talent. In sum, you affect the corporation’s capacity to carry out its business.

You may personally also seek the peace of mind that you are not subsidizing – and indirectly benefitting from – activities you find repugnant.

Historically, SRI dates back at least to the 1700s, when Quakers advocated avoiding investment in the slave trade. SRI famously played a major role in bringing an end to Apartheid in South Africa. The Republic of South Africa became so starved of capital that eventually a collection of businesses – representing 75% of the country’s employment – drafted a charter calling for the cessation of Apartheid. American political leaders, such as Ronald Reagan, Jerry Brown, and others have all advocated for some type of social orientation in pension investments. Traditionally, the barriers have been a lack of knowledge and options; concerns as to how it would affect your returns; and high fees. Thanks to OpenInvest and others, these barriers no longer exist.

How will ethical investing affect my financial performance?

Traditionally, some money managers advised that SRI may theoretically hurt performance by reducing the size/diversity of your portfolio. However, we are fortunate to now have over 40 years of empirical data on the actual performance of SRI strategies. The findings show that SRI typically meets or outperforms the market.

For example, Deutsche Bank and partners conducted major meta-studies in 2012 and 2015, analyzing 100 and 2,200 existing academic research studies. They found that ESG (environmental, social, and governance) factors are “correlated with superior risk-adjusted returns at a securities level.” Deutsche Bank also found that companies with high scores for environmental and social governance (ESG) corporate social responsibility (CSR) have a lower cost of capital in equity and also typically exhibit market- and accounting-based outperformance.

Some studies find that companies with strong ESG fare better in economic downturns. While other research says that, in the long-term, performance equals out. For example, David Kathman, mutual fund analyst with Morningstar, states: "There will be good times when a social screening will hurt you and times when it will help you, but over time it doesn't make a difference." Other studies reach similar conclusions, including research by TIAA-CREF Asset Management, Envestnet PMC, GMI Ratings, Mercer, the United National Environment Programme Finance Initiative, Morgan Stanley, and more. Of course, investing is inherently risky, and historical performance does not necessarily predict future returns.

Check out this TED talk of Audrey Choi discussing "How to make a profit while making a difference":


How big is the SRI market?

USSIF calculates that, as of 2014, the US SRI market is $6.57 trillion. That means that 1 in every 6 professionally managed dollars is under some kind of ethical mandate. This is a 76% increase over two years prior. Global SRI assets are $21.4 trillion, a 61% increase over two years prior, according to the GSIA (Global Sustainable Investments Alliance).

How is OpenInvest different from other robo-advisors like Wealthfront or Betterment?

Robo-advisors are a rapidly expanding category of investment advisor and may become the primary investment planning solution for a new generation. A main reason is because they generally offer the lowest management fees. OpenInvest is a robo-advisor, offering comprehensive investment planning at low cost thanks to automation. The difference between OpenInvest and other robo-advisors is that we allow you to customize your portfolio according to your values and concerns.

How is OpenInvest different from “green mutual funds” offered by groups like Calvert, Domini, etc.?

There are a variety of great mutual funds that screen companies based on social and environmental research. Some are great, and some aren’t. The challenge is that these funds are really geared for purchase by pension funds, foundations, and other big institutional investors. They have very high management fees which will hurt your financial performance. And they typically screen based on a standard basket of issues – alcohol, tobacco, firearms, pornography, etc. – rather than allowing customization according to what you care about most.

Do I need a human money manager?

Different people have different desires when it comes to financial planning. Some folks want a person to talk to regularly. Many are happy with quality online services, which is increasingly the case.

Human money managers (after much small talk) will ask you your age, risk tolerance, and how much you want to invest. After that, they plug you in to a pre-set portfolio called the “Cap M” model. The whole industry is standardized with this pre-set optimization model, and a computer can do this all for you in a few seconds. You typically only start receiving custom solutions from money managers once you have ~US $5 million to invest.

The thing with humans is that they need to get paid, which comes out of your pocket. If they charge a percentage of assets or returns, this can secretly add up to hundreds of thousands of dollars over the course of your lifetime. Even worse, money managers may place you into underperforming funds from which they receive commissions. According to Bloomberg Business News, a new working paper by business school professors at the University of Chicago and University of Michigan found that corrupt practices among money managers are endemic. "[Corruption] is everywhere, not just small firms. It is pervasive," said Amit Seru, a finance professor at the University of Chicago. "This is eye-opening and suggests not only that some firms have a high tolerance for misconduct on the part of their employees, but that their very business model is to attract the broker who can generate high revenue at the cost of repetitive disciplinary violations.” This includes some of the world’s largest and most established money managers.

Whether you look to humans or the internet, the consensus is that you should hold the Cap M model: the market portfolio, with a split of stocks and bonds according to your age and risk tolerance. Robo-advisors can do this for you at the lowest cost, with systems you can trust; and that difference in fees is what really adds up to outperformance over the long-term. OpenInvest adds customization and ethical strategy recommendations for further enhancements and peace of mind.

How does SRI fit in with my other investment strategies?

Socially responsible investing (SRI) is an approach that can be applied to any asset class, including both stocks and bonds. Thus, you can apply your principles to your entire portfolio. You never need to compromise between your ethics and your returns. OpenInvest will recommend a sound financial strategy for your whole portfolio. Then you can tweak according to your values. We are continuously striving to add additional ethical filters and recommendations across asset classes as data becomes available.

Who should invest responsibly?

Most people have issues they care about, and there is no reason that investing should be an “ethics-free” area of your life. Quite the contrary! – investing is one of the primary ways in which you can shape the world. Thanks to technological developments, customized ethical investing is now available to everyone at low cost. Or, you might simply be motivated by the demonstrated financial track-record of companies with strong environmental and social governance (see above).

Opening an Account

How do I actually invest?

In order for you to invest, we need to open a brokerage account in your name. When your application has been processed, you must fund your account. When the deposit clears, simply tell us about your values, and we will handle the rest.

Is there a minimum? Why?

Yes, there is an account minimum of $3,000. Unfortunately we cannot customize a portfolio to your values and maintain a well-diversified account for accounts less than this. We hope to improve our offering in the near future to reduce our minimums. If you'd like to deposit a smaller amount in the meantime, to try OpenInvest, please contact us.

How much does it cost?

We charge a 0.5% annual fee of assets managed, billed monthly.

By comparison this is about:

  • 1/4 to 1/3 of the amount charged by "green mutual funds"
  • 1/2 of the cost for an investment advisor
  • a little more than robo-advisors (when you include their ETF expense) that don't offer our level of customization.

All transactions costs, and the underlying expense of any ETF's we use, are covered by our fee.

OpenInvest is all about transparency. One low fee - that's it.

What is a brokerage account?

A brokerage account is an account at a broker in which you can hold financial assets like stocks, bonds, and options as well as cash in different currencies. A broker is an agent who can execute trades in the market on your behalf.

Where is my account held?

Your account is held with Tradier Brokerage. Tradier Brokerage is our brokerage partner that we use to actually hold your assets and execute trades in your name. They are a member FINRA, SIPC, fully compliant broker dealer.

During signup you will receive some emails directly from Tradier notifying you of things like account approval. You can always log in to your OpenInvest account to see the status of your account and any next steps.

What do I need in order to open an account?

We require a minimum deposit of $3,000. If you do not have this amount, please see the next question. You also need to be a US citizen or permanent resident and be at least 18 years of age.

What should I do before investing?

Before you consider investing, we recommend that you follow basic personal financial advice to ensure that other areas of your finances are in good shape. A good overview of what we mean, taken from the Personal Finance subreddit, can be seen here. We can help with the IRA and investment portions of this diagram.

Why do you need my social security number?

We need this to confirm who you are and to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) policies. You cannot open an investment account or hold financial assets without supplying this information.

Why am I being asked for financial information like net worth and annual salary?

We, and our brokerage partners, need this information in order to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations.

Why do you need my employment info?

We, and our brokerage partners, need this information in order to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations.

Why is my brokerage account a margin account?

A margin account makes rebalancing your account much more straightforward. Instead of waiting days for the sale of a security to settle and result in cash proceeds, with a margin account you can rebalance all at once. Other than this, we will not trade on margin without your explicit approval.

Can you manage my IRA for me?

Absolutely. We can manage personal investment accounts, IRAs, and ROTH IRAs. During signup you have the option to select which kind of account you would like to open.

Can I transfer positions from another account?

Sure, no problem. After your account is opened just contact us and we'll be in touch with the details. Transferring your positions does not involve selling and rebuying, and will not trigger a taxable event.

Portfolio Management & Mechanics

What is the basic structure of my portfolio?

Portfolios are structured as a combination of: A) A basket of equities (stocks) that replicate the performance of the S&P500, but are reflective of your values; and B) A bond fund, which provides diversification. We provide you with the option to use a green or traditional bond fund. This blended portfolio provides the diversification characteristics necessary to track the performance of the market. Furthermore, we will be adding asset classes and expanding the universe of equities in the coming months to provide even further diversification and engagement opportunities.

Are OpenInvest portfolios active or passive?

Passive. We don't change the allocation mix based on any alpha views, attempting to beat the benchmark, or anything that isn't simply rebalancing and tracking the performance of the overall market.

91% of active managers fail to beat the market, and instead they end up underperforming because of the fees they've charged you for their "expertise." There is broad consensus that generally, investors should hold the market, not try to beat it.

With OpenInvest, for the first time in history, people can wield their assets as activist investors, while holding a passive portfolio.

Give me all the details!

Sure thing! To start, let's set aside the fixed income portion of a portfolio and just look at the equity portion. We start with a universe of securities. Currently this is the S&P 500 but we will be expanding it to smaller cap and international securities soon. We use the S&P 500 because we believe it is the best way to track the overall performance of the stock market.

Next, we get data on how well companies align with the set of issues that we support and overlay this on the universe of securities. You can read more about the details of this data and the metrics we use on our issues page. Depending on the issue and the metric this could result in a company being labelled as good, bad or neutral for a particular issue.

All of the bad companies, on any issue you care about, are ineligible for your portfolio. We'll start building a portfolio from the good ones and use neutral companies to balance other factors such as sector diversification, beta and average weighted market cap.

The resultant portfolio will have over 60 stocks and closely match the sector breakdown of the original universe.

For the bond side of your portfolio we invest in BND, a diversified bond ETF with a very low expense ratio. We include the ETF expense in our fee so this is not an additional expense. You can elect to use a 'Green Bond' fund instead (CGAFX). We leave this up to you as unfortunately the expense ratio is fairly high (~0.88%) and we have to pass this on.

We rebalance your portfolio automatically (and with no additional fees or expenses) as prices change and you add or subtract funds from your account. We also keep it up to date with the issues you care about. New data on corporate behavior is frequently being released, and we are always evolving our company scoring metrics to better reflect the issues you care about.

Security

How do you protect my information?

We take security very seriously. Since good security is an ongoing process, we regularly review our security protocols.

All system passwords are stored in an offline password management system. This system allows us to generate strong, random, and unique passwords, and also reminds us to regularly rotate passwords.

Multi-factored authentication is enabled for all online services we use. This ensures that our accounts cannot be compromised with access to our passwords alone. We do not access external accounts unless it can be done via a secure channel.

All internal servers are locked down by IP and port to ensure reduced visibility to external attackers. Sensitive information, like bank account information and social security numbers are all encrypted at rest.

All entry points to our servers require secure access. If you try to access our site via http, you will always be redirected to https. You will be logged out from our site after a period of inactivity.

Trades issued to our brokers can only be performed through a locked-down virtual machine. Access activity on this machine is logged and can be terminated externally. As with all of our accounts, an additional external security device is required.

How do I know my investments are secure?

Your funds are held at our brokerage partners. Our brokers are FINRA members with a reputation for charging very low fees. You will be able to log in and view, trade, or withdraw funds from your portfolio at any time, either through our site or directly with our broker if you prefer.

We employ a third-party administrator to reconcile user's accounts and an accounting firm to conduct regular surprise audits on all of our assets. We also have a compliance partner to help ensure that we adhere to applicable laws and regulations.

You will always have control over your portfolio, but we have also set aside capital to allow us to fully manage any handoff of portfolios if it becomes necessary for any reason.

What is the Security Investor Protection Corporation (SIPC)?

The SIPC is a nonprofit membership corporation that was created by federal statute in 1970.

SIPC protects customers of SIPC-member broker-dealers if the firm fails financially. Coverage is up to $500,000 per customer for all accounts at the same institution, including a $250,000 limit for cash. You can read more about SIPC.

Issues

OpenInvest's platform is currently integrated with the following issues: Climate Change, Deforestation, LGBTQ Workplace Treatment, Tobacco, Weapons Manufacturers, and Women in the Workplace. For a detailed overview of each issue including the data used and methodology, see our Issues page.