Review of: Swell Investing
Reviewed by: Kevin Mercadante
Last modified: January 22, 2018
Swell Investing was created to help users invest in socially responsible stocks. These include investments in alternative energy, clean water and healthy living. Swell requires a minimum investment of only $50, which makes it appealing and accessible to new and younger investors. On the downside, Swell's management fee runs a bit steep, and the service lacks some features of other robo advisors such as tax-loss harvesting.
Do you want to do good for the world at large while at the same time doing good for your own investment portfolio? A lot of investors today — especially those of the Millennial generation — would agree. That’s made socially responsible investing a hot trend. And robo advisor platform Swell Investing was created to help.
Swell Investing (or just Swell) is a robo advisor that creates themed portfolios of individual stocks. It focuses just on companies that engage in socially responsible industries. We’re talking renewable energy, healthy living and clean water.
Swell isn’t the only socially responsible robo advisor on the market today. Here at Investor Junkie, we’ve also reviewed Wealthsimple and Aspiration, which offers robo investing along with banking services, as well as many other robo advisors that offer this theme as part of their overall models.
So let’s see what makes Swell unique… and decide how it stacks up.
What Is Swell Investing?
Los Angeles-based Swell Investing (or just Swell) was founded in 2015 and launched in September 2016. The company aims to democratize the Sustainable, Responsible and Impact Investing (SRI) investment sector, which has traditionally been limited to large investors or dedicated exchange-traded funds (ETFs). The platform offers investors an opportunity to participate in SRI with as little as $50.
Swell is a true startup, but it’s backed by its parent company, Pacific Life, which provided the seed investment in all of Swell’s portfolios.
Each of Swell’s portfolios represents a different aspect of SRI, giving the investor an opportunity not only to participate in socially responsible investing, but also to isolate specific areas of interest. And it allows investors to both choose the portfolios they want to invest in and the desired allocation for each.
Swell Investing Features
|Fees||0.75% per year|
|Tax Loss Harvesting|
|Automatic Deposits||— Weekly, Monthly|
|Socially Responsible Investing|
|Customer Service||Phone: M-F 9-5 PT; Email|
- Rollover Assistance (New) — Swell now offers assistance with rolling over your 401(k) retirement savings into an IRA.
How Does Swell Investing Work?
Swell acts as your investment advisor, but your account is actually held with Folio Investments, Inc., an SEC-registered broker-dealer and a member of both FINRA and the SIPC.
Like many other robo advisors, Swell allows its users to select from pre-designed portfolios that are managed by the platform itself. But unlike traditional robo investing platforms, Swell does not have you complete a questionnaire that determines your portfolio composition. Instead, it gives you the option to choose which portfolios you want to invest in, as well as the allocation for each.
There’s another way that Swell departs from other robo advisors. While it’s typical for robo advisors to construct portfolios using primarily or exclusively exchange-traded funds (ETFs), Swell invests instead in individual stocks or, in the case of foreign stocks, American Depositary Receipts (ADRs). Each portfolio is comprised of between 37 and 68 individual securities.
Beyond the fact that you can choose which portfolios you will invest in, you also have at least limited ability to choose the stocks held in a particular portfolio. For example, if there are certain stocks that you would like to exclude from a portfolio, you can remove up to three holdings from it. You can make the changes anytime you choose.
There’s one other significant difference: When you invest through Swell, you’re a direct shareholder in each company that you own in a portfolio. This means that investors are able to vote on shareholder resolutions and even attend corporate meetings.
Swell Investing’s Signup process
In order to sign up with Swell, you must be a U.S. citizen or resident alien and at least 18 years of age. You will need to provide the following information:
- Your name
- Your address
- Your Social Security number
- Your date of birth
- Your citizenship/residency status
- Your email address
- Your employment status
Swell will also ask about your current investment assets, your investment time horizon and your risk tolerance. This is done to establish your suitability for investing in Swell, as well as to meet certain SEC reporting requirements.
For funding purposes, Swell supports automatic bank linking with more than 1,500 banks. But if your bank is not on the list, it can be added with the use of test deposits. Only savings and checking accounts — not money market funds — can be linked. Generally, it takes four to eight days for your account to be activated and fully invested.
Swell Investing Alternatives
|Fees||0.75% per year||Under $5k – FREE; $5k-$100k – 0.50%/year; $100k+ – 0.40%/year||Digital – 0.25%/year; Premium – 0.40%/year|
|Promotions||None||Up to $100 Bonus||Up To 1 Year Free|
|Review||—||Read the Review||Read the Review|
Swell Investing’s Model Portfolio
Once again, Swell acts as your investment advisor, managing your money, which is held in a brokerage account in your name at Folio Investments, Inc. Swell’s portfolios are managed by its portfolio managers.
The platform uses a “rules-based” investment approach. Each portfolio is constructed with two important factors — impact and performance — and follows these steps:
- Swell starts by screening each company for a commitment to positive impact across multiple areas of its business (environment, social impact, governance).
- Swell researches each company to determine how it derives revenue, making sure it actively delivers impact to the world.
- Swell analyzes each company’s financial health and stock valuation.
Swell is currently offering six portfolios, all of which represent a unique segment of socially responsible investing and are comprised entirely of stocks and ADRs:
- Green Tech — Focused on energy efficiency, building desirable products and making a concerted effort to reduce the pull on the energy infrastructure. This portfolio is composed of 53 companies, including BorgWarner (BWA), Johnson Controls (JCI), and Tesla Motors (TSLA).
- Renewable Energy — Focused on companies that are harnessing natural resources (alternative energy sources) to power the world. In this portfolio, there are 64 companies, including Analog Devices (ADI), TransDigm Group (TDG) and Eaton Corp. (ETN).
- Zero Waste — Focused on companies that provide solutions for composting, recycling and creating new materials from recycled materials. This portfolio is made up of 37 companies, including Steel Dynamics, Inc. (STLD), FLIR Systems, Inc. (FLIR) and Parker-Hannifin Corp. (PH).
- Clean Water — Focused on companies engaged in conserving water, cleaning it up and streamlining systems. This portfolio contains 44 companies, including Albemarle Corp. (ALB), Parker-Hannifin Corp. (PH) and Martin Marietta Materials, Inc. (MLM).
- Healthy Living — Focused on companies engaged in food, fitness and new technologies that enable people to live longer, healthier lives. In this portfolio, there are 54 companies, including Align Technology, Inc. (ALGN), Garmin Ltd. (GRMN) and VF Corp. (VFC).
- Disease Eradication — Focused on pharmaceutical and biotech companies conducting R&D and developing novel approaches to combatting today’s biggest health challenges. This portfolio holds 68 companies, including Abbott Labs (ABT), Becton Dickinson & Co. (BDX), and AbbVie, Inc. (ABBV).
Swell keeps 0.25% of your portfolio in cash, strictly for the purpose of paying the advisory fees. The company does this in order to avoid selling stock each month to cover the cost of the fee. All cash held in your portfolio is in an interest-bearing account, which is also FDIC insured.
Pros and Cons
- Socially Responsible Investing — If you want to add socially responsible investing to your portfolio, Swell could be the way to go.
- All-Inclusive Fee — Even though Swell’s portfolios are actively managed, there are no trading commissions or expense ratio fees passed on to you.
- Low Minimum Account Requirement — $50 makes it affordable for new and small investors.
- Steep Management Fee — The management fee of 0.75% is at the higher end of the robo advisor fee spectrum. Industry standard-bearers Betterment and Wealthfront each charge just 0.25%. However, Swell is a niche robo advisor, so higher fees should be expected.
- Individual Accounts Only — At this time there is no capacity for joint accounts.
- Limited Customer Service — Swell offers support only via email.
- No 401(k) Rollover Capacity — You’ll have to do a rollover with another investment platform.
- No Tax Loss Harvesting Function — This could be an issue with capital gains taxes since Swell rebalances your portfolio at least quarterly, potentially involving stock sales.
- New Platform — Swell began operating in September 2016 and is still working out the “bugs.” This would explain the lack of certain elements, such as a customer contact phone number and joint accounts.
Swell is in something of a unique corner of the robo advisor space, in offering strictly socially responsible investing. It does however have significant competition from Wealthsimple’s socially responsible portfolio, which has a much lower fee, at 0.50%, and also offers other portfolio types.
If you’re interested in SRI, here’s a list of robo advisors we’ve reviewed that offer this theme:
|Robo-Advisor||Annual Fees||Minimum Deposit|
|Betterment||Digital – 0.25%/year; Premium – 0.40%/year||$0|
|Hedgeable||0.30% – 0.75%/year — Depends upon amount deposited||$0|
|Swell Investing||0.75% per year||$0|
|Wealthfront||First $10k managed free; 0.25%/year for $10k+||$0|
|Wealthsimple||Under $5k – FREE; $5k-$100k – 0.50%/year; $100k+ – 0.40%/year||$0|
Swell has the advantage of investing in individual stocks, giving the investor an opportunity to see exactly what companies make up each portfolio, as well as the individual allocation in each stock. This is very different from the ETF investing done by Wealthsimple that essentially invests in entire markets based strictly on the index of that sector. It enhances the transparency of Swell’s portfolios. In addition, an investor has at least limited ability to make changes within the composition of each portfolio, which is a major benefit of individual stock investment.
Perhaps the biggest drawback for investors with Swell is the absence of tax-loss harvesting — which Wealthsimple does offer. It could force investors to face capital gains tax liabilities, due to the active nature of the Swell investment methodology.
Swell is perhaps best used as the socially responsible allocation of a well-balanced portfolio. Unlike other robo advisors, Swell doesn’t create a diversified portfolio that invests in different market sectors or different asset classes, like bonds and real estate. It’s strictly socially responsible investing.