Swell Investing Review - Does Impact Investing Deliver Returns? (2024)

About Swell Investing

Swell Investing is an online impact investing robo-advisory platform service that constructs and manages thematic portfolios for investors. Impact investing encompasses socially responsible investing (SRI) and environmental, social and governance (ESG). This growing trend is especially popular amongst Millennials. While other robo-advisors are beefing up their SRI offerings, Swell is a pure-play impact investment service. Human portfolio managers manually research and screen out companies with unethical practices, transparency and disclosure issues or operate in exploitive industries. Algorithms manage the auto-rebalancing, tax optimization and portfolio management functions. Purpose meets profits is the mantra of this high-impact approach to uncovering high-potential companies focus on positive futures. Is this the right invest platform for you? Continue reading our Swell Investing review to find out.

History

Swell Investing was launched in 2015. Headquartered in Santa Monica, California, Co-founder and CEO David Fanger sought to accommodate investors searching for diversification and performance implementing high-impact socially responsible investing. “Smart companies will benefit from adapting to and address the (17 U.N. SDG) as a way to mitigate risk and ensure long-term growth”, stated Fanger in a Forbes interview. Pacific Life backed the start-up through their incubator. Swell is an SEC- registered investment advisor.

Structurally, Swell serves as an investment advisor and portfolio manager for its users. The actual cash and securities are held in a brokerage account under the customer’s name at Folio Investments, Inc. Folio is a low-cost brokerage platform that was started as a way for investors to create their own portfolios comprised of fractional share investing at a low price. Folio is a member of FINRA and SIPC.

How Swell Investing Works

Swell investors can select investment into any combination of the six thematic portfolios, Impact 400 Balanced portfolio or a combination of Impact 400 and thematic portfolios. Swell suggests starting with the Impact 400 as a base and then add thematic portfolios that best resonate with individual preferences. In this sense, Swell is similar to other robo-advisors like Betterment and Wealthsimple.

Swell implements a rules-based filtering process that marries strong fundamentals with ethical practices meeting at least one or more of the United Nations Sustainable Development Goals (SDGs). Additionally, each company in the Impact 400 Portfolio must have at least one woman or minority on the board or in the C-suite.

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Account Requirements

Account holders must be permanent U.S. residents and U.S. citizens 18-years or older. All accounts are individual accounts.

Swell Investing Pricing and Fees

Swell charges an annual management fee of 0.75% with a minimum account requirement of $50. While this seems relatively high, keep in mind since all portfolio components are stocks, investors don’t get dinged with additional ETF expense fees that can range from 0.08% to 0.40%. With stocks, customers also benefit from the compounding effects of automatic dividend reinvestment.

Swell Investing Platform

The Swell platform is available online as a white-label version of the Folio platform. Swell accommodates four types of accounts. The Flexible Swell is a taxable account that provides the flexibility and liquidity to access, track, withdraw and invest as needed. Recurring investments can be scheduled as well. Swell also offers three types of IRA accounts: Traditional IRA, Roth IRA and SEP IRA.

Swell Investing Tools

Every Swell thematic portfolio provides a transparent breakdown of the underlying stocks along with allocation percentages and analysis. There is an abundance of information for investors to expand their foundation of knowledge for the selected SRI segment. Investors can go through the research to determine if they want to remove any companies as well as adjust their own allocation mix. Swell investors have the option to Edit Mix from the Manage Mix dropdown tab to change the percentage allocation to each portfolio.

Portfolios

Swell invests in stocks, not ETFs, to create six thematic impact investment portfolios including Zero Waste, Clean Water, Healthy Living, Green Tech, Renewable Energy and Disease Eradication. The Impact 400 Portfolio is Swell’s own version of an index portfolio comprised of 397 to 400 companies that meet the rules-based qualifications including SRI and ESG rating methodologies, practice strong diversity and inclusion principles and are aligned with the 17 United Nation’s SDGs.

Tax Optimization

During the quarterly portfolio rebalancing, Swell implements tax-intelligent lot ordering to offset capital-losses with capital-gains to minimize tax liabilities. This means selling the largest losers first and selling the largest winners last. This is not the same as daily tax-loss harvesting that the larger robo-advisors implement.

Swell Performance

Swell points out that SRI-themed companies have outperformed the S&P 500 for over 25-years. Since Swell portfolios are relatively new, they haven’t yet established a five-year track record. The Impact 400 Portfolio was launched in mid-2017.

Automatic Rebalancing

Swell rebalances its proprietary portfolios quarterly to meet the risk adjusted allocation models set forth by the research and portfolio management team. As for individual accounts composed of Swell portfolios, users can manual rebalance allocations percentages.

Comparisons

Swell doesn’t offer all the bells and whistles of the more popular robo-advisory services like Wealthfront or Betterment. As a relative newcomer, it lacks certain popular features like tax-loss harvesting, which can bite investors with the quarterly rebalancing through stock sales. All accounts are individual accounts with no joint accounts yet or 401k rollovers. There are no goals-based planning and trajectory calculators either.

Swell Key Differentiators

Swell differentiates itself as a niche theme-based player in the robo-advisory industry. It gets high marks for transparency as each portfolio lists the stock holdings and allocations. Users have the option to remove up to three individual names in their thematic portfolios to better suit their needs. Although human portfolio managers construct the portfolios, users don’t have direct access to them. Swell investors are shareholders in the invested companies and have the right to vote on shareholder resolutions and attend shareholder meetings. Swell utilizes the Folio platform as the custodian and clearing firm for investor accounts.

Trustworthiness

Swell is still considered a relatively new startup with total assets under management (AUM) under $50 million. This is a rounding error compared to the AUM for the top four robo-advisors. Both Swell and Folio are registered with the SEC and accounts are SIPC insured up to $500,000 for securities and $250,000 for cash. Swell is also a fiduciary required to act in the best interest of their clients. However, the small size and start-up nature of the firm may discourage most investors until they stabilize their base and gain more stability.

Who is Swell Investing Best Suited For?

Swell is best suited for experienced investors seeking to allocate a portion of their wealth towards SRI-themed investments. It’s also well suited for Millennials with smaller accounts that are passionate about deriving profits with purpose. The limited functionality of a mainstream robo-advisor makes it prohibitive for investors seeking a one-stop shop for diversified investing.

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Pros

• Transparent SRI-thematic portfolios and proprietary index-like Impact 400 Portfolio
• Investors can remove up to three companies within each portfolio
• Dividend reinvestment compounding benefits from cash dividends issued by invested companies, not ETFs
• Top notch in-house researchers and analysts
• Small investor and Millennial-friendly
• Excellent gateway into the world of SRI

Cons

• Takes four-to-eight business days to activate and fund account
• Relatively high management fee 0.75% compared to 0.25% industry average