Acorns, an app that’s been awarded by SXSW, Design Awards, and FastCo Innovation by Design Awards, allows users to invest spare change automatically from everyday purchases into a diverse portfolio. This is an initiative is one that supports the notion that tiny investments will determine the future of Wall Street.
The financial technology startup is piloted by CEO Noah Kerner, an ex-disc jockey turned marketing guru with no experience with wealth management. Kerner, who sold a digital marketing and product design startup in 2014, also co-wrote the book, “Chasing Cool,” a book about marketing to young consumers. Nonetheless, the company has garnered $62 million in funding, thanks to investors Rakuten FinTech Fund, PayPal Holdings Inc., and other investors.
The mobile app functions by making regular deposits from bank accounts into an Acorns account, which automatically invests money into an exchange-traded fund. Approximately $50 each month is siphoned from a user’s online bank account to the app, and it tracks activity on the account and invests excessive change into transactions.
Jeffrey Cruttenden, the 29-year-old co-founder stated, “We want to make a big decision small.”Average accounts stand at $175, which is a relatively small amount, but it has enabled these account managers to reach $150 million across 850,000 accounts. The number of accounts Acorns manages has doubled since the beginning 2016.
The manage less wealth than Betterment Inc. and Wealthfront, but Acorns has ten times as many as accounts as Wealthfront and four times as many accounts as Betterment. Approximately 75 percent of Acorns’ users are between the ages of 18 and 34, and they earn less than $100,000 in annual income. For conventional financial advisers, the average age of a client is 62-years-old.
The app will continue to build a large user base, and they’ll monetize the platform by adding new user features. They’ll also earn revenue through retailers and other marketing partners.
Initially, Acorns sought to partner with big assets managers, but those managers were interested in superfluous features and a slower signup process. That would have hindered plans to disrupt the investing industry from the ground up. Currently, Acorns provides five levels of strategies, which range from conservative to aggressive, somewhat mimicking the Tinder dating app. Annual returns for Acorns users range from 5 percent to 9 percent, depending on the strategy.
For accounts with assets under $5,000, Acorns charges $1 a month but waives the fee for accounts with fewer than $10. For accounts that hold $500, it translates to an annual fee of about 2 percent. They happen to charge more than five times as much as Wealthfront and Betterment for their most expensive accounts. Acorns also allow users to make larger regular or one-time investments.
Acorns became free to students aged 18 and 23 after Wealthfront CEO Adam Nash indicated that Acorns monthly fees were exorbitant for small accounts. Also, Acorns’ Cruttenden iterated that fees reduce as users add to their accounts. The app acts as an important vehicle for investing and savings and outbids a focus on initial returns.
In May, Acorns will offer retailers a product that will enable retailers to add to customers’ Acorns account. Additionally, Acorns and Paypal are interested in exploring a partnership.
David E. Mickey is a financial executive based in Buffalo, New York, and he’s an Enterprise Sales Executive at Docupace Technologies. Please visit his websites to learn more: http://davidemickey.com; http://davidemickey.net/; and http://davidemickey.org/.