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Micro-Investing App Lets Users Invest Spare Change

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From little acorns mighty oaks grow, the saying goes, and a new investing platform is aimed at growing small investments into a large nest egg. Acorns is a “micro-investing” app that allows users to invest their spare change.

The app can link to any credit debit or credit card. It then rounds up purchases to the nearest dollar and invests those extra pennies in a diversified portfolio of five exchange-traded  funds. The ETFs are offered by fund managers such as Blackrock, Vanguard and PIMCO.

Users can choose from five portfolios composed of these ETFs across a range of risk tolerances from conservative to aggressive. Nobel Prize-winning modern portfolio theory pioneer Harry Markowitz helped construct the portfolios. Acorns will suggest an allocation to users based on their age and income level and will rebalance the account periodically.

On the consumer end, Acorns makes investing fairly seamless and easy. Bill Winterberg, a certified financial planner and founder of FPPad, a technology consulting firm to financial advisors, says the micro-investing platform won’t hurt advisors.

“In fact, I can see how advisors can promote the Acorns app for investors just getting started with saving for their future using a very low-cost platform,” he tells ThinkAdvisor. “Then as investors’ portfolios grow and begin to get more complicated, advisors can add value by aligning the investors’ asset allocation with their goals, as well as address other financial planning opportunities not offered in the Acorns app.”

Acorns has no minimum account balances or commission fees and is geared towards novice investoropportunities with little to invest. There is a $1 monthly fee and a management fee of 0.5%, which drops to.25% for assets above a $5,000 threshold, and these fees also include rebalancing of the account. Users with a zero account balance don’t pay any fees. 

Acorns can also “find” money in places like rebates and rewards to add to the customers’ investment accounts.

Clients can chat, email or talk to an advisor or tech support staffer from 7am to 2pm Pacific time.  

Advisors could learn from micro-investing apps like Acorns, Winterberg believes. Things such as, “ease of use, attractive pricing (e.g. no signup fees or transaction fees), and a delightful user experience matter to investors of all kinds today,” Winterberg said. “Advisors can increase the technology they offer to their own clients to meet higher expectations from tech-savvy investors, and advisors arguably should update their technology if they plan to do business next to apps like Acorns.”

Walter Cruttenden and his son, Jeff Cruttenden, started the company because they wanted to use the popularity and technology of smartphones to engage an audience who never invested. “The truth is millions of people put off starting an investment account and miss years of compounding because they can’t pull together a lump sum, or they think they don’t have extra money to add each month or they just find the process too intimidating or complicated,” said the elder Cruttenden, who founded and sold the investment banks Roth Capital Partners, which funds micro-caps, and E-Offering, an arm of E-Trade.

The app is unlike other robo-advisors, he said, because it handles much smaller transactions.

“In today’s financial markets, there are many investing programs that require people to change their behavior and save large amounts they would otherwise spend,” said the younger Cruttenden in a press release. “Our goal with Acorns was to build an app that complements a customer’s spending habits and makes saving second nature. Rather than waiting to invest until they have a large lump sum, we want to encourage people to invest while they build wealth. To some, micro investing may seem insignificant, but the compounding effect coupled with automatic dividend reinvestment can make a big difference if started early and held for the long term.”

The product platform is also geared to a younger investment group, people ages 18-35.  Colton Dillion, the chief innovation officer of Acorns, says that 40% of their investors are under 22, and 85% of their first 10,000 customers are under 35. Their data comes from research after launching a beta version in March.

“The best thing you can do for your investment is start early,” Dillon said.

As of now, there are 10,000 active customers. Acorns hopes to reach the 100,000 mark by the end of this year.

Check out Acorns’ promo video.

Related on ThinkAdvisor:

10 Best Mobile Apps for Financial Advisors: 2014

10 Top Mobile Apps for Investors: Dalbar