By Carolyn Said
San Francisco Chronicle.
Consumer dislike of investment bankers is legendary, from New Yorker cartoons to late-night monologues.
So it seems audacious for a financial services firm to let customers pick what to pay — even nothing. But that’s the business model for Aspiration, a startup that offers socially responsible mutual funds and interest-bearing checking accounts.
Aspiration, which was founded a year ago, says the gamble is paying off. Most customers pay an amount in line with typical fees. Its mutual funds’ “Pay what is fair” feature ranges from nothing to 2 percent of assets under management; customers’ selected fees average about 0.7 percent.
“At a time when there’s so much anger at financial institutions, 90 percent of our customers want to pay us,” said CEO and founder Andrei Cherny. “It speaks to the kind of relationship we’re building with them.”
Sustainable practices
The Los Angeles company describes itself as an online financial firm with a conscience. It started its first social-impact fund nine months ago. This month it joined giant UBS Asset Management to create the Aspiration Redwood Fund, which invests in companies with sustainable approaches to environmental, workplace, social and governance practices, as assessed by the new Sustainable Accounting Standards Board.
“We look for companies that are poised for growth because they have good sustainable policies,” Cherny said. “It’s a fund where you’re not giving up returns in order to invest aligned with your values.”
The fund’s portfolio includes some familiar names like Apple and Amazon — but those are companies that have come under fire for labor practices. Cherny said many factors are weighed in selecting companies.
Cherny said Aspiration’s approach contrasts with those of other socially responsible funds that simply strip out oil, firearms and tobacco firms, for instance. That may be overstating its case, because other social funds seek out sustainable companies for their portfolios.
“Sustainable criteria for investment funds has been around for decades,” said Internet entrepreneur Nicco Mele, citing Pax World and Calvert Investments as examples. But he finds Aspiration compelling, and has invested “a moderate amount” with it.
“Technology has disrupted the fee structure of arguably pretty much every industry except banking and investment, so this feels overdue,” he said. Mele’s book, “The End of Big,” chronicles that disruption.
“Aspiration gives the consumer direct control, and removes the whole question of whether there are hidden fees and how much money they are making,” Mele said. He chose to pay Aspiration’s recommended amount. “It was a funny thing; I wanted the option to choose, but when it actually came time, I just went with what they recommended,” he said. He also likes that Aspiration donates 10 percent of its revenue to good causes.
Aspiration lets customers invest as little as $500, which it describes as democratizing access for ordinary people.
“They have tapped into something that is more appealing for somebody like me than just going to Vanguard or Fidelity (which also allow such small investments), because of the values of the companies they invest in,” said Adam Rifkin, who invested the minimum $500 in an Aspiration fund this year. It’s now up to $530, a 6 percent return in a few months at a time when the market was down. “But I’m doing this for 10 or 20 years from now,” he said.
Rifkin, 45, co-founder of a Palo Alto startup called PandaWhale.com, said he thinks Millennials will be even more intrigued. “Whenever I tell people in their 20s and 30s about Aspiration, the values really resonate with them,” he said. “Younger people are looking to invest with a company that inspires them. An investing institution that puts its values first is rather unique.”
Abhilash Mudaliar, research manager for the Global Impact Investing Network, while not familiar with Aspiration, said it is encouraging to see a growing number of impact funds available to regular investors. The sustainable standards board provides “a well-recognized and credible approach for monitoring and disclosing” such information, he said.
Eclectic background
With $15.5 million in series A funding, Aspiration has 60 employees. Cherny describes his background as eclectic. He worked in the Clinton administration in the 1990s, helped run Al Gore’s policy platform operation in 2000, and worked with Elizabeth Warren as a financial fraud prosecutor when the Consumer Financial Protection Bureau was created. Then he went to the other side of the fence, working as a strategic consultant for companies, including big financial institutions.
To be sure, Aspiration is small. It has about 7,500 mutual fund customers with about $5 million under management. It has slightly more customers for its Aspiration Summit checking account, which pays 1 percent interest a year for accounts over $2,500, has no monthly fees, is FDIC insured and provides free access to ATMs worldwide. That institution also manages about $5 million.
“We don’t make a cent other than what you decide to pay us,” Cherny said. “We ask for tips. We show people how much more money they’re making in their account from having moved their account from their previous bank. We say, since this is the only money we make, are you willing to pay us a tip of (up to)$6 a month. Most choose to pay us.”
