Welcome to Financial Advisor IQ

Penny-Pinching Apps May Create More Wealth

February 16, 2017

Investment and saving apps geared toward people who can’t afford traditional financial advisors have attracted millions of clients and continue growing, the Wall Street Journal writes.

The apps are designed to help investors put away and invest amounts that couldn’t justify an advisor. The average user of Stash, which launched in October 2015 and allows users to invest in small portfolios of ETFs, starts with about $40 and adds just $20 per week, the Journal writes. The average user on Qapital, which rounds up purchases to meet savings objectives, only puts away about $160 per month, according to the paper. And the average saver using Long Game, another saving app, puts away just $52 a month, the Journal writes.

But the apps are making it possible for millions of people to start building their wealth with mere pennies — and their user base is growing rapidly, according to the Journal.

What’s more, the cost of using the app may be high in the beginning but quickly falls far below what a traditional advisor charges as investors grow their accounts. Stash has already attracted 420,000 customers and is adding 3,000 new accounts every day, co-founder Ed Robinson tells the Journal.

Acorns, an app that invests mere pennies that make up the difference from rounded-up purchases, has grown from 850,000 accounts in April to 1.4 million accounts now, chief executive Noah Kerner tells the paper. Stash is free for the first three months and then costs $1 per month; Acorns also charges just $1 per month, according to the Journal. And while investing just $5 at such rates would mean a 20% fee, that cost falls to just 0.2% on accounts of $500, the paper writes.

In fact, an Investment Adviser Association survey conducted last fall found that tech firms serving clients traditional advisors couldn’t afford to serve have gained a huge following already.

Acorns and Stash were found to be among the top 50 largest wealth managers already. On the other hand, neither had cracked the top-50 rankings by the size of their assets. Nonetheless, smartphone apps that save or invest in the background are already helping poorer and younger investors build wealth, the Journal writes.

By Alex Padalka
  • To read the Wall Street Journal article cited in this story, click here.