The MFWire
Manage Email Alerts | Sponsorships | About MFWire | Who We Are

Subscribe to MFWire.com's News Alerts [click]

Rating:Can an Online Giant Grow This Roboadvisor Seed Into a Tree? Not Rated 0.0 Email Routing List Email & Route  Print Print
Wednesday, November 22, 2017

Can an Online Giant Grow This Roboadvisor Seed Into a Tree?

News summary by MFWire's editors

Getting to mass-market scale has been a key challenge for roboadvisors so far. Yet thanks to the multi-level backing of an online giant, one of those robos is tackling that problem in a big way.

Yesterday electronic payments titan PayPal confirmed that select U.S. customers can now link their PayPal accounts to Irvine, California-based Acorns, a mobile-focused roboadvisor that allows consumers to round up their purchases to the nearest dollar and deposit the extra bit into an investment account with Acorns. The roll-out is phased, and the PayPal folks expect to have all their customers ready to access Acorns by early 2018.

OnWallStreet, the San Jose Business Journal, the Wall Street Journal, and other publications all covered the news.

The alliance should not come as a shock to fundsters and other roboadvisor watchers. In April 2016 PayPal led a $30-million series D funding round for Acorns. And according to CrunchBase, PayPal led a $34-million Acorns funding round in November 2016. (CrunchBase estimates that Acorns has raised $96.96 million since its seed round in 2012.)

When PayPal first invested in Acorns in April of last year, the roboadvisor had more than 850,000 users. Now they have more than 2.3 million users (including 1.6 million which "are actively investing at present," the WSJ reports). PayPal, by comparison, had 218 million active customer accounts at the end of Q3 2017. If just one percent of PayPal customers open Acorns accounts, that would increase Acorns' account number by 95 percent.

Given that Acorns encourages tiny contributions and focus on phone-addicted millennials, it unsurprisingly has small accounts. Per its most recent ADV, filed on September 15, the 12 people at Acorns worked with 1.298 million accounts with a combined $528 million in AUM. That translates to an average account size of just $407. By comparison, the biggest independent roboadvisor, Betterment, dwarfs Acorns in staff, AUM, and average account balance. Per Betterment's ADV filed on September 12, the New York City-based roboadvisor has 219 employees working with more than 353,000 accounts with $10.05 billion in combined AUM. That translates to an average account size of more than $28,000, nearly 70 times Acorns' average account balance.

Yet if the roboadvisor game is planting a stake in the ground and building connections with millennials and post-millennials now, when they have little to invest, and keeping them as clients in the years to come when they rise economically, then it is Acorns that has staked out the bigger claim. Even with the September number of 1.298 million accounts, that's more than three times the 353,000 accounts that Betterment has.

And Acorns' business model is geared towards small accounts, as the firm charges a monthly per account fee of $1 (for most investors), whereas Betterment charges an asset-based fee of 25 basis points for its base service. (Betterment also has a 40 bps premium service with an account minimum of $100,000.) At 25 bps across all of its AUM, Betterment would bring in more than $25 million in annual revenue. At $1 per active account, using the September number, Acorns would bring in nearly $16 million in annual revenue. That's about 60 percent of the revenue of Betterment, but with a headcount (which translates into costs) 5.5 percent the size of Betterment.

Yet most fundsters may not be too happy with the rise of either Acorns or Betterment as they provide little room in their models for most fund firms' wares. Like most of their competitors, both roboadvisors build their portfolios out of products from a very narrow list of asset managers. For years Betterment's portfolios were built entirely out of Vanguard ETFs, though in September it added an income strategy from BlackRock and a smart beta strategy from Goldman. Acorns, for its part, builds its portfolios out of ETFs from BlackRock, Pimco, and Vanguard. 

Edited by: Neil Anderson, Managing Editor

Stay ahead of the news ... Sign up for our email alerts now

 Do You Recommend This Story?

Return to Top
 News Archives
2024: Q3Q2Q1
2023: Q4Q3Q2Q1
2022: Q4Q3Q2Q1
2021: Q4Q3Q2Q1
2020: Q4Q3Q2Q1
2019: Q4Q3Q2Q1
2018: Q4Q3Q2Q1
2017: Q4Q3Q2Q1
2016: Q4Q3Q2Q1
2015: Q4Q3Q2Q1
2014: Q4Q3Q2Q1
2013: Q4Q3Q2Q1
2012: Q4Q3Q2Q1
2011: Q4Q3Q2Q1
2010: Q4Q3Q2Q1
2009: Q4Q3Q2Q1
2008: Q4Q3Q2Q1
2007: Q4Q3Q2Q1
2006: Q4Q3Q2Q1
2005: Q4Q3Q2Q1
2004: Q4Q3Q2Q1
2003: Q4Q3Q2Q1
2002: Q4Q3Q2Q1
 Subscribe via RSS:
Add to My Yahoo!
follow us in feedly

  1. MFDF webinar - Lessons Learned from the Regional Bank Volatility and the Impact on Registered Funds, June 18
  2. IMEA webinar - Snapshot on the Talent Landscape, June 18
  3. 2024 MMI National Accounts Roundable, June 18
  4. MMI webinar - RIA Consolidators: The New Key Accounts?, June 20
  5. MFDF Director Discussion Series - Open Forum (Philadelphia), June 20
  6. New York YPEM Cornhole Classic, June 25
  7. Celebrating 100 Years of the Mutual Fund, June 25
  8. 2024 MMI Institutional Roundtable, June 26
  9. Morningstar Investment Conference Conference 2024, Jun 26-27
  10. WE PNW Seattle - Pickleball and Networking, June 27
  11. Celebrating 100 Years of the Mutual Fund, July 11
  12. MFDF webinar - Mid-Year Tax Update for Registered Investment Companies, July 16
  13. MFDF Director Discussion Series - Open Forum via Zoom, July 17
  14. MFDF Director Discussion Series - Open Forum (New York), July 23
  15. IMEA Portfolio Construction Roundtable, September 19
  16. MFDF Continuing Regulatory Impacts on Fund Boards program, October 15
  17. 2024 MMI Annual Conference, Oct 15-17
  18. IMEA Philanthropic Day, October 22
  19. IMEA Leadership Summit, October 23
  20. IMEA Star Awards Celebration, October 23
  21. IMEA Marketing Summit, October 24
  22. 5th Annual ETFGI Global ETFs Insight Summit, October 29
  23. MFDF Director Discussion Series - Open Forum (Denver), November 6
  24. MFDF webinar - Digital Assets in the Fund Space (part 2 of 2), November 7
  25. MFDF 2025 Directors' Institute, January 27 - 29, 2025
  26. MFDF 2025 Fund Governance & Regulatory Insights Conference, March 6 - 7, 2025

©All rights reserved to InvestmentWires, Inc. 1997-2024
14 Wall Street | 20th Floor | New York, NY 10005 | P: 212-331-8968 | F: 212-331-8998
Privacy Policy :: Terms of Use