This article first appeared in Personal Wealth, The Edge Malaysia Weekly on February 19, 2018 - February 25, 2018

For the inexperienced, “investing” means hours of research, high upfront costs and a lot of paperwork when visiting brokerage firms or fund houses, just to get started. However, this is no longer the case.

Now, novices can make their first investments via financial technology (fintech) platforms, bypassing the roadblocks that have kept many out of the game. One such vehicle is Australia-based Acorns, a micro-investing platform that allows users to invest with a minimum amount of just A$5.  

According to Acorns Grow Australia Ltd CEO and director George Lucas, the platform solves the problems that new investors typically face such as high minimum investment amounts, trading costs and the time and effort needed for market research. “In Australia, not many people have stockbroking accounts. If they do, it may cost them A$10 to A$15 on average in terms of brokerage fees,” he says.

“We have seven exchange-traded funds (ETFs) in a portfolio. Outside our platform, investors would spend a minimum of A$70 to get in [and perhaps another A$70 to get out]. On the other hand, investors only need to pay Acorns about A$15 a year and everything is taken care of.”

Acorns was founded by a father and son, Walter and Jeff Cruttende, in the US in 2012. Acorns Grow Australia is a joint venture between the US-based company and Australia-based asset manager Instreet Investment Ltd. There are now several micro-investing platforms in the US, including Stash, Robinhood and Loyal3.

According to Lucas, Acorns stands apart from its competitors because of its “round-up” feature, which captures spare change from rounding up transactions to the nearest dollar. When a user links his credit or debit card to his Acorns account, the platform tracks the spare change from any transactions made and displays the amount on the app.

Users are free to manually invest the spare change collected or set their accounts to automatically invest the amount collected for a hassle-free investing experience, says Lucas. “For example, if you pay A$2.50 for a cup of coffee, 50 cents is invested in your account. Users can link several cards to their Acorns account so they can save more money from their day-to-day transactions without even giving it much thought.”

The Acorns fee structure is fully transparent. The company charges A$1.25 per month for accounts with balances under A$5,000. Accounts with balances of A$5,000 and above are charged 0.275% per year. There are six portfolios to choose from, depending on the investor’s risk appetite. On average, the portfolios give a return of 13.5% per annum, says Lucas.

Acorns’ core objective is to remove market barriers and make investing easy for users, not to replace traditional investment vehicles and the role of fund managers, says Lucas. “We just want to make it easy for users, from end to end. In fact, applications are fully online. We also fulfil the anti-money laundering obligations in the background. There is no need for users to send any special forms or pictures for Know Your Customer [compliance].”

In Australia, 380,000 users have signed up on the platform. Lucas says the company plans to expand its services to Indonesia soon, before moving to other Southeast Asian countries such as Malaysia.

“We had a lot of discussions with the Indonesian regulator, so we will probably be there first. I was at the Securities Commission Malaysia’s SCxSC event last December and had some discussions with the regulators. However, it would take some time for anything to materialise,” he adds.

The Acorns team has already carried out focus group sessions to understand the Indonesian market. From the findings, there should be good demand for the service there, especially as users in Australia and Indonesia are quite similar, says Lucas.

“They may have different goals, but the desire is the same — they want to learn how to save money and invest. Someone in Australia may want to save money for travel while someone in Indonesia may want to save money to help their parents when they are retired. I am sure that this will be the case for Malaysia as well,” he says.  

Catering for responsible investors

Each Acorns portfolio comprises a mix of seven ETFs listed on the Australian Securities Exchange (ASX). In total, the company invests in nine ETFs — the SPDR S&P/ASX 200 ETF (Australian large-cap stocks), iShares Asia 50 ETF (Asian large-cap stocks), iShares Europe ETF (European large-cap stocks), iShares Core S&P 500 ETF (US large-cap stocks), Russell Australian Select Corporate Bond ETF (Australian corporate bonds), iShares Composite Bond ETF (Australian government bonds), Betashares Australian High Interest Cash ETF (Australian money market), the Russell Australian Responsible Investing ETF (Australian large-cap responsible investing stocks) and Betashares Global Sustainable Leaders ETF (Global large-cap sustainability leaders stocks).

As the demand for shariah-compliant ETFs is not high in the country, it is unlikely that a shariah-compliant portfolio will be introduced anytime soon, says Lucas.

The Acorns system facilitates the purchase of the relevant number of ETF units required across the fund and allocates fractional interest in the ETF units to individual investors depending on the portfolios they have chosen. Fractional interest allows investors to consistently invest in funds as they become available, rather than waiting until they have enough money to buy a single ETF unit.

Recently, the company introduced a carbon-offsetting feature, which allows users to sign up for a monthly subscription to offset their carbon footprint. The feature was introduced after a recent survey conducted by the company revealed that 86% of its users “strongly believe” in the threat of climate change.

According to its website, the subscription fee for this feature is based on the users’ estimated average monthly carbon footprint, based on their spending activity. For example, if a user’s average monthly carbon footprint is half a tonne, it will cost A$3 a month to offset. The subscription cost goes towards two programmes — one that protects Australian forests and another that reduces gas emissions in China.

As at Oct 31 last year, the company’s assets under management was A$130 million. Lucas says that although the platform is not targeting millennial investors, 85% of its users are under the age of 45. The most popular portfolio is the aggressive portfolio, followed by moderately aggressive and socially responsible. He adds that 60% of the users are using Acorns to improve their financial literacy.

Despite being a popular financial tool in Australia, the app has been criticised for its fee structure, which some consider expensive for small investments. Lucas says these articles, which were published online, have been unreasonably tough on the platform as the team is working hard to make sure that investors are able to reach their goals.

“In Australia, it costs A$40 to buy a pack of cigarettes and A$10 to buy a beer. To say that we are expensive when users only need to pay half of what they usually pay for a pack of cigarettes is unjust. We are putting a lot of effort in the backend to make sure that the platform works well and we do not even require any withdrawal fee, which is usually very high in traditional financial institutions,” he says.

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