Investing can be an expensive endeavor, especially if your investment company is charging you confusing fees for their services.
Aspiration.com, a financial services company that lets you invest your money in two mutual funds and/or a checking account, claims to make investing as cheap as possible by letting you pay what you think is fair for their services.
When the California-based company launched its pay-what-you-want model in 2014, it received all sorts of media coverage:
- The Wall Street Journal: “The startup is offering an online investing platform that lets anyone invest … and it lets them pay whatever they like for the privilege. Yes, whatever they like.”
- Business Insider: “Unlike traditional investment firms, which charge a percentage of the assets invested, the company plans to go in another direction: Pay whatever you think is fair.”
- Wired: “But what truly differentiates Aspiration from all other platforms is the Pay What is Fair model. ‘That’s what makes this so damn provocative,’ says Joe Sanberg, one of Aspiration’s earliest investors.”
The company’s founder is Andrei Cherney, a lawyer whose background is impressive: speechwriter for John Kerry and Al Gore, fellow at Harvard Kennedy School of Government, assistant district attorney.
Aspiration’s funds are managed by UBS Banks, an international bank rated as a top-10 private bank by Advisory HQ. Think of Aspiration as the cool website that gets you to say “Yes” to investing, and then passes you cash off to UBS.
When we saw Aspiration was becoming more and more popular, it made us wonder if their financial services were actually free, if there were any hidden costs and what kind of financial products they offer.
Normally, our financial product reviews include the opinions of consumers, but since the company hasn’t taken on any investors yet, those opinions don’t exist. In this review, we’ll replace that section with a discussion about other low-cost investment vehicles we’ve previously analyzed.
What Types of Products Does Aspiration Offer?
According to Aspiration’s website, they offer three different products to consumers:
- Redwood Fund: Focuses on “companies whose sustainable, environment and employee practices result in their being poised for growth.” This is what is known as SRI, or socially responsible investment. Funds managed by UBS Bank.
- Flagship Fund: Focuses on “long-term growth with less volatility than the stock market.” Funds managed by UBS Bank.
- Summit Account: No-fee checking account with a 1.00% annual yield. Account provided by Radius Bank, an online financial institution.
Basically, these three options offer you three different levels of risk. The Redwood Fund’s emphasis on companies “poised for growth” indicates there’s a bit of a higher risk because investments are made based on forecasts of growth that do not yet exist.
The Flagship Fund’s mutual-fund composition offers less risk and is designed to weather the financial storms, while the Summit Account offers the least amount of risk and the least amount of return.
The two funds require a $500 deposit and cap investments at $10,000, while the minimum opening deposit for the Summit Account is $10.
Per their website, Aspiration will donate 10% of their revenue via micro loans to various charities across the United States. This program is called “Dimes Worth of Difference”.
Pro tip: If you aren’t familiar with financial terminology, a “mutual fund” is a collection of different investment types. UBS portfolio managers control the fund, basically applying his or her expertise to your money so that you don’t have to.
Aspiration’s No-Fee Structure: Is It Really Pay-What-You-Want?
One of the things we’ve learned during our research of consumer financial products is that “great deals” or “fee-free” offers are rarely as great as they seem. Marketing has a lot to do with what consumers believe about a product.
Our goal is to cut through all the marketing and make you a professional consumer through our research and healthy skepticism.
So, when we first heard about Aspirations “pay-what-you-think-you-should” structure, we were a little skeptical. Financial companies, after all, need to make money to operate, and Aspiration is no exception. It’s not a non-profit; it’s an investment company who wants to make money.
To understand the real story behind Aspiration, we read through reporter Karen Damato’s the Wall Street Journal profile of the company. Here’s what she wrote back in Nov. 2014:
“Aspiration’s ‘Pay What Is Fair’ offer doesn’t mean that investors could pay nothing for the firm’s fund. Investors will be charged their pro rata share of the underlying funds’ expenses, estimated at 1.22% a year in the Aspiration fund’s prospectus. In addition, while the fund doesn’t have a set portfolio-management fee, it does have other operating expenses (for legal and administrative services, among other things), which are capped at half a percentage point.”
When we read over this for the first time, it was a bit of a surprise considering how heavily Aspiration’s unique fee-payment structure has been promoted by the company and covered by the press. However, it’s not a complete surprise; as we said earlier, consumers need to cut through all the marketing and see a product – financial or otherwise – for what it really is.
Based on what we read in the WSJ¸ consumers could easily be misled by Aspirations claims that you only have to pay what you want for their services. In reality, you’ll already be paying a fee of, according to the Wall Street Journal, about 1.72%.
Now, in the grand scope of the investing world, 1.72% is standard – the average fees are for the type of funds that Aspiration offers is about 1.75%, Damato wrote.
What is not standard is that Aspiration doesn’t force you to pay fees. Most financial advisors or investment firms will either charge you a flat fee or a commission for their services.
So, in that sense, what Aspiration is offering is pretty divergent … and they say as much on their website: “Aspiration brings to everyone the kinds of investment strategies once limited to only the wealthiest Americans.”
But, how do those fees compare to robo-advisors who charge low fees for their services?
Aspiration’s Fees Compared to Robo-Advisors
We’ve reviewed several of the most popular robo-advisors, which are apps that invest your money into something called ETFs, or exchange-traded funds.
These funds are made up of a diverse group of assets and are designed to mimic the growth of the top funds on the market. If some parts of your ETF start to do bad, an algorithm in the robo-advisor picks up on the downward trend and automatically trades the bad performer for a good one … this process is called rebalancing.
Basically, these robo-advisors are the autopilot version of investing. Some really smart people came up with an algorithm that does everything for you; it steers the ship while you relax and enjoy life. If you want a more in-depth explanation of ETFs, head to Investopedia’s exchange-traded funds page.
The reason we mentioned robo-advisors here is because their fees are lower than what you can expect from Aspiration.com. Here is a list of the fees of the robo-advisors we’ve reviewed:
- Betterment: $3 per month when you deposit less than $100/month, 0.35% on monthly deposits at or above $100. Fees drop to 0.25% per month when your balance hits $10,000. No minimum deposit.
- WealthFront: Free for balances up to $10K, 0.25% after that. Minimum deposit is $5K.
- Acorns: $1 per month for accounts under $5K, 0.25% for accounts above $5K. No minimum deposit.
As you can see, the fees on these robo-advisors are lower than Aspiration’s fees. The drawback, however, is that these three apps don’t offer SRI options. So, for the socially-conscious investor, it may be worth the higher fees at Aspiration to invest in SRIs.
Our Conclusions About Aspiration
Aspiration’s pay-what-you-want model is a nice idea, especially since consumers have grown weary of bank fees and institutional greed. Their Redwood Fund provides investors with a chance to put their money toward sustainable, environmental and employee practices.
These companies are poised for growth, which indicates a level of risk you don’t find with the Flagship Fund. The Flagship is built for long-term wealth that rides out the ups and downs of the market.
The third product, Aspiration’s Summit Account, is the most stable investment account but has a paltry guaranteed yearly return of 1%.
After doing our own research and comparing Aspiration to robo-advisors like Betterment, WealthFront and Acorns, we’ve come to conclude that, while Aspiration isn’t a new idea, per se, it’s nuanced enough to where it could appeal to someone who wants their money to go to a “good cause” and have the chance to see return on their money.
The company’s Dimes Worth of Difference is a nice perk for the giving-inclined consumer, and it, to a certain extent, adds a new twist of generosity in what’s perceived as a greedy, cutthroat investment world.
It’s hard to argue with their pay-what-you-want philosophy, although this program does mask the fact that you’ll be paying, according to a 2014 Wall Street Journal article, 1.72% in maintenance fees.
If you aren’t sure about investing with Aspiration, feel free to read up on Betterment, WealthFront, Acorns and other robo-advisors. Also, check out the guide we wrote on robo-advisors – it will help you understand how they came into being and why they’re so popular.