Aspiration, an online investment firm that launched Tuesday, has a radical idea.
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.
“Our fee structure is very revolutionary,” explains CEO and founder Andrei Cherny. “It empowers customers to make that decision and gives them the ability to decide whether or not we’re doing a good job for them, and whether or not our values are aligned.”
He points out that in most investment firms, the people managing your money get paid the same amount whether or not they do a good job, and that hinging the company’s livelihood on pleasing customers provides an incentive to serve them well.
Cherny, who has a long history in financial regulation, ranging from a position as a financial fraud prosecutor to working with Senator Elizabeth Warren fighting for the establishment of the Consumer Financial Protection Bureau, built his investment firm for middle-class investors, who he says are under-served in the current market.
“We’re bringing forth a wide range of investment products and investments geared toward the needs of the middle-class investor,” he explains. “Look at the customer base of hedge funds and private equity shops. They serve a clientele that’s mostly multimillionaires and large institutions. Everyone else is buying stocks and mutual funds, doing it on their own.”
Aspiration is so committed to serving the middle-class investor that it has imposed not only the usual minimum investment requirements on its clients (in this case, an unusually low $US500), but also a maximum investment: $US100,000 per customer, per fund.
Cherny says the cap is to keep the company focused on the under-served investor. “If you have a fund where some people pay $US500 and a handful put in $US10 million, you’re almost naturally focused more on that type of customer.” With the investment cap, Aspiration aims to limit that sort of bias.
Aspiration — whose motto is “Do Well. Do Good.” — is also focused on giving back to the community. Through its “Dimes Worth Of Difference” campaign, it donates 10 cents of every dollar of revenue to provide micro-loans to struggling Americans.
Additionally, users are encouraged to give the amount of their choosing to the charity of their choice on the website’s dashboard. “It’s the TOMS and Warby Parker approach to charitable giving,” explains Cherny, “but instead of shoe for shoe, it’s economic opportunity for economic opportunity.”
Cherny isn’t worried that his clients will refuse to pay. “A lot of behavioural psychology over the past 10 or so years shows that people have a strong sense of moral obligation and reciprocity,” he explains. “That’s as powerful or more powerful than locking people into a legal contract. If we’re not delivering the products we said we would or living up to the values we set up for ourselves, they have the ability to not pay us.”
Aspiration is not the only company to use a pay-what-you-want strategy, but it’s the first financial company we’ve come across. Some retailers have had success with the model — a North Carolina diner initially tripled its revenues when it asked customers to pay what God wants — but there’s little evidence it’s sustainable or that users trying to make the most of their money would choose to fork over fees.
However, Cherny isn’t alone in his confidence. The company, which has spent a little over a year getting ready for launch, has raised over $US4.5 million in funding and counts eBay founding president Jeff Skoll as a member of its board of advisors. Aspiration’s “radical approach to its customers’ fees relies on a trust-based model, consistent in spirit with an approach that I saw drive eBay’s early success,” Skoll said in a press release. “It’s a bold bet and one that I believe will shake up a financial industry that could use some positive disruption.”
Aspiration is now in an invite-only period, and will allow potential clients to “jump the line” by sharing information about the company on social media.