This Anti-Wall Street Startup Treats Small Investors Like Multimillionaires

Andrei Cherny. Aspiration

The wealth gap in America is an ever-expanding void. The rich are getting richer, and the middle class is all but fading away. There are infinite reasons for this inequality, but one of them, says Andrei Cherny, a former Clinton White House aide and business consultant, is the way the financial services industry operates.

“There’s this tale of two cities when it comes to investments,” Cherny says. “The very richest people in the country have a series of large investment banks, hedge funds, private equity shops that are all geared around creating investment options for multimillionaires. They do a good job for those people, but there’s very, very little that is analogous for everybody else.”

With his new company, Aspiration, Cherny aims to change that. The startup is offering an online investing platform that lets anyone invest as little as $500 in its securities portfolio, and it lets them pay whatever they like for the privilege. Yes, whatever they like. Cherny calls it “Pay What Is Fair.” Investors can pay Aspiration as much or as little as they want—even if that amount is zero. “We’re taking the entire business model of Wall Street and turning it on its head,” Cherny says.

The platform is one of a growing group of startups that’s using technology to create investing options for the middle class. Betterment, which raised $32 million this year, requires no minimum investment and charges fees as low as 0.15 percent. Wealthfront, meanwhile, which just raised $64 million, manages accounts from $5,000 to $10,000 for free, and charges just 0.25 percent a year after that. It’s already managing over $1 billion in assets.

Aspiration is tiny by comparison, having just raised $4.5 million from former eBay president and philanthropist Jeff Skoll and other investors. But Cherny says he’s offering potential investors something that no other company is: a financial institution with a social conscience.

Aspiration

His Pay What Is Fair scheme is a risky move, but one that he—and his backers—believe will engender some much-needed trust in an industry that so many people have come to fear. “The company’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,” says Skoll, who is now a member of Aspiration’s board of advisors. “It’s a bold bet and one that I believe will shake up a financial industry that could use some positive disruption.”

The Pool of Prosperity

Cherny’s approach to the financial services industry is largely informed by his politics. During President Bill Clinton’s administration, Cherny became one of the youngest presidential speechwriters in history.

He’s worked for the likes of President Obama and Al Gore and founded the policy journal Democracy. As such, he’s long been a believer that whether it comes from the public or private sector, something needs to be done to expand the pool of prosperity in America.

In keeping with this social mission, Aspiration also donates 10 percent of revenue to economic development charities and has an entire section of its site devoted to financial education. 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.

‘A Real Challenge’

He says the only reason Aspiration can pull this off is because the cost of providing financial services online is so low. “Given just how negligible the marginal cost of serving each customer is, why aren’t more people doing pay what’s fair?” he says. Sanberg’s—albeit lofty —goal is that Aspiration will inspire other investing platforms to adopt the same model.

Of course, it could very well backfire, too. It’s possible that none of Aspiration’s investors—or at least very few of them—will opt to pay anything at all. That, Cherny admits, would be “a real challenge,” but he doesn’t believe that will be the case.

“We’re making a big bet on the fact that most people out there are trustworthy, good, honest people, and those are the kinds of customers we want,” he says. “We want to be working with people who share our values and are looking for something different than the traditional Wall Street approach; people who want a company that’s very much on their side.”