The Bid podcast

Episode 3: How Acorns has democratized investing

One of the main barriers to investing is individuals believing they don’t have enough to get started. But according to Noah Kerner, CEO of Acorns, even just a little bit of change can grow into something mighty. Noah discusses his transition from DJ to CEO, how Acorns combines profit and purpose, and the path to getting more and more Americans to save and invest.

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    Mary-Catherine Lader: What do you picture when you hear the word “investor”? Mostly men on Wall Street, probably a trading floor, waving hand signals and in front of a lot of computers. But picture this instead: your morning commute, the person next to you on the subway, the barista at the coffee shop, the woman to your left in the elevator, and the people you sit next to at work, or if you’re a college student, in class. All of those people can be investors. Investing isn’t too far out of reach for, well, nearly anyone. And that’s the core concept behind Acorns.

    Welcome back to The Bid, and to our mini-series: “Behind the hype: Demystifying fintech.” Today we’ll talk to one man who set out to show that wealth isn’t just for the wealthy. It’s for everybody. His name is Noah Kerner and he is the CEO of Acorns, a micro-investing app that helps customers build better financial futures by setting aside their spare change in an investment account. BlackRock partnered with Acorns in the spring of 2018 to help more and more people experience well-being through wealth. Today we’ll learn more about what Acorns is and how it does exactly that. I’m your host Mary-Catherine Lader. We hope you enjoy.

    Noah, thank you so much for joining us today.

    Noah Kerner: It’s good to be here MC.

    Mary-Catherine Lader: Noah, you’ve been a DJ, you worked in real estate – sort of, WeWork, reinventing real estate, you’ve done a lot of different things. And now you’re the CEO of an investment company. So how did that happen and why, given that you don’t have a background in investments, did you decide that this was an important purpose to pursue?

    Noah Kerner: Yeah. So my background started around 11 or 12 in New York City, selling baseball cards. And when I was 14, I got turntables, at 16 started doing nightclubs, and then started working with artists and so on and so forth. And senior year in college started my first company. And that was really born out of passion, curiosity, a desire to create and to build and to put things out into the world. So I started my first company at 21, and then a second at 25, and a third at 27. At around 32, I started to feel that creating for the sake of creating was not enough and that I needed to make impact, positive impact, and that if I took all of the things that I had learned and passion to create and apply that against things that mattered more in the world and made more impact, that that would be really fulfilling for me. Financial wellness when I look at the problems in the country, is top three. It’s one of the leading drivers of suicide, it’s one of the lading drivers of domestic violence and abuse. It’s something that leads people to feel invisible when you’re struggling financially. Going back in time to the dinner table as a kid—so my father was the first corporate social responsibility officer in America and he had that role at Bankers Trust Company. So it sort of came full circle that way. My second company was an agency called Noise, and we became the leading product development and marketing agency for the young adult markets. So it’s funny enough, on the consumer product side of things, in financial services and into most every category, I have a lot of experience. And people talk to us about the fact that we’re a FinTech company, and I actually think we’re a consumer brand company. Obviously we make technology, we design product, we do all these things, and at the end of the day, we are a brand. And what does the brand stand for? The beautiful thing about Acorns is acorns grow into mighty oaks, and so our brand stands for growth and potential. And that is a really powerful metaphor and it’s what people need to think about when they’re going through their financial journey of life. I wake up every day, with all the challenges you face of trying to build a company and manage a company and manage a complex business, it sort of all falls away when I think about the impact and the customers we serve, which is everyday Americans aspiring for more. The fact that we get stories all the time of people being the first person in their family to save for retirement, that’s really fulfilling.

    Mary-Catherine Lader: And really powerful. So how many users do you have today?

    Noah Kerner: We’ve opened up four million accounts in the United States.

    Mary-Catherine Lader: And how are they distributed across the country?

    Noah Kerner: Like census data, so really well-distributed – we’re everywhere. Really, the most exciting part is this is needed. To build product and a brand for everyday Americans, many of whom are struggling, 70 percent of whom don’t have a thousand dollar emergency fund, 66 percent of whom can’t pass a basic financial literacy test, over 60 percent spend more than they make, that’s the space to focus on. And we focus on that customer in every way, from the product perspective, from the pricing perspective, we use subscription pricing. The reason we chose subscription pricing is because it’s simple, it’s transparent, it’s predictable. And in a category where there have been all kinds of surprise hidden fees, things behind asterisks and pages and pages of information, we felt like subscription pricing is the exact right model: here’s what you pay, here’s what you get. For a dollar a month, you get the Core investment account, plus all of our financial literacy content, plus our Found Money Rewards Program, plus all kinds of other features; for $2 dollars a month, you get all of that plus Acorns Later, which is our automated retirement account, and for $3 dollars a month, you get all of that plus Acorns Spend, which is the first debit card with a checking account that saves and invests for you. And we go from there.

    Mary-Catherine Lader: We’re constantly conducting research with investors and a recent survey we did found that 57 percent of people around the world haven’t begun to invest because they don’t believe they have enough money to even start. What about the Acorns brand and the experience gives people hope that they can invest?

    Noah Kerner: Beginning with our brand, from tiny acorns mighty oaks do grow, that is our whole concept. So I think everything about our brand conveys that message, all of our language. When we say what our mission is, to look after the financial best interest of the up and coming, we don’t talk about the forgotten, or the underbanked or the underserved, we talk about America’s up and coming. And literally everything is about up, upward potential, the branch on our product animates in up, on our card, there is a branch going up, the way we talk about our customers, all the language, our core brand value is to uplift.

    Mary-Catherine Lader: So is your vision that your users will only have a financial relationship with Acorns, or do you think that that’s not necessarily possible?

    Noah Kerner: Our vision is definitely that customers will move their primary bank to Acorns, and our vision is to be a financial wellness system that enables everyday Americans to save and invest every day. So it’s a very purpose-driven product experience, it all comes back to helping you save and invest. We’re not building Acorns Spend to have a debit card and a checking account, we’re building that product because how you spend impacts how you save and invest. We have a whole product line built around helping people earn extra money, because the number-one reason people don’t save enough is because people don’t earn enough, and same with all the other areas of personal finance. So we want to be in every area of your financial life, but always coming back to helping you save and invest money for the future.

    Mary-Catherine Lader: Sometimes the math just doesn’t work in terms of what you’re earning, what you’re spending, when you think about the market today, it’s November 2018. The market is now flat to down for the year, how do you guys think about your brand and delivering on that purpose when you can’t control those factors?

    Noah Kerner: The way I think about our brand at the most basic level is that spare change adds up over time. And not everybody, but most people can invest spare change, most people can round up the purchase and have that spare change invested into a portfolio, which is the core of what Acorns is. And as a product, one of the things that I love about Acorns is because you’re contributing so frequently, you see the balance add up, and even when the markets may have a dip like they have now, and you may lose ten percent in the market, you’re still contributing and you’re still growing your savings and investing account. And that is positive reinforcement and conditions that type of behavior that we all want to create out there.

    Mary-Catherine Lader: And do you guys see that your customers behave any differently, engage with you differently when the markets are volatile or down?

    Noah Kerner: Yeah, so that is where our financial education comes into play, and we really try to get that message of stick with it out there, and stay the course. And I always like to say, if you look back in history, every downturn has ended in an upturn. And the only way you lose money is to pull it out after the market goes down. And to really reinforce those messages, and it’s not just because obviously we’re trying to build a business and we want to keep our customers and grow our business. But I and we truly put our customers’ best interests first, our mission is to look after the financial best interest of the up and coming. And it is in your best interest to stick it out, like that is just a fact. I have suffered as a result of pulling money out when I panicked, my parents did it twice. They did it after 2001, probably lost 100 percent of their money as a result of not being there when the market went back up. We can help people avoid those mistakes, which is why we really focus on that education stuff, focus on uplifting people and giving people some of that confidence you need during those tough moments, cause no matter how good of an investor you are, when the market goes down 2,000 points in a week and a half, you get the jitters, yeah.

    Mary-Catherine Lader: You also work with Richard Thaler, who won the Nobel Prize for Economics. How are you guys experimenting with behavioral economics research, and perhaps your users, to figure out ways you can nudge certain behaviors, beyond the brand and the messaging?

    Noah Kerner: We formed a program called The Money Lab, and it’s chaired by Schlomo Bernartzi, who is a top behavioral economist. There are 25 academic groups that participate in it, and we’re basically looking for insights from the top academic minds and behavioral economists in the country to help find ways to encourage our customers to engage in the right types of behavior. And the best example I have of that is we have a feature called the Recurring Investment Feature, and the way it works is by the day, week, or month, you can set an automatic investment that pulls money from your bank account. So you can do $5 dollars a day, or $35 dollars a week, or $150 dollars a month. And there is a default amount set. We tested what happens if you set the default to $5 dollars a day, $35 dollars a week, or $150 dollars a month? What are the participation rates when you set the default to those different levels? And what we found is that there is a four-times participation rate when we suggested $5 dollars a day versus $150 a month. It’s a smaller amount, the tradeoff in your mind is smaller, it’s like I can give up a coffee versus giving up your cable bill. So people frame things that way. And what was really interesting is when we looked at the data by socio-economics and compare people who make $100,000 dollars to people who make $25,000 dollars, the participation rate when we suggested $5 dollars a day was the same. And that says, with a simple nudge, you can close the savings gap potentially. Our goal as a company is 100 million everyday Americans saving and investing every day. And I don’t really care if it’s just us that makes that happen, I’m thinking about the Money Lab as this platform and program that we can make accessible to everybody to really raise America up overall together.

    Mary-Catherine Lader: Acorns just celebrated four years in August. You’ve accomplished so much, but you’re still a pretty young company. So what are you guys doing to help drive your future growth?

    Noah Kerner: We’ve built a team of almost 250 people, really talented people internally; we’ve opened up four million accounts, so we’re starting to get a group of people who are advocating for us and talking about the virtues of the product. We have a referral program that 250,000 of our customers have participated in. So people are spreading the message, and that is really helpful. And we have a really talented team across every department from Data Science to Support. One of my favorite prats of Acorns is our Support Department, we hire these really brilliant primarily young people, who come in, work in Support for a year or two, and then matriculate into the organization. But you’ve spent one or two years listening to the customer, to their excitement, to their pain. I always tell people you have got to stay close to the pain. Because that is where that good stuff comes from. In fact, actually when we onboard people, you have to go listen in on calls. We just had an experience where there was some stuff that happened at the company and we had a little bit of a backlog in support, and the manager of the Support Team actually trained the whole company in support. And our whole company came together answering customer emails. I think we had 42 people across the company do it.

    Mary-Catherine Lader: That’s awesome.

    Noah Kerner: I think developing that kind of culture is hugely important and it’s encouraging to me when I see a company like ours kind of everybody come together around these kinds of things. By the way, from a cultural perspective – and this is a little bit off the question, but –we organize around team first, customers second, shareholders third.

    Mary-Catherine Lader: Team first--

    Noah Kerner: Customers second, shareholders third.

    Mary-Catherine Lader: Shareholders third? Why not customers first?

    Noah Kerner: The philosophy is, when we think about what a company is, is a group of people all working together toward a common goal. So get the best people, create a culture where they flourish. They’re going to work together to create great product, provide great service, customers will be happy as a result, and then shareholders will be happy. So that’s how we’re organizing—that’s our organizing principle. And by the way, from a customer perspective, it’s not like we don’t prioritize customers obviously.

    Mary-Catherine Lader: Or your shareholders.

    Noah Kerner: Or our shareholders, yeah, yeah, yeah. But I tell our investors, listen, the truth is you want to be third.

    Mary-Catherine Lader: Right.

    Noah Kerner: You do, you want to be third.

    Mary-Catherine Lader: Yeah. So a ton has changed for Acorns in four years. How have you see the industry, whether it’s financial services, or perhaps media, perhaps other start-ups, react to your success, and adopt some of what has been working for you guys?

    Noah Kerner: I was talking about this yesterday, I actually feel like the industry, and certainly beyond, is pretty supportive of us because of what we’re trying to do and how mission-oriented we are. Whenever I talk to people and give talks, people come over and are like, we’re really rooting for you guys. Because really at the need of the day, we’re trying to help close the savings gap, we’re trying to get people to invest for a better future.

    Mary-Catherine Lader: Who doesn’t want that?

    Noah Kerner: Yeah. If you don’t, you probably look in the mirror.

    Mary-Catherine Lader: You and the Acorns teams have been pioneers in driving this new approach to investing. It’s part of why we’ve been so excited to partner with you, we share so much of what your mission is all about here at BlackRock. So in that spirit of looking ahead to the future, you are a serial entrepreneur, you have a knack for predicting what might be ahead. I’m going to end with a rapid fire round, and we want to know whether you think these things are going to become part of our lives in five, ten, thirty years or never. Ready?

    Noah Kerner: I need to get my crystal ball out real quick.

    Mary-Catherine Lader: Yeah, exactly. Yeah. No one is going to hold you to it; we’re not betting on it.

    Noah Kerner:  Okay.

    Mary-Catherine Lader: Let’s start with human life on Mars.

    Noah Kerner: 50 years.

    Mary-Catherine Lader: Not optimistic, or you just don’t think it’s that interesting?

    Noah Kerner: 50 years, yeah, that’s my prediction.

    Mary-Catherine Lader: Okay. It’s better than never I guess. Commonplace use of gene editing?

    Noah Kerner: Ten years.

    Mary-Catherine Lader: Electric vehicles outnumber gasoline-powered vehicles.

    Noah Kerner: I’m a little pessimistic about this one, because of how powerful—you’re talking about in America?

    Mary-Catherine Lader: Yes.

    Noah Kerner: How powerful this infrastructure and lobbying organizations are, I might say 20 years. And I’m sad to say that, but I might say 20 years.

    Mary-Catherine Lader: What about RFID chips in our skin for any number of purposes?

    Noah Kerner: Hopefully never. I’m trying to never become a borg.

    Mary-Catherine Lader: Scary thought. And finally, 100 million Americans saving and investing on their phone.

    Noah Kerner: Ten years.

    Mary-Catherine Lader: Thank you so much for joining us today, Noah.

    Noah Kerner: Thanks, MC, appreciate it. It was fun.

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