News Column

Acorns smartphone app rounds up purchases, invests the change in stock market

June 2, 2014

By Ian Hamilton, The Orange County Register



June 02--Across four generations, the Cruttenden clan has started more than half a dozen businesses, several of them investment banks, from the same low-key, hacienda-style office building in Newport Beach.

In the late 1990s, during the dot com boom, Jeff Cruttenden wasn't yet a teen. But he watched his father Walter and older brother Chris start up E*Offering, which over 18 months ballooned into a company with hundreds of employees before it was sold for $328 million. Other businesses started by Walter Cruttenden have grown into even larger ideas: investment firm Cruttenden Roth became Roth Capital, and the audio company SRS Labs he started was bought by DTS in 2012, for example.

Now it's Jeff's turn, at age 27, to try to make something big grow from a seed. So it's fitting that the startup he founded is called Acorns, and that its office motif includes a sprinkling of nuts all over employees' newly outfitted desks.

"My dad would talk deals all the time when I was little," said Cruttenden. "He's the type of person who would talk to a 5-year-old like the 5-year-old was an adult."

The idea behind Acorns' app, which is expected to launch on the iPhone app store in coming weeks, is simple:

Sign up for an Acorns account and the purchases you make using the cards already in your pocket are rounded up to the next dollar. That spare change is invested in the stock market.

Acorns handles the investment and puts your money in a portfolio of index funds. It advises you how much risk is involved in each grouping of stocks and you can pull your money out anytime -- there's no transaction fee to the user or commissions.

Acorns takes a $1 per month fee, once you're already investing, in addition to at most 1 percent of your total annual investment.

So after signing up, a $12.68 trip to Ruby's Shake Shack on Pacific Coast Highway paid for with your bank's debit card would see 32 cents earmarked for Acorns. Once $5 worth of roundups have crossed your bank account Acorns takes $5 from the account and invests it according to your preferences. The company provides $5 to start.

Add that to all the little roundups in a month and you've got something like the penny shaving schemes from "Office Space" or "Superman III" that raised millions. But this time it's legal and actually encouraged.

Bank of America does something similar with its Keep The Change program that rounds up purchases and deposits into a savings account, and credit card companies have tied purchases to investment accounts as well. Jeff Cruttenden said they won't let people run up a tab with a credit card company to invest with Acorns.

"We're going after that huge problem that 100 million people are great at spending and lousy at saving," said Walter Cruttenden. "So the idea was just to link the two."

Acorns got regulatory approvals to become an investment adviser last year, and in February it got approvals to maintain accounts and execute trades. That's when it started to emerge from stealth mode. The app is currently in a testing phase and beta testers have investments with Acorns from less than $50 to more than $10,000, according to Jeff Cruttenden.

The venture has $8.3 million behind it, initially funded by the Cruttendens with additional rounds of investment led by Steelpoint Capital Partners and Jacobs Asset Management. The Cruttendens still maintain majority ownership.

"Our hope is to just keep growing and build it as big as we can," said Walter Cruttenden. "There's so many different ways to go."

Linda Barlow, a certified financial planner based in Santa Ana, hadn't heard of the app before the Register called. But she said "it is absolutely a concept the market is in dire need of."

"These guys are looking for a massive scale ... they can't have a hundred people sign up for this. They need thousands, hundreds of thousands," said Steve Nielander, a finance lecturer at San Diego State University and partner at HPM Partners, a wealth advisory firm. "It's potentially a phenomenal way to save."

The idea behind Acorns goes back to Cruttenden's no-gloves treatment as a child. Walter might relate a deal involving a comic book company to Jeff in order to make a business transaction meaningful. At about 11 years old Jeff also got to pick his own (ultimately failed) stock purchase in a cheese company.

The idea for Acorns started to form at Lewis and Clark College in Portland, Ore., three years ago, Jeff Cruttenden said, when he discovered many of his friends were interested in investing but hadn't taken the plunge for a number of reasons.

"The first (reason) is usually 'I don't have enough money to start investing,'" he said. "The next was the issue with commissions ... because if someone was willing to put together a few hundred dollars if they're going to buy a few shares, or one share, of a company ... the commissions don't make it that economical.

"When you have such a huge collection of stocks, bonds, ETFs, mutual funds you tend to make no decision or delay it. And our generation, I think we want to make a decision quickly. We want to get started with something quickly."

As for his parenting style with four boys, Walter said, "There's no magic there. We're just a bunch of competitive boys all playing sports. Coached their soccer teams and all that jazz."

"Although I think I was better at math than sports," said Jeff.

"That's true," said Walter with a laugh.

Contact the writer: 949-229-2426 or ihamilton@ocregister.com

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(c)2014 The Orange County Register (Santa Ana, Calif.)

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Source: Orange County Register (CA)


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