Andrei Cherny, a former Clinton White House aide, has an innovative solution to investors’ gripes about fees: Let the customer name his or her own price. Mr. Cherny is the CEO of a new online investment company called Aspiration Partners, whose initial product, the Aspiration Flagship Fund, is a fund-of-funds that invests in liquid alternative mutual funds.
Name Your Fee
Unlike most other funds that typically seek distribution through popular platforms like Schwab and Fidelity, the Aspiration Flagship Fund is available exclusively at Aspiration’s website. This, along with the “name your own fee” structure, is part of Aspiration’s desire to “democrataize” investing, according to a recent Wall Street Journal article. As an added feature, the company will donate a portion of its management fees to charities. All of this is part of the company’s motto: Do Well. Do Good.
We’re a new kind of investment firm – built on trust, focused on the middle class instead of millionaires, and founded on the idea that we can do well and do good at the same time.
Liquid alternatives are an especially democratizing force in the world of investments, as they bring to the masses investments that have historically been available only to high-net worth individuals. Aspiration’s website says its Aspiration Flagship Fund lets regular folks invest like millionaires: “Most multi-millionaires invest very differently than everyday investors. Wall Street gives the richest Americans access to strategies not found in the portfolios of most everyone else. Aspiration’s mission is to open the doors of opportunity to all.”
Aspiration’s theme of populism extends to the company’s most innovative feature, its “name your own fee” structure: “Wall Street firms traditionally charge you a flat fee whether you think they deserve it or not. We think that’s wrong. We’re asking you to trust us with your investments. It’s only right we trust you to pay us what you think is fair.”
Pay a Fee and Make a Difference
The optional investment advisory fees will be paid in addition to a 1.72% net-expense ratio (after expense reimbursements of 1.04%) that includes underlying fund fees, administrative and other expenses. This is inline with the average fee of 1.72% for the multi-alternative mutual fund category, according to Morningstar data. Other funds in the category have fees that range well above 3.00% and below 1.00%, but this includes a wide variety of investment structures available in the category. Nevertheless, some investors will be incentivized to reward Aspiration a little extra for a job-well-done, as the company says it is committed to donating 10% of its portfolio management fees to charitable causes.
The Flagship Fund will be sub-advised by Emerald Separate Account Management, LLC, a subsidiary of Emerald Asset Management, Inc. Emerald is a $3 billion investment advisory firm headquartered in Leola, Pennsylvania. For its role as sub-advisor, Emerald will receive 30% of all advisory fees paid to Aspiration after adjusting for the 10% charitable donations. The fund’s prospectus is available here: Aspiration Flagship Fund.
Like the Aspiration Flagship Fund, Aspiration’s future products will also be available exclusively through Aspiration’s website, which supports the “name your own fee” model. Mr. Cherny says that investors will be able to set and change the fees they pay as often as they like at aspiration.com.
While the idea of linking charitable donations to investment management fees isn’t necessarily new (the AdvisorShares Global Echo ETF donates a portion of its investment management fees to Philippe Cousteau Jr.’s Global Echo Foundation), the overall structure of the Aspiration platform is novel. And linking the ability to invest in alternative investment strategies, choose your own fee and know that part of your fee will go to charitable organizations, that combination is certainly unique.