The New Demographics

The Brokerage Disruptors

What are the tactics, fee structures and platforms of success for today’s players?

New research from Corporate Insight. To see the full report, please visit here

In an attempt to draw the younger population into the investing world, multiple start-ups have launched platforms to disrupt the brokerage industry with the promise of low fees, low minimums and an easy-to-understand investment process. Breaking away from our traditional Broker Monitor coverage set, this report focuses on three of these disruptors—Acorns, Stash and Robinhood—to analyze the marketing tactics, fee structures and platforms that made these firms successful.

The overarching theme is that these platforms broke down the traditional barriers to entry, making investing more accessible to everyone, no matter net worth or investing experience. Garnering great success, Robinhood boasts over four million accounts, while Acorns has over three million and Stash just under two million. These numbers are cause for concern among some incumbent brokerages that are struggling to gain new clients and retain their existing client bases.
Through light-hearted and eye-catching ads and social media posts, the firms target the Millennial population which has historically lacked trust in big banks and been somewhat elusive to incumbent brokerages.

The platforms themselves feature an intuitive design and easy-to-understand trading and transferring capabilities, aiming to take the stress out of investing and make it interesting and enjoyable. The firms also encompass the mobile-first mindset of Millennials, as both Stash and Robinhood began as mobile-only platforms, and all three firms mostly promote the mobile apps on their public sites. The competitive fee structures and low minimums are also a big draw for lower net worth individuals. Acorns and Stash, micro-investing platforms, require a low $5 minimum and charge $1 per month for accounts with balances under $5,000. Robinhood stands out for charging no fees and requiring no minimums for its standard self-directed brokerage account.

Subscription Models Emerge as Popular Pricing Structures

Over the past few years, the United States has seen a growing trend of “subscription economy,” marking a shift away from a pay-per-product model to a subscription-based model. Companies adapting to this model often allow their customers the adaptability to pay as they go, pay a subscription monthly, or pay via a long-term contract. Subscription services have reached across industries; brands like Stich Fix and Rent the Runway provide personalized and high-end fashion, ClassPass allows members to sign up for fitness classes, HelloFresh and Blue Apron provide healthy, easy to prepare meals and Netflix and Hulu provide TV shows and movies. Millennials in particular are embracing this model, as 92% currently have active subscriptions for either a product or a service.

Consistent with this trend, Stash and Acorns both employ subscription-based pricing models for their services, each charging $1 per month for up to $5,000 in an account. When a client’s account surpasses $5,000, the pricing shifts to 25 basis points annually. While a dollar per month may seem enticing to customers, it is actually significantly higher than fees offered by competitors. If users deposit $5 per week, amounting to $260 per year, they are essentially paying 4.6% of their portfolio as a fee. Even if their account grows 8% over a year, the earnings would not cover over half of the fee. In comparison, Betterment and Ellevest, other leading digital investment platforms, charge 25 basis points per year for their basic account services with no minimum investment requirement; on a deposit of $260, the fee would amount to a mere 65 cents.

Over the past few years, the United States has seen a growing trend of “subscription economy,” marking a shift away from a pay-per-product model to a subscription-based model. Companies adapting to this model often allow their customers the adaptability to pay as they go, pay a subscription monthly, or pay via a long-term contract.

Although Robinhood’s traditional account has gained the attention of the brokerage industry due to its lack of trading commissions, monthly fees or account minimums, it recently hopped onto the subscription model bandwagon for its newer service, Robinhood Gold. This fee-based option allows clients to trade on margin to buy and sell stocks on credit. It also gives clients access to extended trading hours: 30 minutes before market open and two hours after market close. This account requires a minimum balance of $2,000; allowing users to borrow up to $2,000 for a flat $10 per month. Users must pay another $10 for every $2,000 they borrow, and going over $50,000 results in a 5% fee.

To Attract Millennials, Disruptors Tweet Like Them

Traditional brokerages vary widely in their use of popular social media platforms like Twitter, Facebook and Instagram. While some, like Charles Schwab, post multiple times a day and use a combination of GIFs, videos and pictures to adorn tweets, others rarely update their feeds or use engaging media. Consistent with their mobile-first approach and young target market, the brokerage startups reviewed in this report use social media regularly to connect with users. In comparison, they boast larger followings and higher post engagement than their more traditional counterparts. All three firms keep their branding consistent across social media platforms, making their accounts easily findable and helping to create a seamless experience for users. Because these companies identify as industry disruptors, a recognizable name and branding are essential for gaining followers and engaged users. Below is a chart summarizing the levels of engagement and frequency of posts offered by firms across all three platforms

Both Acorns and Stash employ similar social media strategies, mostly promoting public site educational content across their Facebook, Twitter and Instagram pages, with related images and links to respective education centers. During the period of market volatility earlier in the year, both Acorns and Stash shared articles to emphasize the importance of retaining a long-term focus and staying the course. Stash promotes three different Facebook groups—Stash Investors, Stash Invest for Experienced Users and The Stash Investing Club—on its mobile app.

While Stash Investors is a general group where clients share investment advice and their experiences with the different investment options, Stash Investors for Experienced Users is only open to experienced investors who to discuss favorite platforms and strategies rather than answer simpler questions from new users. The Stash Investing Club is for new and existing users to connect and take advantage of the $5 referral reward. These groups help make investing more accessible and fosters a collaborative spirit among members. To join the closed groups, clients must fill out a questionnaire. Stash also hosts Facebook Live events, during which Stash executives shed light on various personal finance topics. The firm announces the recurring sessions in advance via Facebook and Twitter posts. Offering this forum for users to solicit advice provides an optimal level of engagement between firms and followers, and can help build confidence in the brand for existing customers and prospects.

To see the full report, please visit here

 

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