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Aspiration’s Andrei Cherny: ‘We treat our customers as whole people, not just dollars and cents’

Tearsheet’s one-day “Hot Topic: Mobile Payments” event is coming up in NYC on Nov. 30 and we’re opening up a few complimentary spots to executives from banks and other financial institutions to attend. Interested? Apply here.

There’s a lot of talk today about the financial industry becoming friendlier, more approachable and more socially conscious. Most of that has been just talk but there are a growing number of fintech firms working hard to make it happen. One of those firms is Aspiration, which was created with millennials and Generation Z in mind.

Aspirations’ Andrei Cherney has created a new type of financial institution, one with 85,000 customers who pay what they think is fair. That’s right, there’s no fee for banking or asset management. Whatever customers do decide to pay Aspiration — and 90 percent of them decide to pay some form of percentage of assets under management — 10 percent of that goes to charity.

Cherney joins us this week on the Tearsheet Podcast to talk how he sees financial services firms have let us down and what today’s customers are really looking for from a bank or asset manager. We’ll discuss Aspiration’s recently launched Impact Measurement, which scores customers’ purchases on how a company treats people and how it treats the planet.

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Below are highlights, edited for clarity, from the episode.

What does it mean when you talk about “doing well and doing good”?
It means a whole host of things. It’s about our customers and how we can help them both provide better financial outcomes in their lives, but also help make a positive difference in the world. So many of our customers come in with this profound sense of distrust of the financial industry — and in some cases, a very well earned sense of distrust.

We really think about a different business model and how we can provide an experience to our customer that sees him or her as a whole person, not just dollars and cents. So if you look at our core product, the Aspiration core bank account. It’s a hybrid checking/savings account.

On the do well side, it pays up to one percent interest, with no monthly fees or ATM fees and only a $10 minimum deposit to open the account. It also enables our customers to do good, too. A lot of our customers come to us because this account doesn’t turn around and take your deposits and put them into the Dakota Pipeline or something like that. That makes a big difference for people.

Who are your target customers?
We’re really seeing a broad cross-section of people. They’re younger: 60 percent of our customers are under 35 years old. They’re a broad cross-section economically, too. From underserved communities to the well-off, we also see a pretty even split between genders. This is a generation of people coming up that wants to exercise its purchasing power. We see our Aspiration Impact Measurement as a way of empowering them.

How does your revenue model of “Pay What is Fair” work?
There’s no compulsory fee. Our customers pay us what they think is fair for our services. When we first launched almost three years ago, it was a leap of faith that our customers would decide to pay us. When we started, we thought that we were asking our customers to put their money with an untested, online financial company. If we were asking for trust, we thought we should start by placing our trust in our customers. This trust deficit is the biggest problem facing the financial industry overall. Only 8 percent of Americans trust their financial institutions.

What is the Aspiration Impact Measurement?
This allows our customers to see their own sustainability score. With each purchase they make, they’re able to see the impact the businesses they’re shopping at are having on people and the planet. It helps them to make better decisions, taking their daily spending dollars and put them behind companies that are doing what’s right. Listen, Americans spend $36 billion a day shopping. We can wring our hands about what gets decided in Washington about the environment. It’s the $36 billion/day that is an even stronger lever than the government — it’s what companies respond to.

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How socially responsible investing is moving beyond the wealthy

To Scott Johnson, a biologist based in Amherst, Massachusetts, socially responsible investing is part of the way he lives his life. He said his motivations for doing so are the same as those that underlie his decisions to buy organic food at the farmers market and participate in a farm share.

“It’s one thing to simply buy Organic Valley products at Whole Foods, and it’s another to actually invest in the company,” said Johnson, 58, who with his wife invests in companies including Organic Valley as part of a larger portfolio that promotes social and environmental good. “For us, we see that as a seamless transition — we don’t see us getting a return on our retirement as separate from the way we live our lives.”

Among investors, interest in environmental, social and corporate governance areas is growing. According to the Forum for Sustainable and Responsible Investment, total U.S.-domiciled assets under management focused on these areas were valued at $8.72 trillion at the start of 2016, up 33 percent since 2014. And despite recent research from Morgan Stanley that suggests millennials are the generation most open to sustainable investing, according to a financial adviser who specializes in socially responsible investments, it’s older clients they’re appealing mostly to. Experts say income level, rather than generational affinity, is what determines whether someone will pursue sustainable investments.

“There’s a lot of industry press about the preferences of millennials because they’re an up-and-coming demographic, but due to the nature of our business model, we’re targeting people who have accumulated some wealth, and they tend to be in their fifties,” said Andrew Bellak, CEO of Stakeholders Capital, the financial advisory firm that Johnson and his wife use.

The lack of a one-size-fits-all definition
Socially responsible investments are often called ESG investments — the acronym referring to environmental, social and governance factors. ESG covers a range of issues, a recent BlackRock paper noted, including carbon emissions and other environmental practices, labor and human rights policies and governance structures with a company. But no single definition can account for the range of interpretations.

“It’s subjective,” said Bellak. “Broadly speaking, it means you are considering things other than financial criteria and making an effort to do better than what’s legislated. When you look at the environmental footprint, it could mean treatment of employees and all stakeholders, not just shareholders. We exclude a number of areas like gambling, weapons and extraction, like oil, gas or mining.”

Another type of socially responsible investing is impact investing, which blends measurable ESG criteria with financial performance. One firm that solely does impact investing is Swell, an investment platform that just launched as a subsidiary of Pacific Life.

A principle-driven mission, but a bias toward wealthier investors
For one baby boomer, in addition to a financial return on investment, a legacy of contributions to the planet is important.

“I spent time thinking about how I wanted to invest my retirement money and decided that it needed to reflect what I valued as an individual and align with my moral compass of who I want to be in the world,” said Elizabeth Ackerman, 53, Johnson’s wife. “I also wanted for my children to see me again walk my talk with this particular choice.”

Still, Ackerman and Johnson hardly count as your average investors, given that Bellak’s firm requires its clients have at least $500,000 in assets.

Passionate millennial investors
Millennials with money are getting into the game, hoping their investments will bring positive changes to the world.

“What we’re seeing now is somebody who made a bit of money at a hedge fund spin off on their own with an idealistic viewpoint,” said Sean Trager, svp at Wedbush Securities, a brokerage firm that works with hedge fund managers. “They are the freedom fighters; they’re using the world to effect change.” Trager works on socially responsible investments at Wedbush, including investments in clean technology.

Trager said it’s often wealthier investors that get involved with socially responsible investing because they can afford to ride out investments that can have erratic returns.

Among those getting into socially responsible investments are hedge fund managers like Sean Stiefel, 29, a portfolio manager at Navy Capital. Stiefel, who used to work at larger funds like Millennium Partners and Northwoods Capital, started Navy Capital three years ago to do more ESG investing.

“With the larger funds, you’re forced to go with a select group of stocks, which makes it harder to find smaller, more nuanced stories,” said Stiefel.

Stiefel’s forays into ESG investing include marijuana investments, particularly research into medical treatments.

“We came across an entire industry that has mind-boggling growth, with the ability to disrupt and make the world a better place,” he said. “With all the problems with opioids, there could be medical treatments, and that will improve the economic situation, too. You have a tremendous opportunity to improve people’s lives via marijuana.”

When cynics say Wall Street actors just want to make money, Stiefel replies that it’s the role of investors to provide the capital for positive change.

“These companies need capital to further their drug trials, and these products are actually going to help people, and without capital, these products may never make it to the shelf,” he said. “I think that the cannabis space in particular is going to change the world for the better.”

Ethical quandaries
Despite the appeal of ethical investments, some financial advisers say clients turn away if they can’t be assured of a good return, according to John Burke, a financial adviser at Burke Financial Strategies, which works with clients with at least $1 million of assets under management.

“Most people haven’t given [socially responsible investing] much thought,” said Burke. “We try to get them to define it, and they realize that it’s not so easy. A lot of them give up on the thought of it.”

There’s also no clear agreement on what’s socially responsible. Emmanuel Lemelson, a portfolio manager at Lemelson Capital, is an ordained Greek Orthodox priest who employs what he considers a Christian philosophy of investment. Lemelson argues that the extractive industries still benefit the world, and he sees no conflict in investing in this area.

“The world needs energy, and energy is what’s going to help a lot of people living in poverty,” said Lemelson. “They’re not the best option, but it’s going to take time for society to change that. The problem is not hydrocarbons but emissions.”

The move to democratize socially responsible investing
Newer platforms are lowering the barrier for entry to make it easier for people to invest in socially responsible causes. To use Swell, for example, investors only need to invest $500 or more. Aspiration, an investment platform launched two years ago, requires users to invest a minimum of $100 to join its socially responsible fund, the Redwood Fund.

“Historically, almost all investing has come a relatively small number of very wealthy individuals and large institutions,” said Andrei Cherny, CEO of Aspiration.

Lisa Fernandez, 30, invested $500 into the Redwood Fund last October. Aspiration offered her a route to ethical investing even though she didn’t have access to a large amount of capital.

“This is the first socially responsible fund I’ve invested in, and to be honest, I didn’t think funds like this one existed with minimum investment amounts that I could afford,” she said.

The move toward sustainable investing is also gaining ground among other app-based platforms, including Acorns, which rounds up purchases so the change can be put toward investments. The company launched a sustainable investment fund for its Australian customers last week, a move it says challenges the thinking that do-good investments don’t yield returns.

“This is an old adage and no longer true,” said Acorns Australia CEO George Lucas. “The universe of companies that are becoming more socially responsible is increasing, and therefore, so is the universe of stocks and assets for constructing well-diversified portfolios which are still in line with investors’ values.”

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Fintech wants to make you feel better about where you spend your money

There’s a new crop of companies using data to give woke millennials the information they need to be the good, upstanding people they want to be.

The values based banking and investment startup Aspiration launched an impact measurement tool this week that scores how they’re spending money based on what businesses they’re paying from their checking account: Are they ethical, sustainable and overall, “good” businesses?

“It’s been very clear for a long time that consumers, especially younger ones, have been searching for a way to realize how they can put their values into action and line up their money with their own beliefs,” said CEO Andrei Cherny.

Obviously, that alone is not a sustainable business model, but the company said it has big plans for scaling and using customer data for more.

Cherny said it’ll continue innovating the product as it gets access to more of that data and companies feel more pressure to align with customer values, but he can’t say how yet. When asked about the possibilities for pushing ads and offers he maintained that in its earliest stages, the company will be focused on using customer data to learn what they want and what they value.

Aspiration studies more than 75,000 data points to measure human and environmental rights, including the amount of pay employees receive, the ratio of employee to CEO pay, healthcare benefits, quality of those benefits, representation of women on staff, percentage of female leadership, greenhouse gas emissions, renewable energy use, carbon footprint and waste reduction.

It then produces a score of one to 100 that shows users the impact of their spending and allows them to track their improvement. That may be its differentiator and the thing that keeps its users active. People consciously trying to break old habits and create better ones tend to be motivated by self improvement and become addicted to the work when they see positive results. In that sense, technology and data can do for personal finance what it did for fitness — just look at how FitBit and the Peloton bike have contributed to the fitness boom of the last couple years.

That aspect could be the one competitive advantage this particular fintech startup has on big banks, who have no real reason for customers to keep coming back.

“The main financial companies in America started focusing more on wealthier and wealthier clients — they make more money that way — so the way they serve ordinary people has been refocused,” Cherny said. “It’s not that they aren’t serving people, they’re just not serving people very well. The product they bring to ordinary people has been substandard. Our approach is to focus on great products whether they’re low income status or multimillionaires.”

Aspiration has been working on the AIM product for more than a year, Cherny said, but the overall response by people to the outcome of the Presidential election has pushed questions about personal brand and value to fore, making the company’s work “even more relevant,” he said.

In some ways, the election and its aftermath has breathed new life into so-called values based banking. It also represented an opportunity to be more aware as a nation, said Megan Hryndza, CEO of Mighty Deposits, a platform built to highlight mission-driven banks for people who want to know how their money is lent.

“Collectively, money can get things done. There will be more than ever a receptive audience for understanding they know where they spend their money matters but where they keep their money matters too,” she said. “Mighty is further looking to see where we can deliver on opportunities without people having to wait for the next vote, by bringing a platform for action and influence everyday.”