Budgeting Investing Product Review

REVIEW: Acorns Fees & Costs Explained

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Acorns invest your spare change app is now available in Australia, but like all financial products these days there seems to be some confusion around the fees and costs.

In this blog I will take a closer look at the fees and costs of Acorns invest your spare change app.

acorns-logo-2

This is NOT a product endorsement, recommendation or statement of opinion, this blog is fee review based on the facts that are available at the time of writing, intended to inform and entertain – please enjoy it as such.

Acorns Fees & Costs – Invest Your Spare Change & Save

The Acorns invest your spare change platform and app is now available in Australia.

Is it worth getting excited about?

acorns-home-page

 

Acorns is a technology focused way to build a diversified portfolio of investments, while also offering a functional platform that helps you keep track of your portfolio.

The sales pitch for Acorns is that it easily links to your bank accounts and offers the ability to ‘round-up’ your regular spending.

For example if you buy a coffee for $4.50, using your credit or debit card, the Acorns app will recognize this and allow you to round up the cost to $5, the $0.50 of which you can allocate to your growing Acorns investment portfolio.

An example of transactions rounded up by the app:

acorns-round-up

You can link your bank account to allow Acorns to tally your round up amounts and draw the balance for investment once the amount builds up.

acorns-regular-investment

You can also set one off, or regular, daily, weekly, monthly contributions to be made to your Acorns investment account.

acorns-transaction-history

Once the money arrives to the platform, Acorns will invest in automatically according to the portfolio you have selected.

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The Fees

Like any financial product there is some confusion around the Acorns invest your spare change app fees and costs.

Let’s take a closer look at how the Acorns fees work.

The extract on the Acorns website shows the fees as follows.

acorns-fees

This seems straight forward but let’s take a closer look.

The Maintenance Fee (Accounts under $5k)

If the balance of your Acorns investment account is under $5,000 you will be changed $1.25 / month, which works out to $15 / year.

acorns-maintenance-fee

The Account Fee (Accounts over $5k)

If the balance of your Acorns investment account is over $5,000 you will be changed 0.275%, which is the cost you pay as an investor for the use of the platform.

acorns-account-fee

From the information I reviewed Acorns doesn’t charge transaction costs such as brokerage or entry / exit fees.

The Investment Fee (Underlying Issuer Fee)

Acorns allows you to select between five different investment portfolios:

  1. Conservative
  2. Moderately Conservative
  3. Moderate
  4. Moderately Aggressive
  5. Aggressive

acorns-portfolio-options

Underlying each of these portfolios, is a distinct combination of exchange traded funds (ETF’s) which are listed on the Australia Stock Exchange (ASX). If you wanted to you can buy these ETF’s directly with your stock broking account.

The underlying investments are as follows:

Investment Asset

ETF Cost
Australian Shares SPDR 200 Fund

(ASX Code STW)

0.19%
Asian Shares iShares Asia 50 ETF

(ASX Code IAA)

0.50%
European Shares iShares Europe ETF

(ASX Code IEU)

0.60%
US Shares iShares S&P 500

(ASX Code IVV)

0.07%
Australian Government Bonds iShares Core Composite Bond ETF

(ASX Code IAF)

0.20%
Australian Corporate Bonds Russell Australian Select Corporate Bond ETF

(ASX Code RCB)

0.28%
Australian Cash Australian High Interest Cash ETF

(ASX Code AAA)

0.18%

This fee is charged by the ETF issuer via the product, hence you won’t see it in your Acorns portfolio report.

An example of the reports Acorns produces:

acorns-reports

1.Conservative Portfolio

The conservative portfolio is made up of the following combination of underlying ETFs:

acorns-conservative

If you multiply the fee of each ETF with the asset allocation percentage you get a total investment cost of 0.229%.

2.Moderately Conservative Portfolio

The moderately conservative portfolio is made up of the following combination of underlying ETFs:

acorns-moderately-conservative

If you multiply the fee of each ETF with the asset allocation percentage you get a total investment cost of 0.226%.

3.Moderate Portfolio

The moderate portfolio is made up of the following combination of underlying ETFs:

acorns-moderate

If you multiply the fee of each ETF with the asset allocation percentage you get a total investment cost of 0.245%.

4.Moderately Aggressive Portfolio

The moderately aggressive portfolio is made up of the following combination of underlying ETFs:

acorns-moderately-aggressive

If you multiply the fee of each ETF with the asset allocation percentage you get a total investment cost of 0.268%.

5.Aggressive Portfolio

The aggressive portfolio is made up of the following combination of underlying ETFs:

acorns-aggressive

If you multiply the fee of each ETF with the asset allocation percentage you get a total investment cost of 0.289%.

Total Fee

Below we have calculated the total fee by taking into account the maintenance fee for balances under $5,000, the account fee for balances over $5,000 and the investment costs according to the portfolio selected.

As you can see even for a portfolio of $150,000 the total fee is still under $1,000 per year.

acorns-total-fee

Let’s take a closer look at this fee on percentage terms:

acorns-total-fee-under-5k

For smaller accounts the fee as a percentage tends to be above 1% p.a. – a level that may start to erode your potential investment return.

To get your investment cost under the 1% p.a. mark you really want an investment account of $2,000+.

acorns-total-fee-over-5k

Could I Replicate the Acorns Approach Myself?

To replicate the Acorns investment portfolio directly through an online stock broker would cost you brokerage for each trade, of which you would be trading multiple times per month (as Acorns does for each additional contribution), plus there is a cost in the time it would take to keep track of the administration and compliance of your portfolio.

How Does This Compare in the Broader Investment Industry?

There is no real apples for apples comparison for Acorns in the industry (i.e. a diversifed portfolio of dirrect investments that work for smaller accounts).

One guide is to measure the Acorns portfolio against superannuation funds, which operate a range of investments and portfolio sizes and are known for their low costs.

Below we have extracted the cheapest super funds as review by Super Ratings dated 30 June 2016.

acorns-v-super-comparison-chart

Note: Acorns is not a super fund product, we have used super funds as a factual example of diversified investment portfolios, that are operate on large economies of scale and are known for their low costs (example: ‘compare the pair’ industry fund advertisements).

Summary

  • Acorns is now available in Australia.
  • Acorns is a robo-adviser with a sales pitch – to build investment portfolios from small change
  • It is possible to run a moderate portfolio of $150,000 using Acorns for under $1,000 p.a.
  • You should read the PDS before considering whether Acorns will be suitable for you.

READER OFFER: Want $2.50 from Acorns to Get Started?

acorns-logo-2

If my fee review helped you out and you want $2.50 to add to your first Acorns investment, click above (*I will also get $2.50 for sharing) 

This blog provides links to third party sites, aimed at helping you gather the information required to make an informed decision – we may receive payment of a commission or other fee for these referrals.

 

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Joshua Stega

The Wealth Guy

Joshua Stega is an expert financial adviser and founder of JAS Wealth in Sydney. He specialises in the habits and behaviours of wealth. Joshua has a Masters in Taxation and Financial Planning and is regularly featured in the media

M.TaxFP, LLB(Hons), B.Bus(Acc), FTI, Adv.DipFP, Dip.FP, SMSF Specialist
The information on this blog and website is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision. We recommend you consult a licensed financial adviser in order to assist you. This blog provides links to third party sites, aimed at helping you gather the information required to make an informed decision – we may receive payment of a commission or other fee for these referrals.

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5 Comments
  • Laura Mar 8,2017 at 8:36 pm

    I’d like to clarify if the performance takes fees into account? Ie If performance shows $4.98 or 3.45% growth, is that before or after fees?

    • The Wealth Guy Mar 9,2017 at 5:54 am

      Good question, there is no clear answer in the PDS.

      The usual case in that investment industry is that performance is shown after fees (unless otherwise stated), but before tax (i.e. you will have to report the income and capital gains in your tax return).

      Luckily Acorns provides a comprehensive tax report as well.

  • Roni Feb 23,2017 at 10:38 pm

    But is it safe to give Acorns things like our bank logins, so they can link our credit cards and banks to Acorns?
    Do our banks allow us to give our logins to other websites? How does Acorns protect this private information?

    • The Wealth Guy Feb 24,2017 at 5:55 am

      Roni, good question. Acorns states that they do not store the login information for your bank, they simply scrape the data. Bank feeds and data feeds are becoming industry standard and you have international providers like Yodlee, which specialise in providing this technology to robo-advisers and budgeting services like pocketbook etc. If you use an accounting platform like Xero or MYOB all information is now gathered by data feeds, so this is nothing new.

      In any event you should always keep an eye out for suspicious transactions, despite the levels of security and the claims they make, there is no substitute for your vigilance.

      You can read more about Acorns position on this here: https://acornsau.com.au/support/

  • Liam Jan 26,2017 at 8:02 am

    Joshua, thanks for the excellent review and you convinced me to give it s go. Think it is also a great way for people to see the power of regular savings. The low fees help when getting someone started as the fees on small accounts often put people off. Well done.

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