New Robo Lets Clients With a Conscience Pick Their Own Stocks

Commentary on Bloomberg article by Simone Foxman

Robo-advisors typically use passively managed index funds as a cost-effective way to invest, but the underlying companies don’t necessarily correlate with the values of the more liberal investor, Bloomberg writes. Enter OpenInvest, a robo startup founded by alumni of the hedge fund Bridgewater Associates that lets the more conscientious investor pick and choose where their money goes, according to the newswire.

Entering a Crowded Market with a Niche

OpenInvest’s CEO Conor Murray built trading and analytics platforms at Bridgewater for eight years before quitting the “East Coast hustle” to move to California, Bloomberg writes. There, he teamed up with another former Bridgewater employee, Phil Wei, got early backing from venture capital firm YCombinator, and brought on Joshua Levin from the World Wildlife Fund to be the firm’s chief strategy officer.

Launched in September, OpenInvest is betting that Millennials interested in passive investing with a conscience would be more keen on the idea of selecting individual stocks, Bloomberg writes. To be sure, investors have long been able to invest in mutual funds that invest with social factors in mind, Bloomberg writes. OpenInvest, however, allows users to buy individual stocks rather than invest in index funds as robo-advisors such as Wealthfront and Betterment do, according to the newswire.

First, new users with a minimum of $3,000 to invest create a profile, selecting companies they would like to exclude, and checking the boxes of their causes of interest, like clean energy or gender equality, Bloomberg writes. There are even options to exclude the companies of executives who have shown support for President Donald Trump, according to the newswire.

OpenInvest then builds a portfolio of more than 60 stocks that the company says corresponds with the investors’ social objectives and risk profiles and tracks the market as well, Bloomberg writes. The goal is still passive investing,  OpenInvest says, and the robo allocates investments based on the companies' size, sector and correlation with the general market, according to the newswire.

This approach has garnered OpenInvest $2.5 million in assets already, but that’s far from the $5 billion already managed by Wealthfront and $7 billion at Betterment, Bloomberg writes. At a cost of 0.05% of assets annually, it is also far more costly than other basic robos, although OpenInvest hopes to lower that rate as assets grow, according to the newswire.

Veteran managers including Vanguard, BlackRock and Fidelity have also started developing their own similar platforms or buying them, Bloomberg writes.

On the other hand, socially conscious investing is a great niche, and one through which a firm could make itself appealing to acquirers, Alois Pirker, director for research at Aite Group’s wealth management practice, tells Bloomberg.

OpenInvest doesn’t have the benefit of decades-long investment returns, so at the moment investors have to have faith in its algorithms, the newswire writes. But Levin tells Bloomberg that Murray and Wei have been working with very complex portfolio construction systems while at Bridgewater.

The company is also betting that early adopters will hand over the higher-than-usual fee in exchange for the customization, according to the newswire. And Levin tells Bloomberg they have faith that sustainable investing will become mainstream “as part of the antidote to a lot of the mind-numbing corruption that we see in the current Wall Street culture.”

Source: Bloomberg 

Posted by: The Trust Advisor



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