Investing app Acorns doesn't want savings to be a bummer, so just give it your spare change

For most people, the link between long-term financial health and a few bucks spent here or there just isn't strong — though every little bit socked away can help.

So instead of urging people not to buy stuff, Los Angeles-area startup Acorns has a different suggestion: Save a little bit every time you spend. The company, through its app, rounds off credit- or debit-card purchases to the nearest dollar and invests the difference into stocks and bonds.

"We're not trying to preach austerity to the client, because that's a bummer," said Manning Field, the company's chief commercial officer. "Some people will say, `Don't have the cup of coffee.' We'll tell you to have the cup of coffee and invest along the way."

That pitch has been appealing, with the number of accounts growing from 1.1 million at the end of last year to 1.8 million in June. Most accounts are small, though — about $230 on average as of last year, the last time the company released such a figure.

Now, Acorns has released an update of the app with features aimed at boosting how much its customers save. And it's looking ahead to offering more than just a saving and investing tool amid stiffening competition in the emerging business of automated money management.

Big robo-advisers, online alternatives to traditional brokerage and wealth-management firms, have amassed billions in client assets — much more than the $257 million that Acorns managed at the end of 2016 — though they have fewer and wealthier customers. New York-based Betterment, for instance, manages more than $9 billion but has just 330,000 accounts.

There is also a growing number of apps similar to Acorns aimed at small savers and investors. Stash has a similar offering, but without the save-the-change feature; Digit and Qapital both offer automated savings, but put customers' cash into a savings account.

Noah Kerner, Acorns' chief executive since last spring, said he's not concerned about competing apps. "I don't believe people want to app hop," he said. But he acknowledged he wants the company to offer a broader range of services.

"If you can tackle someone's core financial challenges with the simplest product and the most automated solution, I think that ultimately wins the day," Kerner said.

In April, the company added to its board of directors UCLA behavioral economist Shlomo Benartzi, whose research has focused on finding ways to increase savings and on how to influence online behavior. Acorns' updated app incorporates some of his insights.

If customers don't save enough, Benartzi said, they might abandon the app and stop saving altogether. "You want to make sure people don't get frustrated because the amounts don't add up as fast as they wanted," he said.

Acorns was founded in 2012 by Jeffrey Cruttenden and his father, Walter, founder of an investment bank now known as Roth Capital Partners. The company launched its app two years later.

Choose one of five portfolios, ranging from conservative (mostly government and corporate bonds) to aggressive (all stocks, no bonds). The money is parked in a handful of index funds managed by firms including Vanguard and BlackRock.

Most customers link a bank account and a debit or credit card to their Acorns account. The firm monitors spending and, once the spare change from purchases adds up to $5 or more, it takes that amount from the bank account and invests it. (There are transaction costs, which is why the firm doesn't take out a few cents after every purchase.)

The company charges a flat fee of $1 a month for accounts of less than $5,000 and an annual 0.25 percent fee for accounts larger than that.

Acorns isn't profitable, but it has attracted some big-name investors, including PayPal and Point72 Asset Management, led by billionaire hedge-fund manager Steven A. Cohen.

Benartzi said the company's customer base and the frequency with which users open the app provide opportunities to determine what motivates people to save. For instance, Acorns encourages customers to make recurring investments. A recent test asked customers to invest either $5 a day, $35 a week or $150 a month.

Any of those options would result in the same total savings, but customers reacted quite differently. Benartzi said $5 a day was by far the most popular, chosen about four times as often as $150 a month.

"When you're saving the change, you're talking about maybe a few hundred bucks a year," he said. "You're not going to accumulate wealth by doing just that. I do not think there will be one single trick — you need different mechanisms for different people."