Aspiration's jump to $11 million of AUM attracts $15.5 million of VC capital from investors who include Addepar's founder

Brooke,

Don’t forget about the Flagship fund’s 0.25% 12b-1 fee!

It’s genius… Aspiration (et al) will profit from the sweep just like Schwab… but the max investment model all but guarantees a reduced need for liquidity in each portfolio. It’s all in the Net Interest Margin. And they exude the perception of philanthropy which the next generation actually cares about. Easy access, pay what you wish, 10% goes to the needy… there audience is the 99%ers. Meanwhile they cover all expenses while looking like Robin Hood and make a steady profit as interest rates tighten. It’s still a zero sum game in which Aspiration poised to win… at least for now.

Just to set the record straight: any 12b-1 is covered under Aspiration’s 0.50% expense cap and Aspiration does not profit from the sweep. The only money we make is what our customers choose to pay us.

Andrei,

I get what you’re saying.

When I’m a retail investor with Aspiration, I see “pay what you want” all over the website, so I naïvely assume that’s all I will pay, because I don’t really know any better, and I don’t know to dig through the disclosure material and mutual fund prospectus.

But when I examine my wallet at the end of the year, it’s lighter to the tune of whatever I chose to pay to Aspiration PLUS the 1.35% Aspiration Flagship Fund fee AND the 0.25% 12b-1 fee, which both reduce the fund’s daily NAV!

I also don’t understand how you reimburse Fund expenses to limit them to 0.50% when the fund reduces its daily NAV by the expense ratio and 12b-1 fees. How are these daily reductions in the fund’s NAV reimbursed? Does Aspiration add shares each day to each investor’s account to make up for the fund’s daily NAV reduction for its fees?

What am I missing? Who makes up the difference between the agreed 0.50% cap and the 1.6% total fee charged by the Fund? Somebody is paying the 1.1%, because the Emerald sub-Adviser is not running a charity. I’m trying to wrap my head around all of this.

So for a retail investor, it’s “pay what you want(*)”

(*)except you can’t pay what you want for the Aspiration Flagship Fund fees, which is fine because “Cherny maintains that his Flagship Fund is worth the extra expense” and Aspiration caps those fund fees at 0.50% a year, but that cap agreement is in effect for one year from the Fund’s prospectus date after which Aspiration will renew or revise the agreement, and the Fund still reduces its NAV each day to collect fund expenses according to the Fund’s prospectus.

I agree with Bill and don’t forget the underlying investment vehicles- mutual funds are getting paid as well. So Emerald gets something out of the 1.6% and the underlying managers get their fee as well- all this comes out of the NAV so there is no fee right…just operating expenses- really? So to me, it’s like saying 'you can pay us anything more than what we are not telling you you are being charged’- it’s like a discretionary tip!

Bill and FAA, let me clear these up because you are throwing out a lot of misinformation and I hope/assume your intentions here are good and you just haven’t looked at what we are doing.

1) An Aspiration customer does not have to dig through the disclosure materials and prospectus to understand our fee structure. The 0.5% cap on expenses is explained very clearly and visually on the fund page of both of our Funds. You can go and see them for yourself (eg funds.aspiration.com/redwood). This is in contrast to the roboadvisors you work with who do not reveal the underlying fees of their products anywhere on the main pages of their site.

2) I’m not sure where you get the 1.6% number comes from but the expenses of each of our funds is capped at 0.5%. We as the advisor make up anything over and above that. (The Aspiration Flagship Fund has approximately 0.85% of acquired fund fees that are separate since it is a fund of funds. Since the Aspiration Redwood Fund is not, the total expenses there are 0.5%.) That 0.5% is basically in line with the underlying expenses of the prominent roboadvisors except we are transparent while they are often not.

3) An expense limitation agreement or a cap on fees is not something we invented. Many funds have this and only allow a certain amount of expenses to hit the NAV. The mutual funds and ETFs used by roboadvisors do it in a similar fashion.

4) Our subadvisors whether they are UBS or Emerald do not charge a separate layer of fees. They have agreed to be paid in a Pay What Is Fair fashion and so get a percentage of each dollar a customer chooses to pay us. If a customer pays us zero, they get paid zero. This means that — uniquely among financial products available to everyday investors — our incentives are aligned with those of our clients. This is one of the reasons we have seen growth so far in excess of others in this space.

I hope this clears up any misunderstanding.

Andrei,

Thank you for the detailed response. I have fair questions on fees, and I appreciate you taking the time to respond in this forum.

Note that I have no financial or consultative relationships with any robo advisors. Your statement that I work with them is misinformation. After all, both Adam Nash and Wealthfront have blocked me on Twitter.

1) I dug through the ASPFX prospectus found at: https://assets.aspiration.com/docs/funds/prospectus/SummaryProspectus.20151113.pdf
I made a mistake calculating the 1.6% fee, as I incorrectly added the 0.25% 12b-1 fee to the annual fund operating expenses of 1.35%, but my mistake was not realizing the 12b-1 fee is already reflected in the total 1.35% operating expense.

So for a $10,000 investment, the ASPFX prospectus discloses a one-year cost of $137 (or 0.00536% daily for ~252 trading days) assuming no payments to Aspiration (the “pay what you want” fee).

I have to assume that investors in ASPFX are “paying” the 1.35% operating expense in the form of daily NAV reduction.

But then there is the 0.50% limit to operating expenses mentioned, where Aspiration reimburses the fund for certain, but not all, operating fees. Does this mean that the daily NAV reductions are not 0.00536%, but rather 0.00198% (again for ~252 trading days)?

Which operating expense figure am I supposed to believe?

I have the CFP® certification, but even I find navigating these expense and fee disclosures to be a frustrating experience. I feel sorry for the average retail investor who has little to no experience navigating fund prospectus information.

From the prospectus, and I added bold to two sections which ASPFX investors should read and understand before choosing to invest:

Aspiration Fund Adviser, LLC (the “Adviser”) has signed an Expense Limitation Agreement
(“Agreement”) with the Fund under which it agrees to limit annual fund operating expenses
to 0.50% (“Maximum Operating Expense Limit”). The Adviser will do this by reimbursing
the Fund for certain direct expenses and fees, such as transfer agency, custodial, auditing and
legal fees. The Fund also incurs certain indirect expenses, and expenses paid by the Fund
(i.e., management fees, 12b-1 fees, etc.) when it invests as a shareholder in underlying
investment companies, as mentioned in Footnote 3. The Adviser has agreed to waive or
reimburse 12b-1 fees, but has not agreed to waive or reimburse other indirect expenses, nor
has the Adviser agreed to reimburse the Fund for any taxes it may pay. <b>Because the Adviser
is not obligated under the Agreement to pay these expenses, the Fund’s annual fund operating
expenses may actually exceed the Maximum Operating Expense Limit.</b> The Agreement cannot
be terminated by the Adviser prior to January 31, 2017 at which time the Adviser will
determine whether to renew or revise the agreement. <b>The Board of Trustees may terminate
the Agreement at any time.</b> Any fees or expenses waived or reimbursed by the Adviser are
subject to repayment by the Fund within the three fiscal years following the fiscal year in
which the expenses were incurred if the Fund is able to make the repayment without
exceeding its current Maximum Operating Expense Limit and the Maximum Operating
Expense Limit in place at the time of the initial Agreement.

I’d like to be a fly on the wall during their first SEC examination. The whole business model is confusing. – If you want to start a mutual fund, do so and open it to all comers. – If you want to start an investment advisory business, do so and invest your clients money on a discretionary basis.
But why start an investment advisory business and limit your “advice” to investing in your own mutual fund, which is a) not diversified, b) very strategy specific, and c) potentially outside of the bounds of the prudent investor standard. How can you be a fiduciary with such a limited investment offering?