Star power? Athletes and actors join fintechs as A-list investors
Apps and investment fintechs are giving investor appeal the star treatment.
Instead of paid endorsements, the startups are courting Hollywood actors and professional athletes to take a stake and become advocates for financial literacy and success.
While the strategy adds a compelling twist to celebrity endorsements, regulators and observers warn there are several risks involved in mixing boldface names with investment and savings advice.
Among the most recent high-profile names to pair up with fintechs are Jennifer Lopez and her husband, Yankees legend Alex Rodriguez. They’re the latest A-listers to take a stake in the micro-investing app Acorns. Actor Ashton Kutcher and his investing firm Sound Ventures has signed on, and so has NBA superstar Kevin Durant with Thirty Five Ventures.
Tennis star Venus Williams has invested in Ellevest, an automated investment platform tailored to women which recently landed a new $33-million funding round backed by prominent investors like the Melinda Gates-founded Pivotal Ventures and Eric Schmidt, former Alphabet executive chairman.
Actor Will Smith is reportedly investing in a new financial literacy app for teenagers called Step.
Lopez said in a statement that she got involved to promote “tools for long-term financial planning and investment strategy, especially for women and mothers who don’t always receive the same opportunities or access to information of their male peers.”
There’s irony of well-heeled celebrities attaching their names and their enormous bankrolls to savings apps that help the masses save for retirement, says Will Trout, a senior wealth management analyst at Celent. The celebrity lifestyle then becomes the goal, he says.
“Of course, A-Rod would never use Acorns and that’s the point,” Trout says. “But, maybe today’s Acorns user [dreams they] can someday become as rich as him?”
But there’s a definite need to give investor education and financial literacy more oomph. According to a PwC survey of over 5,000 millennials about personal finances, only 27% sought help on retirement, and only 36% had a retirement account.
That’s why a number of investing and savings startups have positioned their offerings as lifestyle brands, rather than dry (and uninspiring) investment education.
“Each one of these celebrity investors represent a different demographic that Acorns is trying to penetrate,” says April Rudin, a marketing specialist and founder of the consultancy firm The Rudin Group. “The people they’re selecting are idols,” Rudin explains.
Not all research supports the case for celebrity endorsements translating into AUM growth for a firm. The influencer marketing industry is expected to reach $10 billion by 2020, according to Creator IQ, a marketing technology company. But only 3% of an audience would consider purchasing a celebrity-endorsed product, according to a survey by Collective Bias, an influencer marketing agency.
That hasn’t stopped digital wealth startups from attaching their brands to celebrities in previous marketing campaigns.
The leading independent robo advisor, Betterment, received media attention in August for a campaign featuring actress Maggie Siff, who stars on the TV show “Billions.”
“Anything that gets people to think about saving and investing when they otherwise might not have done so is a step in the right direction," says Greg McBride, chief financial analyst at Bankrate.
Acorns manages over $1.14 billion in client assets with over 2 million accounts, according to its most recent Form ADV. The average account size is around $570 and largely held by millennial investors.
“Noah Kerner and [Ellevest CEO] Sallie Krawcheck, et. al., have their fingers on the pulse here,” Trout says. “We’re witnessing twin trends of democratization and convergence.”
As access to financial advice becomes more accessible, firms have a need to reach a greater portion of the investing public, Trout says. At the same time, new technologies are bringing together new industry segments — within financial services, like pairing banking accounts with investment accounts, for instance — but also previously distinct industries like financial services and show business.
“These trends are closely aligned with the ascendance of the millennial generation whose behavioral characteristics include skepticism and a distaste for standing on ceremony,” Trout says. “When we’ve got a president who tweets, is A-Rod plumping for Acorns such a big deal?”
At the same time, traditional barriers dividing types of financial services are dissolving in the wake of a decreased government interest in regulation, Trout says. “This dissolution is removing any sense of exclusivity around investing, so why not have celebrities hawking investments services?” Trout says.
Using influencer marketing to attract more people to invest carries risks, though. The SEC issued a warning in 2017 to investors stating that making investment decisions based off a celebrity’s word may come with hidden dangers. Celebrities might have been lured into participating in a fraudulent scheme or linked to the product without their consent, according to the alert.
“It is never a good idea to make an investment decision just because someone famous says a product or service is a good investment,” according to the alert.
There's a potential reputational hazard in being associated with a celebrity too, according to industry analysts.
While celebrity endorsements may present a hazard for individual investors, firms that use established stardom to promote their brands may also be skating on thin ice, according to industry analysts.
“Using celebrities as spokespersons for a wealth management brand is risky, in my opinion,” says Marie Swift, CEO of Impact Communications. “Today's well-regarded celeb may be tomorrow's headline scandal or has-been persona.”
A better solution for a big brand is to create its own celebrity, Swift says, like the gecko from Geico commercials or the duck from Aflac. Those memorable characters have become famous in their own right, she says, without reputational risk factors.
“Perceptions and reputation are everything,” Swift says.
In fact, celebrity endorsements may present a troubling sign for the industry as a whole, according to Trout. The use of celebrity endorsements could risk trivializing the serious task of preparing for retirement, Trout says.
“We’ve entered dangerous terrain,” says Trout, both for individual firms and the industry at large. “It undermines the seriousness of the enterprise in a way that puts at risk the long-term health of the industry.”
The danger is magnified because part of what the firm is selling to the investor is the reputation — including the health and stability — of the financial institution, he says. “Will wealth management become just another product marketed by Hollywood?”