Covestor, a startup that lets people mimic other investors’ moves, is opening its doors and allowing anyone to become a portfolio manager on its investment management service. It will create many more investment options on the site for Covestor members; previously there were only 25 models that users could follow.
Becoming a manager on the site is contingent on a few conditions: you have to disclose all your real brokerage moves and share a year of performance history. Managers on Covestor can attract others to “follow” and copy their trades, while earning fees based on how many people track them or the total value of the assets they guide.
“We’re trying to bring the principles and practices of the Internet to finance and allow clients to pick what’s most appropriate for them,” said co-founder Perry Blacher. “As long as you’re willing to share your real investment activity and be transparent, then we’ll set you up with a level playing field.”
Blacher says the site has seen 50 percent growth each month over the last three months in assets under management. Covestor is part of a cohort of young startups that are trying to disrupt the traditional mutual fund industry, including MarketRiders, Cake Financial and Kaching. Mutual funds have come to manage more than $10 trillion while charging roughly 1 to 3 percent in fees every year. These startups say the industry is opaque — it’s hard to tell whether mutual funds are simply taking a share of an ever-growing pie or whether fund managers have unique skills that allow them to beat market returns. Allowing regular people to share their trading history and strategy gives consumers a transparent alternative to the mutual funds. Each of them has a slightly different approach: Kaching has a broader, more consumer-oriented focus with a lower minimum investment at $3,000 while MarketRiders is more hands-on for wealthier investors that want to watch over their portfolio allocations directly. Covestor’s minimum starts at $10,000 and its fees range from between 0.5 to 2.25 percent.
The share Covestor gives to managers on its site varies — if you’re not a registered adviser with the Securities and Exchange Commission, you get paid a fixed fee based on how many people follow your investments. If you are registered, then you’ll get a roughly 50 percent share of the overall management fee. Blacher says Covestor’s strategy reflects its East Coast and London-roots: it targets professional funds and clients.
“We’re out to compete with Fidelities and Putnams of the world,” he said. “We are after a more experienced older and wealthier crowd, instead of the Facebook-Yahoo types.”
Covestor has raised $7.5 million in two rounds of funding from Union Square Ventures, Boston-based Spark Capital and London based Amadeus Capital Partners.