EarlyBird’s new app lets families and friends ‘gift’ investments to children – TechCrunch

Called a new fintech startup early bird Wants to help families invest in their children’s financial future. Through this early bird Mobile application, in a few minutes parents can create a custodial account, also known as a UGMA (Uniform Gift to Minors Act) Account. These accounts generally allow parents, aka “custodians”, to invest in stocks, bonds, mutual funds, and other securities on behalf of the minor child. When the child is of legal adult age, the investment becomes theirs.

Through the app, parents can set up an account for their child, then invite other family members and close friends to contribute.

The idea is not so different, at least in spirit, from something like Honeyfund, where newlyweds ask loved ones for cash donations rather than physical gifts. Similarly, Earlybird offers the option of giving a child toys and more “stuff” by inviting family and friends to donate money. Except in the case of Earlybird, it is not directly asking for cash donations – it is not some fantastic crowdfunding platform, after all – it is enabling investment.

In particular, Earlybird aims to make it easier and less confusing for parents to establish Custodial accounts. This is not the first fintech to do so – Stash And Chestnut, For example, also provide.

EarlyBird aims to connect the investment account with a platform that allows for social features and gifting experiences. The idea is that the act of donating the account feels more like an actual gift – as opposed to a gift of a check or tucking some cash into a greeting card.

Image Credit: early bird

With the Earlybird app, the donor can record a short video “memory” with their donation to the investment account. This makes for a more social and personal experience as the child can later refer back to these videos. In addition, other family members and friends can also watch the video and be inspired to donate to the child’s investment account as well.

The idea for Earlybird comes from the former Agility COO Jordan Wexler, Now Earlybird CEO, and Early Yello.co Staff and V.P. Caleb Frankel, Now Earlybird COO.

Wexler explains that when he started thinking about investing in his own extended family as an alternative to a physical gift upon the arrival of a new child.

“It all started with a problem I experienced years ago when my beautiful niece was born. I found myself head over heels and spending hundreds and hundreds of dollars on the most ridiculous stuff – pretty much just junk gifts, ”he says.

A few years ago, he got the idea to invest his cash in an index fund on behalf of the child.

“I wanted him to have a major impact in life and something that he could really use when he grew up,” Wexler says.

His father once did the same for him. When he was 12 years old, his father gave him some money in a TD Ameritred account which he withdrew later in life to help fund his first startup – SucceedOverseas In Qingdao, China – A strategic consulting firm that assists companies with employee rehabilitation. (It was acquired by Chiway Education Group in 2015.)

Wexler met with Cingb Frankel, co-founder of Qingbird in Qingdao and reconnected with him. When he returned to the US last year, he teamed up with Earlybird, with the goal of making the process easier for his parents Want to launch business investment accounts for your children.

Image Credit: early bird

Custodial accounts, to be fair, are probably not a well-known investment vehicle for those who are not parents – or even for those who are in some cases. This is because their option, the 529 plan, has generally been more popular because of its tax benefits.

While both accounts allow families to invest on behalf of minor children, investing in 529 schemes is tax free. Any withdrawals made for educational expenses – such as tuition, room and board, books, and more – are also not taxed. He is a big perk.

UGMA accounts, meanwhile, Some levels are taxed. The first $ 1,100 of unearned annual income is tax-free, but the next $ 1,100 is taxed at the child’s tax rate. Undisclosed income in excess of $ 2,200 is then taxed at rates for trusts and estates, which may exceed the child’s tax rate.

Donations for UGMA accounts do not yield income tax reduction, but do not tax themselves for an individual or married couple up to $ 30,000.

Because most families are investing keeping in mind college expenses and tax benefits, 529 schemes have been better known. But Wexler says that things are changing.

“Many parents don’t really know what education and college will look like in 15 years and want something more flexible,” he explains.

In addition, UGMA accounts can be used for college when needed. But, if the college, say, gets free in the US in one day (!!!), UGMA account investments can be used for something else. This is why the account is more attractive to some parents these days – and why other fintechs, such as Acorns are entering this market.

However, Earlybird will expand to 529 plans within a year, it says. It did not start there.

Image Credit: early bird

Another difference between Earlybird and Acorn or Stash’s patron plans is how Earlybird incorporates financial literacy into its product.

From birth to age 5, parents fully manage the child’s account. But when the child is between 6 and 13 years old, parents can show the child in a special “view only” mode, where the child can learn about their investments and watch them grow. At 13 to 18, the child can download the app and, along with their parents, begin to interact with it. At the age of 18 (or 21 in some states), the child takes full custody of the account.

Earlybird also simplifies the task of investing by offering multiple departments ranging from conservative to aggressive. On the conservative side, the portfolio is 100% ETF Bond-based while aggressive portfolio 100% ETF is equity-based. Like Acorns, it offers a fixed portfolio model, but it also offers customized portfolios so that you can mix your investments with your values ​​- such as investing in socially responsible businesses. Users can make their investments on an automated or small – large recurring basis, if they so choose.

Image Credit: early bird

The portfolio was designed and built with a team of expert financial advisors led by Earlybird Advisors. Ivan list, 12-year-old V.P. in Bernstein Private Wealth Management The company states that the portfolio is integrated on the backend with a rebling engine that ensures that each equity position stays within the 10% drift of the target allocation that Earlybird has set within the selected portfolio. It reviews all departments quarterly and, if necessary, rebalances them in the same way as other robo-investors.

The startup’s investment accounts are currently members of its partner Apex Clearing Corporation, a third-party SEC registered broker-dealer and FINRA and Securities Investor Protection Corporation (SIPC). This arrangement protects investments totaling up to $ 500,000. Early on, Earlybird aims to transition to a broker-dealer.

Currently, Earlybird generates revenue through its $ 3 per month management fee (and $ 1 per month for each additional child).

Over time, it will make as much money as many fintechs do. It plans to take advantage of trades and transactions with Apex Clearing. And since it transfers to a broker-dealer (when a large user base and assets are acquired under management), it can pursue a fully paid lending program, same Service other Brokerage.

These programs are not live at this time, to be clear, as the startup is only weeks old.

early bird $ 2.4 million in funding is supportedLed by Network Ventures in a round that closed in November 2020. Other investors include Chingona Ventures, Bridge Investments, Kairos Angels, Tacoma Ventures, Subconscious Ventures and various angels.

The app is a free download on iOS.