The word “investments” may conjure scenes of important-looking businesspeople in suits, frantically shouting “buy” and “hold” on the floor of the New York Stock Exchange. But in the digital age, it is sounding more and more like the whirring of servers and the tapping of mobile keyboards as new competitors enter the marketplace not from Wall Street, but from Silicon Valley.

Mobile-first robo-advisers, which use algorithms to buy and sell stocks, are a gateway to investing for many millennial and Gen Z consumers. Last year, Robinhood, an app that “democratizes” trading with its commission-free business model, surpassed the number of users on E*Trade, which has been around for 37 years. Robinhood’s business model, which makes smaller-scale investing accessible for more people, is a huge indicator for where the industry is headed.

The stock trading marketplace has become more crowded than ever. Some of the top brokerage firms worldwide include Fidelity Investments, Charles Schwab, TD Ameritrade, E*Trade, and Edward Jones — household names, a mixture of heritage brokers and online-only trading platforms. Venture capital-backed fintech startups like Robinhood, Acorns, Digit, Wealthfront, Betterment, and Stash have entered the category as recently as five years ago, but they’ve already seen their userbases swell. What are they doing differently?

Why Millennials Are Hesitant to Invest

In a study conducted by Ally Financial, about 65 percent of people aged 18 to 39 said investing in the stock market was “scary” or “intimidating,” compared to about 56 percent of people over 40 who said the same. When you consider the circumstances in which millennials came of age, this hesitation to invest becomes more understandable.

“Quite honestly, this generation has less to begin investing,” says Kendra Clarke, the VP of data science and product development at sparks & honey, a culture and trend consultancy in New York. Clarke explains that the heavy student debt this generation carries — estimated at $1.5 trillion in the U.S. — is a major reason why investing may be on the backburner for many millennial and Gen Z folks.

There’s also the matter of education. Personal finance is not a requirement to graduate in most schools, and the barrier to entry can be high for those who don’t have a formal background in finance.

Noah Kerner, the CEO of Acorns, an app that rounds up your purchases and invests the spare change, told, “It’s hard to understand the language that’s typically used. There’s a lot of inside baseball. For the everyday person, these things are incredibly complicated. It really felt like the products and services that existed were created for people who already understand how to invest.”

How to Make Investing Fun

So why have apps like Robinhood, Acorns, and Betterment caught on so quickly, and among so many people?

Kerner boils down the design of Acorns simply: “We make big decisions small. We don’t make people do math.”

Robinhood, a competitor of Acorns, operates in a similar way. In an interview with Adobe, Robinhood’s senior designer, Alex Bond says, “We’re conscious that design, beyond the words, communicates who a product is for. We’re focused on design that’s friendly, that’s inviting, that doesn’t intimidate you, that isn’t condescending.”

This design technique is called gamification. According to the Interaction Design Foundation, gamification is when “designers insert gameplay elements in non-gaming settings so as to enhance user engagement with a product or service.” On the finance side, these features include savings goals, progress bars, points, icons and mascots, and have an approachable brand voice.

“Whenever you introduce that kind of fun and gamify an app, you create an emotional attachment,” Clarke says. However, she warns, “[the design] doesn’t necessarily draw a straight line to the gravity and importance of certain elements of what’s happening.”

In more blunt terms, Drew Millard of The Outline describes Robinhood as recreational gambling, “designed to remove any and all friction from the process of making terrible and uninformed investment decisions.” These apps can make investing feel more like fantasy football than investing in the stock market.

James Royal, an investing and wealth management reporter for Bankrate, believes this design is a net positive, making investing more approachable. “It’s so tremendously important that people begin thinking about investing early and envisioning themselves as investors.” Users of the app should be careful not to let this gamified design distort the point of investing, he says, which is “buying great businesses and taking a long-term, owner-like mentality to your investments.”

What’s Best for Your Wallet?

Another seismic shift in investing has been the business model at large. Clarke explains that the traditional model of heritage brokerage firms is heavy on “human capital” — expert advice through phone calls and face-to-face meetings. However, newer firms “want to reduce the human interaction portion of things [because] that’s how they scale.” This works to the advantage of younger investors, who may not be as willing to pick up the phone.

Trading stocks comes with a cost. Many full-service brokers charge 1 to 2 percent of total managed assets every year; even discount brokers like TD Ameritrade and E*Trade charge $6.95 per trade. If you’re only able to invest small amounts regularly, this may not be the most cost-effective route.

Mobile robo-advisers aim to simplify this model and make it easier and cheaper to invest. In its bid to “democratize” trading, Robinhood charges no commission fees for stocks, exchange-traded funds (ETFs), options, and cryptocurrency and makes money from interest on uninvested cash, marginal interest, and payment for order flow. Betterment, a robo-adviser founded in 2010 as an alternative to traditional financial advisers, charges a low 0.25 percent fee, or $25 per year for every $10,000 invested. Acorns hooks up to your bank account and invests “spare change” from rounding up purchases. It charges $1 per month for basic services, and goes up to $2 and $3 for additional features. Noah Kerner explains that with Acorns, “it’s clear what you say and clear what you get — there’s no ambiguity.”

With minimal or no fees, these apps may seem like a no-brainer, but there are significant tradeoffs — namely, the lack of features, tools, and research data. The commission fees you pay with brokers like TD Ameritrade are high because you’re paying for access to robust research and modeling tools; with Robinhood, for example, you can only see basic performance history. If you’re a beginner trying to wade into investing, this simplicity may be attractive, but more advanced traders may want more out of their brokers.

Blurring the Lines

This wave of disruptors from Silicon Valley has caused establishment traders to become more competitive. In March, Charles Schwab announced it was revamping its robo-adviser offering from a fee based on your account value to a subscription model, and last month TD Ameritrade expanded its number of commission-free ETFs to 550.

As heritage brokers adapt to new customer demands and fintech startups diversify their services, we may witness a meeting in the middle. James Royal of Bankrate says, “You can also see some startups begin to look more like some incumbents, though they’re still more agile. For example, Wealthfront is paying a very attractive rate on deposits, and it’s hustling to raise money, making it look like a more traditional bank. … This kind of activity increasingly blurs the line between deposit accounts and investment accounts.”

Success breeds homogenization, and this will cause much shifting in the marketplace — a changing of the guard, so to speak. “While the user growth on Robinhood has been nothing short of phenomenal, what happens when the established brokers move their trading commissions closer and closer to free?” Royal asks. “What else can Robinhood offer in that world?”

Regardless, the wealth of options present in the market now is undoubtedly beneficial for the consumer. Applying tech and design to the financial industry could cause a ripple effect in which people are more comfortable discussing and actively managing their money.

Noah Kerner says the goal of Acorns is to get “100 million everyday Americans saving and investing every day.” He explains, “Part of achieving that goal is inspiring other people to save and invest, to make things simple, to make it possible for people to do that outside of Acorns.”

In a future where pensions may feel like a pipe dream, this bi-coastal battle for your money could pave the way for a more financially secure retirement.

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