Popular investor updates for April 2020
I have spent the last few hours dissecting the latest eToro Popular Investors update and what it means for you.
Please note that these are just my thoughts on the current updates, and they are not eToro’s. This post is not financial advice and should not be taken as such. Full disclosure, I am currently a Popular Investor on the eToro platform.
You can find the video here.
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This latest eToro Popular investor update will initiate a lot of conversations in the Popular investor community. Changes are coming and depending on which side of the fence you are sitting. It could have a beneficial or detrimental impact on you. It will impact copiers as well as Popular Investors.
Sam Rudnick (eToro’s Investment Office) kicks off the video with a general agenda. He gives info for the meeting and outlines some of the key points to the upcoming changes to the PI program. One of the things he mentions is the changes to the PI program happens every two years. This is to adapt to the changing ecosystem of the eToro platform. This is true, I do remember when they made changes back in 2018 during the slump of crypto markets. One thing that caught my attention is that they make changes every two years instead of monthly.
My take on incremental Popular Investor Updates
Perhaps it is because I am a project manager for my day job. I prefer small incremental enhancements done every week/month depending on the scale and timeframe. Granted, he isn’t the one making all the decisions by himself. It wouldn’t be beneficial to have a large change every month but by continuously improving certain small aspects of the platform. This would have a greater impact, than making large ones every two years.
To their credit, they are rolling it out over a few months, instead of a hard date.
Popular Investor updates to the tier requirements
The first update out of the cab rank is the changes to the Cadet program. Moving forward (and already implemented by the looks of things) is that Cadets now require these things to be eligible
- Minimum 1 Copier (makes sense, cannot be a Popular Investor if you do not have any copiers)
- Increase of equity from $500 to $1,000 (so they need to have at least $1,000 in their account)
- Increase of AUM from $200 AUM to $500 AUM (need at least $500 of copier funds. So, if they have 1 copier and they have only copied with $200 – they are not eligible for the Cadet level)
So, they have slightly raised the entry to the Cadet Popular Investor level. Sam mentions that this is in line with the average equity size of a new client.
No more copying other investors
This one will impact very few Popular Investors. One of the new things that they doing is Popular Investors will no longer be able to copy other traders. They already had a limit in place for Popular investors copying other traders. I believe it was around no more than 20% of their allocation to a trader and no more than… 5 traders… Only a few traders do this.
I agree with this approach to a certain degree. Popular Investors accounts should not be able to copy other traders. As they will be benefitting or losing from other people’s trades. If a PI had an additional account, then that account should act like any normal account. Be able to copy anyone or trade any instrument they feel like BUT they would no longer be able to be copied. I think that would be a nice trade-off. You cannot be copied, but you are free to trade how you want on your second account. Whilst keeping your main Popular Investor account separate.
What do you think about this?
What’s the impact?
Majority of Popular Investors have their strategies when trading. So I do not believe this will impact a large majority but for those it does impact, expect to hear a few noises from them. As mentioned before, this is being rolled out over the next few months. So it should not be new information for them.
One thing Sam mentioned in his talk about Poplar investors copying other Popular Investors. He noted that they were hoping a Popular Investor would come up with an algorithm. An algorithm for identifying or selecting Popular investors. I am quite interested in this and might reach out to Sam later to get more information on this – stay tuned!
Changes to the PI Tiers
Over the next few months, eToro is going to make some changes to all the ranks. This is what they showed in the video
Apologies if the image is a little out of focus but I took a screenshot of a YouTube video of someone streaming their screen, so there was a little bit of resolution lost but you can make out the main details.
Popular Investor Updates Entry Points
Cadet is still the entry point to the PI program.
Rising Star is being removed and becomes a new hybrid with the champion tier. This means that the new min AUM required has risen from $40,000 to $50,000. So those just on the cusp of $50,000 AUM will not be eligible for the Champion level now.
There is also a reduction in the base payment from $500 to $400 per month for the rising star and $1,000 to $400 for the champions. Not bad for the Rising start but the Champions has been cut by over half. Whilst at first, this seems drastic, they have upped the incentive to perform well. So, if your AUM grows by 1% over the previous month, you will be eligible for $800 payment. So, for Rising Stars, they can now potentially earn up to $800. Champions do get the short end of the stick with their payments now reduced and compensation now sits at $400 or $800 depending on their performance month to month.
Does it impact my account?
I would like to note that this change directly impacts me. My current AUM is around $47,000 and I am a rising star. So, when these changes come into place, I no longer meet the new level requirements and will be demoted to Cadet. I am not far from achieving the level, but it just shows how some people could become disheartened by the new changes whilst they are so close to the tier requirements.
When will it happen?
By August 2020, all these changes above will be implemented. So, they will gradually make changes over the coming months.
Who could it impact?
I am on the fence about these changes – on one hand, it incentivises PIs to increase their AUM by 1% each month. On the other hand, it pressures PIs to increase their AUM by 1% each month. There may be a few instances where PIs take greater risks with their AUM just to increase their AUM by 1% each month. I am hoping this will not be the case but only time will tell.
The Elite tier remains pretty much the same. They have removed the base payment of $1,000 + 2% AUM and made it 1.5% flat or 2% if you increase your AUM by 1% from the previous month.
There is a new tier called Elite Pro which has the minimum AUM increases significantly to $10 million. Only a few PIs are currently achieving this min AUM so that will weed out so of the ones just one the cusp. If they have an increase of AUM from the previous month, then the payment increases to 2.5% AUM. Before you get upset for those who are not in the Elite Pro category, those who have several million AUM are still doing well, even with the new changes. Someone with $5million AUM would potentially get $6,250 per month from eToro – so I think they will survive with the new changes.
Popular Investor Updates Restriction
I like how they have restricted the Elite Pro tier to someone who has been on the platform for at least 3 years. This will hopefully reduce the number of PIs that have a banger month, everyone jumps on board and they go from 0-100 very quickly. I applaud this strategy.
Another thing is that they have aligned the eToro Club Tiers with the PI levels – so an Elite Pro must have a min of $50k equity – almost a double increase from the previous requirements. Sam notes that these changes are a way to show that eToro is rewarding popular investors that have stable performance and that are also able to grow their AUM.
Popular Investor Updates Benefits
For the most part, the PI benefits have not changed except for weekly videos. This could have been rolled out as it was popular with a few select PIs.
Sam then begins to give a breakdown of the eToro post on video guidelines – I am not going to go into detail here because they’ve already done it and you can see it here.
Tomer Blatt then joined the call to provide additional details on some of the feedback that everyone has provided on the PI program. Many PIs expressed their frustration with copiers joining, then quickly leaving after a week or a small period, particularly when the PI is a long-term investor. Large gains are not going to be realised in a week and many copiers would like a quick return. Many copiers leave just as quickly as they joined.
New tools for Popular Investors?
One of the upcoming benefits that the eToro team is looking into is what tools can benefit PIs in their trading strategy. Things like Fin Viz or other screeners are particularly useful for PIs to help them decide how to make their next trade. Jaynemesis had a few suggestions on this which is great.
Jaynemesis question
Jay’s predicament is that he sits just under the Elite Pro level. He will need to increase his equity by $10k to qualify (an increase of 25%). Jay’s issue is that if he does add these funds, it will desync any copiers that do not add those funds
He suggested a method like the CopyTrader system where it enables the PI to invest in the Copy open trades’ style that copiers get when adding new funds to a copier. I think it is a great idea and a potential solution moving forward.
Wes Nolte and Alderique raise the point around not incentivising PIs for producing content when they have effectively had their payments reduced and could lose motivation. This is a valid point as these changes could impact certain traders. Particularly those who were just meet the current criteria. Now the criteria have changed. Most people forget that the PI Program is a benefit that is earned, not given to you for free.
Final thoughts on the changes
There is never going to be a solution that pleases everyone. Even if you paid everyone $10k a month, copiers would complain that PIs get too much money for nothing. So, there is never going to be a solution that pleases everyone. By implementing these changes, it incentivises people to make better trading decisions, communicate more openly about their trading and to also restrict those gunslinger traders from taking advantage of a highly volatile market.
I think this will benefit eToro, the Popular Investor program, Popular investors and copiers themselves in the long run.
What are your thoughts on the new changes?
All levels above Cadet take a guaranteed hit on the fixed monthly payment. On Elite, the trader loses 0.5% if they have the odd bad month. So for example if an Elite PI had $5 Million AUM. Instead of being paid $12,000 per year in fixed payments of $1,000 per month, they lose that completely. So they’re out of pocket by $12,000 immediately. If they also have the odd bad month they lose 0.5% commission for that bad month too (pro rata), even if they increased their AUM by 5 – 10% on the month before. I suppose by growing their AUM, their commission also grows, but not quickly enough to counteract losing 0.5% over the entire AUM if they have the odd negative month. A Professional Asset Management company doesn’t reduce it’s fee for the month if it has one bad month… it takes a percentage based on the AUM, so if it has a bad month, the amount it makes goes down too. Other than Elite Pro, everyone else seems to be taking a hit, and even Elite pro only offers an extra 0.5% if the AUM has grown, but loses the $1,000 a month payment. I don’t like the changes, I think they’re designed to keep more money in etoro’s pocket. It makes them look greedy. Couple that with losing money on the USD exchange rate over the longer term, I don’t think I’ll bother trying to become a PI with etoro. In a nutshell the incentives have decreased, very few people will benefit from the 0.5% extra on Elite Pro.
Yes – you raise some great points. One thing about these popular investors and professional asset managers is that the PIs are trading with their own money and asset managers are using their client’s money, so it’s a win-win for them. They either lose their clients money or gain profit, leading to bigger fees and bonuses. Probably the only benefit to the lower tiers is that a rising star could earn 800 per month if they increase their AUM by 1%, which is an increase of 300 from previous payments. Those who are going to hurt the most are those traders who were on the edge of elite/champion as their payment has been severely reduced as you rightly pointed out. It is designed to keep more money in etoro’s pocket but in saying that, they do pay out a lot of money to PIs. They pay out the top 7 but AUM at least 43k per month (based on a 5mill AUM each, which we know that some of them have 10mill + AUM). COmbine that with the other tiers and you’re looking at easily a few hundred thousand paid to PIs each month. even the rising star level is paying out 100k per month