Charles Schwab Corp. will begin offering stock “slices” to its customers next month, allowing investors to purchase fractions of shares.
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The goal is to attract younger investors looking to purchase securities they normally couldn’t afford, as well as offering a way to give portions of stock to family members as gifts, Neesha Hathi, head of Schwab digital services, said in an interview. The investments start at a minimum of $5 and the maximum is $10,000, she said.
As U.S. brokers and fund managers eliminate fees on stock trades and offer some other investments at no cost, many are turning to innovation to remain competitive and capture new customers. Schwab isn’t the first to introduce fractional investing for individual stocks -- Robinhood Financial LLC, Social Finance Inc. and Stash Investments LLC, among others, have launched similar products in the past two years.
Fractional shares make investing more accessible for popular securities such as Facebook Inc., Apple Inc. and Amazon.com Inc., whose prices are higher than the amounts many new investors have available, Hathi said.
“Instead of investing one time, you can do it every week because it’s affordable,” said Brandon Krieg, co-founder and chief executive officer of Stash. “Customers invest in companies that they understand, and over time they move past fractions and into full shares.”
The concept is simple: An investor chooses a desired dollar amount to invest, usually as low as $1, and gains a fraction of the total value of a share.
On the back-end, brokerages hold inventory accounts of full shares and allocate portions of those to their customers as they are purchased. When a company doesn’t already hold a particular security desired by an investor, it purchases a full share from the market, gives a fraction of ownership to the customer and holds the rest in its portfolio.
Read the full article here by Olivia Rockeman, Advisor Perspectives
