This time Fidelity Investments has beaten Schwab to the punch.
Although Schwab announced in October that it would be allowing trading in fractional shares for stock trading, it hasn’t launched that yet. Fidelity has, though it lagged Schwab in ending commissions on stock, ETF and options trades by a little more than a week.
Beginning today, Fidelity is rolling out real-time fractional shares trading not just for stocks but for ETFs to retail customers. The rollout will continue over the next several weeks. All fractional trades will be executed in real time during market hours and must be market or limit order types.
Fractional share trading will be available in most Fidelity retail accounts including brokerage, HSAs, IRAs and self-directed brokerage accounts within workplace retirement plans. No mention was made about advisor accounts, but a Fidelity spokeswoman the firm is “currently gauging demand for this capability from advisors and working with them to address how we can meet their specific trading needs.”
“Investing at Fidelity just got easier, and more accessible, with dollar-based investing,” said Scott Ignall, head of Fidelity’s retail brokerage business. “Customers can now own a piece of their favorite companies and ETFs based on how much they want to invest, independent of the share price.”
A retail customer with $100, for example, will be able to buy IVV, the iShares S&P 500 index ETF, even though the ETF has been trading around $330 per share.
Fidelity’s announcement marks “the beginning of a trend that has already happened in the brokerage space with zero commissions [on trades],” said Todd Rosenbluth, director of ETF and mutual fund research at CFRA, an independent research firm. “Brokerage firms don’t want to be left behind for gathering assets.”
Several other firms such as Interactive Brokers and Folio Financial already offer fractional share trading, but they are nowhere near as large as Fidelity, which has more than 23 million retail brokerage accounts.
Rosenbluth said the Fidelity announcement could also be a boon for ETFs, eliminating a disadvantage they have had compared to mutual funds. Investors in mutual funds can buy shares at any price because they can buy fractional shares, which hasn’t been true for ETFs. With Fidelity and other brokerages offering fractional shares of ETFs they can.
That in turn, could open up work-based retirement plans, like 401(k)s to offering ETFs, said Rosenbluth.
Dollar-based trading will be rolled out on Fidelity Mobile apps for iOS and Android, available in the App Store and on Google Play.
— Check out Fidelity Adds Features to Advisor Tech Platform on ThinkAdvisor.