Fractional Shares Are Helping to Drive Increased Trading

Fractional shares are helping to drive increased trading, especially when it comes to shares of in-demand but high-priced technology stocks like those of Amazon, financial industry executives said Friday during a JConnelly Virtual Media Roundtable.

About 50% of trades made across Apex Clearing’s clients’ platforms during the second quarter of 2020 were fractional-based, according to Bill Capuzzi, the firm’s CEO.

Although many investors believe in the concept of investing in companies they know and most investors are Amazon customers, most accounts “don’t have enough money in them to buy even one share” of that firm’s stock, and “that’s a problem,” he said.

Amazon was the second-most popular stock owned by millennial investors in the second quarter, according to Apex. But one share of it closed the quarter at $2,759, an amount larger than the average millennial investor’s overall account value, Apex noted.

We are, however, “starting to see companies which have historically over the last five years just let their stocks continue to run up” now do “stock splits to bring that price [down to a] somewhat more reasonable” level, he said.

The additional challenge is “there aren’t that many folks out there that are offering fractional share custody,” he said.

That, however, is starting to change. In May, Charles Schwab said it would soon let retail investor clients buy partial shares of S&P companies’ stock. That news came almost seven months after Schwab said it planned to move into fractional shares. Schwab Stock Slices became available in June for as little as $5 each.

Rewards Program

One factor that has “fueled a lot” of growth for investment and banking fintech firm Stash is its Stock-Back program in which clients get stock rewards whenever they use their debit cards for a purchase, Brandon Krieg, CEO and co-founder of that firm, told viewers.

As an example, whenever a Stash client makes a Dairy Queen purchase, that person becomes a Berkshire Hathaway share owner because Warren Buffett’s firm owns that fast food restaurant chain, noted Krieg.

Stash’s platform has doubled its assets this year, he said, adding investors opened more than 1 million new accounts on the platform so far this year and 86% of users are first-time investors.

The ability to gain stock via Stock-Back “would not be possible without fractional shares” in the case of many stocks, moderator Ray Hennessey, CEO and president of JConnelly, pointed out.

Beyond Stock Trading

Stash has also seen a 60% increase in retirement accounts on its platform in recent months and a 40% increase in Auto-Stash savings, Krieg said.

Although the average Stash customer is 29 years old, “the pandemic has taught people that they need to start thinking about their financial futures and this is the time to do it,” Krieg told viewers.

Stash is also seeing a large increase in purchases of diversified, non-equity exchange-traded funds, he noted.

“I think the next shoe to drop” will be the development of a hybrid system providing the ability to “invest passively, but invest in the things that either I love or don’t love,” such as guns, military or environmental companies, Capuzzi predicted.

— Check out Fidelity’s Assets Hit $3.3T on Trading Surge on ThinkAdvisor.