Schwab, in Bid for Younger Clients, to Allow Investors to Buy and Sell Fractions of Stocks -- Update
October 17 2019 - 5:05PM
Dow Jones News
By Lisa Beilfuss
Charles Schwab Corp. will let investors buy and sell fractions
of shares in coming months as part of an effort to attract younger
clients to its online brokerage platform.
Founder and Chairman Charles R. Schwab told The Wall Street
Journal Thursday that fractional share trading would soon be
introduced, along with several other new programs, as the online
brokerage looks ahead after it eliminated trading commissions
earlier this month. Mr. Schwab discussed the firm's future after
speaking about his new book, "Invested, " in New York.
"I wanted to take commissions out of the formula," Mr. Schwab
said. "We've been on that path for 40 years," he said, reflecting
back on the company's start as one of the first discount
brokerages.
Now, Mr. Schwab said the company is focusing on efforts to
expand access to investing, particularly to young people.
Schwab's decision to scrap trading commissions followed a
similar move by Interactive Brokers Group Inc., and it prompted
rivals TD Ameritrade Holding Corp. and E*Trade Financial Corp. to
swiftly match.
With commission-free trading now the norm, e-brokers must find
new ways to attract clients who might boost other parts of the
business -- such as banking or financial advice -- and who could
become more lucrative as their investments grow.
Schwab's move would be the first by a major online brokerage to
allow investors to buy and sell fractions of stocks. Some of the
most well-known and popular companies have high price tags, making
owning a share impossible for some would-be investors. A share of
Amazon.com Inc., for example, costs around $1,794.
In addition, fractional shares can help younger and less-wealthy
investors diversify their investment portfolios by spreading
relatively small pots of money over a broader range of stocks.
"It's about widening the net," said Richard Repetto, a brokerage
analyst at Sandler O'Neill + Partners LP. Allowing clients to own
slivers of companies reflects Schwab's emphasis on bringing in new
customers that can develop into more profitable accounts over time,
Mr. Repetto said.
When Schwab said this month that it would forgo trading
commissions, it acknowledged competitive pressure from new
entrants. Digital upstarts such as Robinhood Markets Inc. helped
popularize the zero-commission model in the online-brokerage
business, attracting millions of young clients through trading
apps.
Fractional trading is already offered by a handful of newer
online brokerages. One such company is M1 Finance LLC, a
Chicago-based company that splits every share of stock into
1/100,000 of a share. Brian Barnes, M1's chief executive, said
clients trade about 250,000 fractional shares a day. In comparison,
E*Trade's clients trade an average of 268,000 shares a day.
Financial-technology startup Social Finance Inc. has also waded
into fractional share trading. It launched its fractional trading
program in July, after noticing some clients delayed investing and
chose companies based on share price, rather than fundamentals, it
said.
Schwab didn't specify when the program would launch or elaborate
on plans for other new programs meant to woo young clients. "We're
constantly working on new services designed to appeal to our
evolving client base," a spokeswoman said.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
(END) Dow Jones Newswires
October 17, 2019 16:50 ET (20:50 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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