Any business has to make money to remain in business. That's a fact. It is also a fact that small investors pay a larger percent of their investment dollars in fees than do larger investors. Those two facts came into focus for me recently.
Loyal3 Shuts Down
Loyal3 is a commission-free brokerage firm. They not only allowed investors to buy and shares of stock without paying commissions, they also allowed the purchase fractional shares, so that investors can invest a small amount of money at a time, as little as $10.
Loyal3 had three downsides:
- It only offered about seventy different companies, so if you wanted other stocks you were out of luck
- It saved costs by engaging in batch trading, only going to the market once a day. You got the price at that time, not at the time you placed the order
- It did not offer IRAs
Last month Loyal3 investors were told that as of May 22, accounts would be transferred to FolioFirst, a low-cost brokerage firm that gives commission-free trades and allows the trading of fractional shares. FolioFirst offers 200 different stocks. However, it charges a fee of $5.00 per month. Right now, my Loyal3 account is about $1500 so $60 per year means a cost of 4% per year, which is much higher than the average mutual fund or ETF. I will not be moving to FolioFirst, and given the small size of my account, I didn't want to go to the hassle of moving the shares elsewhere, so I sold them.
Motif Institutes Yearly Fees
Motif Investing allows investors to purchase or sell a basket of stocks for one fee of $9.95. Until recently, that was the only fee charged by Motif. However, starting May 15, Motif accounts under $10,000 that have had no commission trades in the last six months will incur at semi-annual charge of $10. My Motif account is about $8200, so that cost is about .24%, which is in line with many mutual funds. I have decided to move my Loyal3 money to Motif, which will cover my fee for this six month time period. I'll probably add enough to bring the account over $10,000 to get it back to fee-free status.
While investing fees have definitely dropped over the last few years, the question is how low can they go and maintain a viable business. What's your favorite low-fee or free investment platform?