Tuesday, May 9, 2017

From Free to Fee


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? 

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