Although not new, investing in fractional equity shares is rapidly gaining more attention from financial service disruptors, both old and new. On Thursday, Robinhood announced in a blog post that it would be offering fractional shares, along with a dividend reinvestment plan and recurring investments. Meanwhile, Charles Schwab’s Bernie Clark, EVP and head of the firm’s Advisor Services division, said that fractional share investing had long been considered, and was a “passion” for founder Charles “Chuck” Schwab as he thought about ways to bring easy access to investments for a broad base of clients. Schwab publicly revealed in October that it was considering offering the ability to trade fractional shares to the platform; the firm already facilitates dividend reinvestment plans.
Apex Clearing, the custodian firm behind many of the automated advice platforms, or so-called robo advisors, offered fractional trading in 2018. Interactive Brokers announced an ability to for advisors to trade fractional shares last month, as did Altruist, the nascent custodial and technology platform for smaller registered investment advisors.
Both Robinhood and Schwab are positioning the move as a way to get new investors to their platforms. “Our mission is to democratize financial services,” noted Robinhood. “Our Fractional Shares feature provides unique investing opportunities to people who might not otherwise be able to participate in the stock market.” Robinhood will let clients invest with a minimum of $1.
Meanwhile, Schwab sees fractional shares as a next-gen play, particularly for advisors. “We all know that advisors have multigenerational relationships. I think it's an opportunity to involve individuals there,” said Clark. “It becomes de facto a nice part, potentially, of digital offerings that we can have.”
“I think you'll see it on the gifting side in many cases,” he added. Fractional shares make it possible to totally invest whole-dollar amounts, or make uneven regular contributions to an account, without the side effect of calculating the investment amount across a purchase price of whole shares and keeping the change leftover in cash. "There's a host of different things," he said.
Clark noted that fractional share investing has long been on the drawing board but was bumped by other priorities, including its robo advisor. He wasn’t sure if advisors or retail clients would have first access to fractional shares, but that it would eventually be available to both retail and RIA clients.
Mike Durbin, president of Fidelity Institutional, told Wealthmanagement.com that fractional trading is on Fidelity's drawing board too but would likely be offered to retail clients first before being rolled out to advisors on the platform.