LOYAL3 Securities is a new entry into the discount stock broker arena, but much different than the other brokerage firms we’ve reviewed previously. With traditional stock brokers, you pay a commission every time you make a trade. You buy a stock; you pay a commission. You sell a stock; you pay a commission — you get the idea. With LOYAL3, all trades are free!
LOYAL3 has no hidden fees. That’s right, you don’t pay a penny for the buy/sell orders you make. LOYAL3 gets the company you are buying or selling to pay the transaction fees.
So the amount it costs LOYAL3 per transaction is very minimal. The company was founded in 2008 and has a total of $50.7 Million in venture capital, so they are currently very well capitalized.
LOYAL3 Securities, Inc. is member FINRA and SIPC. Obviously, since you are purchasing stocks there’s no guaranteed return and your investments are NOT FDIC insured.
How Does LOYAL3 Work?
Currently, you can invest a maximum of $20,000 per stock, per month with LOYAL3, but there is a maximum of $10,000 you can invest at any one time. For most investors, this should be more than enough since many stocks are more than $10, you can purchase fractional shares.
The signup process was quick and easy. In three steps, I was able to order Apple (AAPL) stock in less than ten minutes. You can place a one-time order or schedule monthly investments from $10 up $10,000.
Previously, you were able to use a credit card to invest. It was a neat little “hack” to not only invest, but to rack up credit card points in the process. They have since removed this feature and is no longer available. You can only make trades via a linked up bank account.
What Stocks Can I Invest in with LOYAL3?
As of April 2nd, 2015, here’s the list of stocks you can invest with LOYAL3. I have linked to a stock quote for more information on the company. Currently with LOYAL3 you can invest in sixty-four companies.
|21st Century Fox||FOX|
|Abercrombie & Fitch||ANF|
|American Eagle Outfitters||AEO|
|Buffalo Wild Wings||BWLD|
|Dave & Busters||PLAY|
|Dr Pepper Snapple||DPS|
|Santander Consumer USA||SC|
|Tim Hortons/Burger King||QSR|
|World Wrestling Entertainment||WWE|
How Does LOYAL3 Do This for FREE?
There’s no such thing as a free lunch, so this offer doesn’t come completely catch-free. The first limitation: orders aren’t completed in real-time. A stock purchase might take a day or so before it is batch executed. They do this to reduce the fees they pay for your order, by pooling all of their transactions into one big order.
I also suspect, another possible way they save on transaction fees is pool orders between customers within LOYAL3. This means if you are buying, say, Apple stock, it’s possible someone else within LOYAL3 also wants to sell shares of that same company at the same time. This saves them having to go onto the exchanges and becomes an internal accounting task.
Just be aware when purchasing you aren’t getting the best price of your purchase, nor can you time the purchase of your shares. If you are long-term investor, it shouldn’t make a huge difference. This service is NOT targeting active traders.
The trend in the industry is geared towards cheaper and cheaper execution costs. If you’ve been around long enough, you would remember twenty years ago, a discount broker was considered any trading fee that costs less than $50 per order. We’ve come a long way since then.
We’ve come close to the bottom of traditional trading fees without having to put restrictions on the order like LOYAL3 does. Also keep in mind this idea of free trades isn’t completely new. Many brokerage firms offer commission free ETFs.
In addition, there was a company called Zecco that allowed all trades to be free. A few years later they realized this freemium business model didn’t work and then restricted to a maximum amount of ten trades per month. Zecco eventually merged with TradeKing. I’m not suggesting LOYAL3 will have the same fate as Zecco — just that this concept isn’t completely unique.
The other limitation is the stocks available on their service. LOYAL3’s list currently comprises of 64 companies. Some are great long-term investments, like Coca-Cola (KO). While companies like the recently IPOed GoPro (GPRO) I wouldn’t touch with a ten-foot pole. Don’t expect diversification when using LOYAL3’s service.
While they are targeting beginner investors, I find it odd their service offers IPOs. It’s great they are encouraging individuals to own stocks, but IPOs are typically not something you should invest in when just starting out. Historically, IPOs are a risky bet and on average net losers.
It’s not widely known, but for many Fortune 500 companies, you can purchase their stock directly via a DRIP (otherwise known as Dividend Reinvestment Plans). Interestingly enough, I know ExxonMobil (XOM) offers a DRIP program but not listed on the LOYAL3 web site. Coca-Cola (KO), which is listed, does offer a DRIP program. I’m not sure how LOYAL3 selects the stocks or the companies, but it would make sense if they offered all of the dividend aristocrat stocks on their service.
- FREE Stock Trades – Did I mention that buying and selling stocks are free?
- Low Minimum Deposit – You only need $10 to start investing.
- Easy to Use Interface – Buying or selling Amazon’s stock is easier than placing an order on Amazon.com
- Automatic Monthly Stock Purchase Plan – Like DRIPs automatically invest per month a set amount to dollar cost average your investment. Unfortunately, you cannot invest automatically more than once per month.
- Fractional Shares – When purchasing a stock all of your money is invested and not rounded down to the nearest whole share.
- Focus on The Beginner Investor – LOYAL3 focuses on the beginner investor and requires little money to start
- Quick Cash Transfer – All cash transfers made from your checking account to your LOYAL3 account, including those for new purchases, will be completed in 1-2 business days. LOYAL3 has extended the cut-off time for deposits from 2pm ET to 4pm ET.
- iPhone App – You can make trades via your Apple iPhone or iPad.
- Limited Stock Selection – You can only pick from small amount of publicly traded corporations.
- No Retirement Accounts – While it’s great they are focusing on the beginner investor, no IRA accounts are available.
- No Investment Guidance – LOYAL3 doesn’t offer any way to asset allocation your investments.
- Delayed Buy/Sell Execution – Your order can take over one day to complete because they are batch traded.
- IPO Investments – I don’t understand why they are offering IPOs since beginner investors aren’t that target audience.
- No Android or Windows mobile app – Currently LOYAL3 has plans to create an Android app.
LOYAL3 is an interesting way to invest, since LOYAL3 doesn’t charge a fee for stock purchases. It’s a cheap way to get started investing in the stock market. Though currently the amount of stocks available is way too limited. Additionally, if LOYAL3 is targeting beginner/casual investors, I’m not sure why they are promoting IPOs. While IPOs are sexy, they are usually not appropriate for the beginner investor with little to invest.
LOYAL3 also doesn’t help with asset allocation — an important aspect for long-term success. Betterment in my opinion is a better option for beginning investors than LOYAL3.
Unfortunately LOYAL3 doesn’t offer retirement accounts, so any investing you are doing it should be with mad money. They did create a DRIP style of investing service in a nice slick web interface and made it super easy to invest in stocks. I would increase my rating of LOYAL3 if they offered much more investing options, and investment guidance to the beginner investor.
Disclosure: For purpose of testing I have opened an account with LOYAL3 and invested $100 with their service.