Many retail investors have complained over time that buying some of the market’s greatest stocks is just too difficult or too expensive for them to buy into. The notion of fractional ownership is nothing new in many assets, and it’s not entirely new when it comes to stocks. While not new, fractional stock ownership in batches of $5, $10 and $100 at a time is just not that common.
Charles Schwab Corp. (NYSE: SCHW) is looking to bring the ability for any size investor to buy stocks at almost any incremental prices. The firm was the first of the original electronic brokerage firms to offer commission-free trading in stocks regardless of the size of shares. Now the firm is introducing the Schwab Stock Slices program to allow any investor to buy stocks within the S&P 500 Index 1 to 10 individual slices at a time, and the share price is shown to be commission-free just as if it was a full share of stock.
Charles Schwab may not be bringing in untold billions of dollars of new assets each month as a result of this new effort. That said, the firm is joining in with other firms in an effort to help create and lock in a new generation of future investors that it can count on as clients ahead.
By allowing the purchase of fractional shares, Schwab is going to force any of the other electronic brokerage firms to allow fractional share buying in stocks if they have not already begun. Some brokerage services and other online efforts already do offer this service.
The Stock Slices service will allow investors to sort and search companies by their stock ticker, company name or by their sector. Investors will also be able to create their own baskets of Slices based on their own goals and the brokerage plans to allow customers to use stock screeners and the firm’s own equity research.
As investors select a single stock or their own basket, a total dollar amount is invested evenly in each stock. The shares will then be rounded as narrowly as four decimal places for each fraction of a share. Schwab confirmed in its release that a $50 basket purchase of five stocks would translate to a $10 purchase of each of the five stocks. The order would then show the number of shares or the fraction of each share that $10 would buy based on stock prices at the time of execution.
And for a more detailed hypothetical effort using the Stock Slices, a $25 purchase would allow the investor to own fractions of shares in Apple, Amazon, Facebook, Google and Netflix all at once. The firm also identified the problem that has existed for years: buying just one full share of each would cost a combined amount of close to $4,500.00 at current prices. Investors can also buy into other hot stock baskets or choose among some of the top Warren Buffett stock picks as well without having to buy Berkshire Hathaway shares.
The Stocks Slices program can also be used in Schwab custodial accounts. That means that the Slices of shares can be given to your own children or others. The custodian of the account may purchase Slices in small dollar amounts the same way they would purchase shares in a traditional brokerage account, and the program allows for a downloadable stock certificate of ownership that can be personalized and given to the beneficiary.
This program was slated to launch on June 9, 2020.
Jonathan Craig, senior executive vice president and head of Schwab Investor Services, said:
At Schwab we believe stock ownership should be accessible – this is the premise on which Chuck founded our company, and it remains true today. But getting started as an investor can be overwhelming, and often those stocks that are most relevant and appealing are also the most expensive, and out of reach for many. With the introduction of Schwab Stock Slices we’re leveling the playing field – across all retail channels that clients can trade stocks, they can now buy slices of stock.
Again, this is not something that will likely create massive amounts of revenues for Schwab each months. It does help to lock in existing customers who choose to use the firm’s services as well as creating a new wave of future investors.