Fidelity adds fractional share trading to retail online brokerage
The company is gauging adviser demand before making the capability available on Fidelity's custody and clearing platform
Fidelity Investments’ retail-facing online brokerage platform now supports fractional share trading.
Beginning Wednesday, investors using Fidelity’s mobile app can now buy or sell in increments as small as 0.1% of a share of an exchange-traded fund or equity. Fractional trading, which Fidelity also calls “dollar-based investing,” will be available in retail brokerage accounts, individual retirement accounts and health savings accounts.
The feature will not be available immediately to financial advisers using Fidelity Institutional’s custody and clearing platform. Fidelity vice president of communications Nicole Abbot said in an email that the company is “currently gauging demand for this capability from advisers and working with them to address how we can meet their specific trading needs.”
Scott Ignall, head of Fidelity’s retail brokerage business, said dollar-based investing will make investing more accessible. For example, someone with just $500 to invest can buy a piece of the most popular, and most expensive, stocks, like Apple or Amazon. Or they can diversify by putting just $100 into five different stocks.
“Customers can now own a piece of their favorite companies and ETFs based on how much they want to invest, independent of share price,” Mr. Ignall said in a statement.
Fractional share trading, in combination with commission-free trading, which Fidelity implemented in October, allows investors to take advantage of dollar-cost averaging, which divides the total amount a person wants to invest across periodic purchases of a stock or ETF. A person could have $50 from each paycheck automatically directed into a brokerage or retirement account.
Fractional trading is the latest trend sweeping through the brokerage industry as firms look to bring on smaller, younger investors. Charles Schwab announced plans for fractional trading in late 2019, though it has not specified when it plans to make it available.
[More: Schwab has no plans to bring fractional shares to its adviser platform]
Several digital startups, which have proven popular with millennial investors, already support fractional trading. Robinhood, a mobile brokerage app that topped 10 million accounts in 2019 and offered commission-free trading long before firms like Schwab or Fidelity made the move, began supporting fractional share trading in December. Competing digital brokerage Motif Investing offered fractional trading even earlier.
Several robo-advice startups, including Betterment, Acorns and Wealthfront, also use fractional shares in order to offer managed portfolios with low or no minimum account requirements.
[More: More consolidation coming in online brokerage market]
To differentiate its offering from what is already available on the market, Fidelity said fractional trades will be executed in real time during market hours, as opposed to other firms that execute fractional trades at the end of a trading day or wait for multiple orders to add up to a full share.
Fidelity also pointed out that it has a higher cash sweep rate than other online brokerages and forgoes payments-for-order flow. The Financial Industry Regulatory Authority Inc. recently said it plans to probe cash sweep programs at brokerages, and, in December, fined Robinhood $1.25 million for order-flow procedures.
“Fidelity’s size, private structure, and leading positions across various marketplaces (including retail, institutional and intermediary) are unmatched in our industry and put us in a unique position to deliver greater value to our customers,” Mr. Ignall said. “In addition, customers have access to unmatched stock and ETF research to confirm or generate new investing ideas.”
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