Online brokerage wants to make buying and giving stock as convenient as picking up a gift card at the grocery store
Back in 1981, when I turned 13, I had the enviable task of deciding what to with the money I’d received as gifts for my bar mitzvah. It was a grand total of about $1,200 – a princely sum that I thought should be invested in expanding my video game library. My parents, always ready with sage advice, suggested that I should invest it in the company that actually made the games. I capitulated, and thus my passion for Atari was translated into a handful of shares of Warner Communications, the company that owned Atari at the time.
Invisible to me however, was the process my parents needed to go through to make this transaction happen. It involved transferring money from my account to theirs (by physically going to the bank!), then contacting their stockbroker to buy the shares, doing some currency exchange from Canadian to U.S. dollars. Eventually – months later if I recall – I received paper-based stock certificates in the mail. I stared at them for a grand total of two seconds before my father whisked them away to put them in his safety deposit box at the bank. It was bewildering, and I can’t imagine how someone without my privileged upbringing could have done the same thing even if they’d wanted to.
Fast forward about 30 years and Avi Lele, a California based entrepreneur with an engineering degree from MIT and a law degree from Harvard, was still wrestling with a similar question. “I was Christmas shopping for my nieces and nephews,” he recalls. “Wouldn’t it be nice to buy them some stock?” But Lele quickly discovered that he would need a lot of personal info to open a brokerage account for the kids, a task made even harder because he wasn’t their parent or guardian. Then there was the financial outlay. Buying even a single share of the kids’ favourite companies was going to set him back hundreds of dollars. So in 2011, Lele founded Stockpile.com, a company that simplifies the process of participating in the stock market by making it as easy as buying an app from Apple.
“We wanted to make it easy and affordable for anyone to own stock,” Lele says, which led him and his team to exploit the most popular gift-giving option on the planet: In-store gift cards. The process couldn’t be easier: Pick a Stockpile gift card in amounts ranging from $25 to $100 (all figures in U.S. dollars), pay for it (there’s a $4.99 processing fee) and give it to anyone you like, even if they’re a minor. The recipient then heads to Stockpile.com, and after an account setup process – which Lele describes as something anyone can complete in three minutes – they redeem the value on the card for the equity of their choice.
“I love the idea of kids having access to this and learning about finance”
Minors must set up “custodial” accounts with the participation of a parent or guardian, but they get their own login info and can view the details of their investments at any time and even initiate transactions. An alert is immediately sent to their custodian, who can then approve or reject the request in real time.
For now, Stockpile.com is only available to U.S. residents, but Lele says he’s actively pursuing plans to bring the company to Canada within the next two years, possibly in partnership with an existing Canadian retail brokerage.
Of course, $25 wouldn’t be enough to buy even a single share of say, Apple Inc., but Stockpile lets its users buy fractional shares, an option that has existed for investors for a few decades, but which has been difficult to do because fractional shares cannot be bought directly the way whole shares can. Stockpile.com facilitates this by buying whole shares and then selling fractions of those shares to its customers. “It is the same thing as owning whole shares,” Lele says. “It’s real stock and you can transfer it to other brokerages.” Owning fractional shares even gives you access to dividends when they are issued, on a fractional basis. (So, for example, if Apple issues a $20 dividend per share and you own a quarter of an Apple share, you’ll get $5.)
While Stockpile isn’t actually exclusively aimed at the young, Lele says customers under the age of 30 make up half of all of Stockpile’s accounts, and that 20% are held by customers under the age of 18.
“If I like a company, I want to own a piece of it – you buy what you believe in”
Guy Anderson, a Toronto-based senior wealth advisor with Parkview Financial, thinks the Stockpile approach is perfect for getting kids and anyone else with little to no investment experience engaged in the stock market, and is impressed by Stockpile’s low fee structure: All stock trades (of any amount) are just 99 cents. There is no account fee, no minimum balance, and no charge for transferring money into and out of a Stockpile account. “I love the idea of kids having access to this and learning about finance,” Anderson says, “which is one of the biggest gaps in our education system.”
Anderson warns that while encouraging kids to invest is a good thing, putting the focus purely on buying the stock of brands they like is an incomplete investment lesson. “You have to dig deep,” he says, in order to really understand if a stock is good investment, something which the gift-card approach tends to minimize. Lele says it’s not all about investment. “It’s pride of ownership. If I like a company, I want to own a piece of it – you buy what you believe in.”
Anderson also points out that, low fees notwithstanding, Stockpile can’t give you the kind of diversified investment portfolio that represents smart money management. Bonds, for instance, are not offered on Stockpile and all of the equities are U.S.-based, which means you can’t broaden your investments to international markets. (There is, meanwhile, a handful of exchange-traded funds available.) Says Anderson: “There are very few of my clients for whom I’d recommend a 100% stock portfolio.”
However, equities are relatively easy to understand and not a bad place for young investors to start. Some of them are apparently showing a market savviness that belies their age – even to the point of grasping basic truths that herd-following investment professionals often miss. Lele tells the story of a 12-year-old who contacted the company during a recent economic downturn to transfer more money into her account. Her rationale: “The stock market is on sale right now!”