LOYAL3 Review: Making Stock Investing Fun And Easy

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While browsing the Internet in search of insightful investment information to set up my brand new portfolio, I stumbled on the website of LOYAL3, an American discount brokerage firm that targets beginning investors by:

  • Simplifying the stock buying process to a couple of clicks, in order to make investment and Initial Public Offerings (IPOs) more accessible.
  • Creating a bond between everyday customers and their favourite brands, by making it possible to invest as little as $10 in the top 50 brands on Facebook.

How LOYAL3 works

LOYAL3 structures special deals with companies offering direct stock purchase plans. They call those deals Social Stock Plans. This allows investors to purchase stocks from the partnering companies on LOYAL3’s Internet platform. LOYAL3 makes money by charging fees to companies that they partner with and through its role in IPOs.

Advantages of investing with LOYAL3

If you want to invest on the stock market but you are still a bit lost in the process of opening a regular brokerage account, LOYAL3 provides several advantages to you:

  1. User-friendly investment platform: When a company offers a direct stock purchase plan (DSPP), you can purchase stocks from that company through their agent while paying a small (sometimes zero) commission compared to brokers. However this task can be quite cumbersome if you have to open accounts with several agents just to buy stocks from companies you have targeted. LOYAL3 provides a single user-friendly platform giving you access to several companies that offer DSPPs.
  1. No transaction or management fees: Contrary to regular brokerage firms, LOYAL3 does not charge any fee when investors buy or sell stocks. Fund transfers from and to your LOYAL3 account are also free.
  1. You can trade fractional shares: We all would want a piece of Google or Apple in our portfolio, if it wasn’t so dang expensive! At the time of this article, those companies sell respectively for $1,032 and $520 per share. LOYAL3 understands this might not be accessible to everyone, so they allow you to invest as little as $10 to buy a fraction of a share. You can even sell your fractional positions on the platform (but you can’t sell a fraction of your fraction!).
  1. Easy access to IPOs: When a company issues stocks on the securities market for the first time (IPO), usually only institutions and large investors can buy them. But, now with LOYAL3, small investors can access certain IPOs, no matter the size of their wallet. Note that IPO participation requires maintaining a $350 minimum cash account balance.
  1. LOYAL3 is social: Chances are your favorite brands are part of the 50 most liked brands on Facebook. Examples are Coca-Cola, Burger King and Twitter. LOYAL3 provides you with a social network experience, which enables you to buy those stocks right from the companies’ Facebook pages.
  1. You can trade with your credit card: Although I do not advise this option, you can trade on LOYAL3 with your credit card. Brokers do not generally offer this option.

Disadvantages of investing with LOYAL3

Though I was charmed by the concept this startup came up with, I soon noticed several shortcomings compared to other brokerage firms:

  1. Lack of diversification: At the moment, only 53 stocks are available on LOYAL3’s platform. This is probably because companies have to offer a DSPP and be willing to enroll in LOYAL3’s Social Stock Plan. Plus, investing in individual companies can be risky. You want to avoid putting all your eggs in the same basket by diversifying your portfolio with other asset types like bonds, ETFs, or mutual funds. Unfortunately LOYAL3 only offers stocks of specific companies.
  1. Trades are not handled on a real-time basis: Because LOYAL3 uses batch trading (i.e. they batch all the orders and execute them once daily), the share price at the time of the execution of your trade may be different than the price at the time you placed your order. Therefore the platform is not suited for you if you want to make money on short-term variations of a stock.
  1. Lack of investment advice: Today, competitive discount brokers offer extensive investment education to beginning investors, LOYAL3 lacks this.
  1. The platform does not support retirement accounts. At this time, you cannot benefit form tax advantages provided by IRAs by opening a LOYAL3 account.
  1. Not ideal for a long term investment strategy: If the idea is to start or improve your lifetime savings, I would personally advice a more traditional approach for now. Watch this video for investment tips for beginners. (Subscribe here for more videos)

LOYAL3 Review: Conclusion

LOYAL3 is a very young company. It was founded in 2008 and is still getting venture capital funding. Today the startup does not add much to a financial service industry where brokerage firms have become much more accessible and competitive. However I believe there is a bigger vision represented here. Indeed, if you spend money on a Starbucks coffee everyday, you would be better off getting some ownership of that company (i.e. you benefit when the company makes money). Now imagine a world where every security would be accessible through a simple click on Facebook. Then maybe companies’ stocks would be valued more upon customer satisfaction rather than speculative trading practices. Pretty way to rethink the financial system!


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