Around the Brokerage Industry: LOYAL3

by on Oct 30, 2014

loyal3_logoCI’s Around the Brokerage Industry series reviews public websites and digital resources offered by leading brokerages and investment firms that fall outside of our E-Monitor and Broker Monitor coverage groups. 

LOYAL3 is an untraditional San Francisco-based brokerage firm with a unique business model that offers fee-free investing to the average investor. By partnering with public companies and selling their stocks, LOYAL3 receives compensation from its partners as opposed to investors. Individual stocks can be purchased for as little as $10, and IPO stocks can be bought for as little as $100. The firm’s main “claim to fame” is its ability to offer IPOs to small investors at the same time as the traditional high net-worth and institutional investors.

Homepage and Navigation

The firm’s homepage is easily navigable, clearly laid out and features a contemporary white and light blue color scheme. A video describing the firm’s business model and investment offerings is provided, in addition to a fee comparison chart table, customer testimonials and a field in which users can provide their email in order to be notified when IPOs are available. A corresponding video describing the definition of IPOs is also provided, along with basic information about them and another video featuring LOYAL3 CEO Barry Schneider discussing how the firm is able to provide fee-free stocks. Three links are provided at the top – Browse Stocks, Browse IPOs and an About Investing dropdown menu – that lead to stock offering information, another email address field to get notified about available IPOs, and product-dedicated information and help sections, respectively.

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LOYAL3 Public Site Homepage (Truncated)

Stock Purchasing and Selling Process

The firm’s stock offerings vary across 62 well-known public companies in a variety of sectors, including Gap, HubSpot, McDonald’s, Kate Spade and Time Warner, among others. Users can browse through companies and select an investment amount directly on the public site. It should be noted, however, that no company research or prospectuses associated with the companies are provided by LOYAL3. In order to pick a company in which to invest, users must first navigate to the Browse Stocks section where they can view all stocks on offer in either tile or list format. Once they select a firm/stock, they are directed to a screen from which they can view a description of the company selected (including NYSE price information), choose an amount to invest ($10, $25, $50 or custom amount up to $2,500) and select a monthly or one-time investment type. Once an amount is selected, users are provided with a form that requires their contact and payment information in order to create an account and purchase the stock. Stocks can be purchased with credit/debit cards or a linked checking account.

Once a client places a stock order and his/her payment is confirmed, the order is batched with others (known as “batch trading”), and all orders within the batch are executed simultaneously. To ensure that sell orders are executed the same day they are created, clients must place the order before 2:00pm EST on a regular market trading day. Sell orders placed after 2:00pm EST on a market day or weekend, holiday, or market half day are executed after 2:00pm EST the following business day.

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Public Site Browse Stocks Section (Truncated)
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Purchasing Amount Selection Screen

IPO Participation Process

In order to be notified about an upcoming IPO, users must provide their email addresses on the public site. They must first read the investment details, estimated price range and prospectus associated with the IPO, and must also complete the enrollment process. Next, they are prompted to select a maximum investment amount between $100 and $10,000 per IPO. LOYAL3 notes that the amount of stock received by the investor depends on the final allocation from the company and the total number of participants in the IPO. Finally, users are directed to the private site countdown clock, which reveals the final price of the IPO upon hitting zero. If the final IPO price is below the estimated range or above the range by more than 20%, users have a two hour window to confirm the reservation or it will be cancelled. Users can keep updated on the changes to the prospectus or the date and time the final price gets set on the firm’s private site or via its Twitter and Facebook pages. Frequent updates regarding IPOs and new stock offerings are posted on both social media platforms. It is noted throughout the public site that participation in an IPO is on a first-come, first-served basis.

Sample_IPO_Updates_–_LOYAL3_Twitter_Page

Sample IPO Updates – LOYAL3 Twitter Page

Concluding Thoughts

In the interest of providing a balanced review of LOYAL3’s business model, it is necessary to point out its shortcomings. First, the firm’s “batch trading” methodology projects a certain amount of risk on the investor as orders are not executed at the exact time they are made. Second, while the firm does not claim to offer more in terms of product offerings than it does, from an investor stand-point, investing only in “big brand” stocks can be considered somewhat undesirable as it does not allow for sector diversification to mitigate risk.

On the positive side, LOYAL3’s premise of making IPOs accessible to groups other than high net-worth individuals and institutions, and providing fee-free stocks, endears it to the millennial population. Not only do the low product costs appeal to younger investors, the easily comprehensible and extensive investing education materials provided on the public site allow first-time investors to understand both investment products specifically and the market as a whole. An entire public site section – New to Investing – provides detailed information in both video and text formats about how the stock market works, how stock price is determined, the basics of IPOs, etc. As a whole, the firm’s well-designed public site, the “coolness” factor of the companies that partner with it and, most importantly, its low-cost stock and IPO offerings make LOYAL3 a unique and formidable force in the battle to attract millennial investors.