Schwab Allows Sale Of Fractional Shares -- WSJ

By Lisa Beilfuss 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 18, 2019).

Charles Schwab Corp. will let investors buy and sell fractions of shares in coming months as part of an effort to attract younger clients to its online brokerage platform.

Founder and Chairman Charles R. Schwab told The Wall Street Journal Thursday that fractional share trading would soon be introduced, along with several other new programs, as the online brokerage looks ahead after it eliminated trading commissions earlier this month. Mr. Schwab discussed the firm's future after speaking about his new book, "Invested, " in New York.

"I wanted to take commissions out of the formula," Mr. Schwab said. "We've been on that path for 40 years," he said, reflecting back on the company's start as one of the first discount brokerages.

Now, Mr. Schwab said the company is focusing on efforts to expand access to investing, particularly to young people.

Schwab's decision to scrap trading commissions followed a similar move by Interactive Brokers Group Inc., and it prompted rivals TD Ameritrade Holding Corp. and E*Trade Financial Corp. to swiftly match.

With commission-free trading now the norm, e-brokers must find new ways to attract clients who might boost other parts of the business -- such as banking or financial advice -- and who could become more lucrative as their investments grow.

Schwab's move would be the first by a major online brokerage to allow investors to buy and sell fractions of stocks. Some of the most well-known and popular companies have high price tags, making owning a share impossible for some would-be investors. A share of Amazon.com Inc., for example, costs around $1,794.

In addition, fractional shares can help younger and less-wealthy investors diversify their investment portfolios by spreading relatively small pots of money over a broader range of stocks.

"It's about widening the net," said Richard Repetto, a brokerage analyst at Sandler O'Neill + Partners LP. Allowing clients to own slivers of companies reflects Schwab's emphasis on bringing in new customers that can develop into more profitable accounts over time, Mr. Repetto said.

When Schwab said this month that it would forgo trading commissions, it acknowledged competitive pressure from new entrants. Digital upstarts such as Robinhood Markets Inc. helped popularize the zero-commission model in the online-brokerage business, attracting millions of young clients through trading apps.

Fractional trading is already offered by a handful of newer online brokerages. One such company is M1 Finance LLC, a Chicago-based company that splits every share of stock into 1/100,000 of a share. Brian Barnes, M1's chief executive, said clients trade about 250,000 fractional shares a day. In comparison, E*Trade's clients trade an average of 268,000 shares a day.

Financial-technology startup Social Finance Inc. has also waded into fractional share trading. It launched its fractional trading program in July, after noticing some clients delayed investing and chose companies based on share price, rather than fundamentals, it said.

Schwab didn't specify when the program would launch or elaborate on plans for other new programs meant to woo young clients. "We're constantly working on new services designed to appeal to our evolving client base," a spokeswoman said.

Write to Lisa Beilfuss at [e-mail]

(END) Dow Jones Newswires

October 18, 2019 02:47 ET (06:47 GMT)

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