The Internet age has radically changed the nature of investing, giving rise to low-cost online brokerages that cut out the middleman and allow nonprofessional retirement investors to buy and sell stocks, bonds, mutual funds, exchange traded funds, options, futures, and commodities. Sharebuilder is one such online brokerage.
As one of the oldest online trading platforms, Sharebuilder has been in operation for nearly 20 years, and is now a subsidiary of Capital One 360. Like other brokerages, Sharebuilder is a member organization of the Securities Investor Protection Corporation (SIPC), a public corporation that compensates investors for losses of cash and securities in the event that their brokerage declares bankruptcy. SIPC provides $250,000 in insurance for cash balances held in your brokerage account, and $500,000 in insurance for securities, with a total insurance cap of $500,000 in combined cash and securities.
History of Sharebuilder
Seattle-based Sharebuilder, originally known as NetStock Direct, was founded in 1996. From the beginning, the service was envisioned as an efficient intermediary through which retail investors and investment professionals could buy and sell securities without using a human broker to place the trade. Customers are entirely self-directed, performing their own research and executing their own trades.
In late 2007, ING Direct, an online banking subsidiary of the ING Group, bought Shareholder for more than $200 million. When Capital One Financial Corporation purchased ING Direct in 2012, Sharebuilder was included as part of the deal. It now serves as Capital One 360′s online investing platform, complementing the full range of banking and lending services that Capital One 360 – which includes the entire ING Direct portfolio – offers.
Sharebuilder’s key features include:
- Individual Retirement Accounts. Sharebuilder offers traditional and Roth IRA accounts for individual customers. You can open a new account by depositing cash – with no minimum deposit or balance requirements - from an outside bank account, or roll over an existing IRA from another institution. You can use the funds in a Sharebuilder retirement account to buy and sell stocks, ETFs, mutual funds, options, and bond funds. Although the equities in your IRA aren’t insured by the FDIC, cash balances up to $250,000 are. And your actual investments in your account are insured through the Securities Investor Protection Corporation (SIPC) up to $500,000.
- Small Business 401k Accounts. Unlike some other low-cost brokerages, Sharebuilder allows small business owners to open 401k plans for their employees. The company gears its plans towards businesses with 50 employees or fewer, including sole proprietors. Employers can contribute up to $52,000 per employee on a tax-deferred basis, meaning the contribution doesn’t incur income tax until withdrawal. Employees themselves can contribute up to $17,500 per year until age 50, after which they may contribute up to $23,000 until retirement. Sharebuilder’s 401k fund expenses amount to less than 1% of the amount invested.
- Automatic Investing. This unique feature allows you to schedule automatic investments in more than 7,000 stocks and ETFs for a cut-rate commission of $3.95 per trade – a savings of 40% on the regular per-trade commission of $6.95. After selecting your preferred security (or securities), determine the dollar amount that you’d like to invest, choose a market or limit price order, and specify whether you’d like to invest on a weekly or monthly basis. All automatic Sharebuilder trades are executed on Tuesdays. If you don’t have sufficient funds to complete an order at the specified time, you won’t incur a penalty – the order just won’t be executed.
- Access to IPOs. Sharebuilder allows regular investors to get in on IPOs (initial public offerings), which are the first share offerings of newly listed companies. The platform’s IPO Center serves as a clearinghouse and research center for upcoming offerings. Sharebuilder is careful to note that its IPO-leveraging tools don’t guarantee that its customers will actually be able to purchase IPO shares, since pricing on these transactions tends to be extremely volatile and traders must act quickly to adjust their offers on the day of the IPO. For alert traders who have a high tolerance for risk, this can be a useful tool that isn’t uniformly available at low-cost brokerages. For instance, Scottrade’s customers have no way of participating in the IPO market.
- Low Commissions on Mutual Funds, Bond Funds, and ETFs. Sharebuilder customers can buy and sell stocks, mutual funds, bond funds, options, and ETFs (which are baskets of securities that typically track underlying indexes, aren’t actively overseen by fund managers, and trade on stock exchanges) in multiple ways through its online platform. Using Sharebuilder’s Multiple Order Entry function, you can place up to six orders at once. The platform also has more than 1,000 no-load mutual funds – funds that are offered commission-free by the company that administers them - and about 500 bond funds. Regular trades cost $6.95 per execution, although automatic investments cost just $3.95 per trade. Trades that tap cash from non-Capital One 360 accounts while leveraging Sharebuilder’s Express Funding feature cost $13.90.
- Options Trading. You can use Sharebuilder to trade put (a contract that gives you the right to sell a stock at a specified strike price) and call (a contract that gives you the right to buy a stock at the contract’s strike price) options on stocks and ETFs. The platform offers a research tool that lets you find options based on a variety of factors, including strike price, expiration date, and underlying stock. It also features an expiration date calendar and an options calculator that offers advanced analytics that help investors refine their options-trading strategies. Each options trade costs $6.95, plus $0.75 per contract.
- Tax Help and Statements. Sharebuilder’s tax center feature lets you monitor the tax implication of your account activity. Its gain-loss reports show exactly how much you’ve earned or lost on each transaction during a given tax year, as well as the cost basis for each position that you’ve held. Its 1099 tax forms page includes 1099-B (proceeds from profitable sales), 1099-INT (proceeds from interest), and 1099-DIV (proceeds from dividends) forms for each tax year. Although you can opt to receive these documents by mail, it’s useful to have them online as well.
- Self-Directed Research Tools. Sharebuilder has research tools for all of the securities available through its platform, including stocks, mutual funds, bond funds, options, and ETFs. For mutual funds and bond funds, you can use variables such as fund type, fund risk, five-year return, independent analyst ratings, and expense ratio to screen for securities that fit your investing preferences. You can also use these tools to find individual stocks based on relative valuations (“Basement Bargains”), analyst recommendations (“Highly Rated Performers”), dividend profile (“Divvy Up the Dividends”), and industry. Sharebuilder also lets you find stocks, mutual funds, and ETFs – not options or bond funds – with an investment screening tool that creates customized searches based on criteria like current price, 90-day average volatility, listing exchange, home country, and whether the security accepts Sharebuilder’s automatic investments. You can save these searches and refer back to them when you’re looking to purchase securities that meet specific criteria.
- Access to Market and Company News. Sharebuilder’s Research tab also has a comprehensive suite of market-watching tools. The Heat Map graph feature allows you to compare stocks, ETFs, and mutual funds within various categories, including market cap, sector, yield, and analyst ratings. By customizing your search, you can narrow these categories to include just a few securities or expand them to cover entire sectors of the market. Meanwhile, the Market Movers section displays stocks and funds that exhibit unusual trading volume, volatility, or gains and losses within a given trading day. There’s also a regularly updated news section and an events calendar that includes upcoming dividend payments, stock splits, and earnings reports.
- Express Funding Option. Sharebuilder’s Express Funding tool is unusual among online brokerages. It allows you to make purchases for an individual, joint, or retirement account without first depositing the funds necessary to back it up. Once you make your purchase, Sharebuilder draws the funds from a checking or savings account that’s tied to your Sharebuilder brokerage account. If the tied account lies outside of the Capital One 360 ecosystem, Express Funding trades cost an extra $6.95. This comes on top of the $6.95 commission for non-automatic trades, bringing the total cost of the trade to $13.90. Express Funding transactions that use Capital One 360 checking or savings accounts don’t include this additional charge. Sharebuilder allows you to have $5,000 in outstanding Express Funding trades at any given time. Once each transaction posts, its value drops off of this outstanding balance, freeing up space for additional trades.
- Comprehensive Mobile Platform. All of Sharebuilder’s key features are available on a mobile platform that works with smartphones and tablets. The smartphone platform is compatible with iOS, Android, and Blackberry devices. The tablet platform works on the iPad and Kindle Fire, making it one of the few mobile trading platforms – E*TRADE and Schwab are the only two others – that work on Amazon’s e-reader.
- Bonuses for New Accounts. Like many online brokerages,Sharebuilder offers account bonuses for investors who open new brokerage or retirement accounts with the company. First, there’s a $50 account opening bonus for anyone who opens a new brokerage account, funds it in any amount, and makes a trade. A similar promotion applies to new IRA accounts, although thesemust be funded with at least $5,000 to earn the $50 bonus. For larger accounts,Sharebuilder offers a graduated bonus scale that throws off progressively larger payouts for larger deposits:
- $100 for a $10,000 deposit
- $200 for $25,000
- $300 for $50,000
- $600 for $125,000
- Recurring Automatic Investments. Sharebuilder allows account holders to make low-cost automatic investments on a weekly or monthly basis. Although share purchases are limited to 7,000 participating equities – including many blue-chip stocks - and may only be made on Tuesdays, there’s no minimum investment amount, and it’s possible to edit orders until 5pm on the day before the scheduled trade. Customers have full discretion over the equities (and amounts) that they purchase, and each trade costs just $3.95 – about 40% less than the cost of a manual trade.
- Over-the-Phone Trading. Although the vast majority of its trades occur through its online platform, either as manual or automatic transactions, Sharebuilder does offer affordable phone trading for clients who might not be comfortable making trades on their own, without human help - or who don’t have access to a computer or mobile device during trading hours. These trades are placed by representatives who work for Sharebuilder. Phone trades cost $19.95 and may be made between 8am and 11pm EST, Monday through Friday.
- No Minimum Deposits for New Accounts. There’s no minimum deposit required to open a Sharebuilder brokerage account.
1. Attractive Pricing
Even among low-cost online brokerages, Sharebuilder has a reputation for relatively low commissions and fees. Commissions are $6.95 to trade stocks, options, mutual funds, ETFs, and bond funds, although options have an additional cost of $0.75 per contract. These commissions are lower than direct competitors like Scottrade ($7), Fidelity ($7.95), and Wells Fargo ($8.95).
Some brokerages, such as TradeKing, appear to have lower commissions -$4.95, in TradeKing’s case. But traders can only buy stocks for this price; TradeKing customers who wish to buy mutual funds on the platform must pay $9.95 for each trade.
Only LightSpeed Web Trader and Interactive Brokers have significantly lower commissions across all equities, although their hefty starting deposits – $25,000 for the former and $10,000 for the latter – may be unattractive to novice or low-net-worth investors. Interactive Brokers also charges account holders a $120 annual maintenance fee, further eroding its attractiveness to investors who don’t want to invest much or trade often.
2. Bonuses for New Accounts
Other brokerages offer new-account bonuses, but few are as generous to smaller investors as Sharebuilder’s. For instance, Scottrade offers a flat $100 bonus for any new brokerage account that’s opened with a $10,000 minimum deposit. On IRAs, it offers $100 for a minimum deposit of $50,000, clearly favoring large investors. Other brokerages have scales that seem similarly stingy in comparison to Sharebuilder.
3. Links With Capital One 360 Bank Accounts
As a subsidiary of Capital One Financial Corporation, Sharebuilder account holders benefit from the brokerage’s close association with Capital One 360′s banking services. You can tie your Sharebuilder brokerage account directly to a Capital One 360 checking or savings account, making it easier to transfer trading profits out of your brokerage or fund your account without tapping outside funding sources or incurring transfer/wire fees. By allowing you to automatically draw on your bank accounts to buy equities in your brokerage account, the Express Funding feature further strengthens the connection between your banking and investing operations.
Capital One 360′s high-yield checking and savings accounts offer competitive interest rates of up to 0.8% on checking accounts and 0.75% for 360 Savings. By contrast, Scottrade Bank offers a negligible return (0.01%) on funds held in its money market account, which is the de facto holding place for cash funds that aren’t currently invested. As such, Sharebuilder customers with Capital One 360 accounts can more easily earn superior returns on cash funds earmarked for investing relative to clients of brokerages that lack connections to robust, interest-paying bank accounts.
4. Retirement Options for Small Business Owners
Many low-cost brokerages, including well-regarded competitors such as Scottrade and TradeStation, only offer individual IRAs. Sharebuilder is one of the only brokerages at its price point – sub-$7 base commission – that offers 401k options for small businesses. Even some pricier brokerages that market themselves as full-service alternatives to discount brokers – a category that includes TD Ameritrade and Fidelity – lack specific 401k plans for small business owners. Sharebuilder’s decision to offer this product makes it very attractive for business owners who don’t want to pay a professional investor to manage their employees’ retirement funds.
5. Recurring Automatic Investments
Some other brokerage firms offer automatic investment programs, but Sharebuilder’s $3.95 commission is more affordable than what traders can find elsewhere. Others offer dividend reinvestment programs (DRIPs), but these generally come with onerous restrictions. For instance, you can only reinvest a dividend payment in the equity that issued it.
6. Affordable Phone Trading
Sharebuilder’s phone trading service is far more affordable than that of many competing brokerages. Whereas each Sharebuilder phone trade runs $19.95, TD Ameritrade’s service costs $34.95 per trade. Scottrade’s will set you back $32.
7. No Account Minimum
Many low-cost online trading platforms (such as TradeKing, Thinkorswim, and MerrillEdge) waive minimum deposits for new accounts. However, close competitors like Scottrade, TradeStation, and E*TRADE all require minimum deposits of as little as $500 to as much as $5,000. Interactive Brokers and Lightspeed Web Trader both require five-figure opening deposits, but those platforms both cater to professional day traders and partially offset this requirement with low or nonexistent trading commissions.
8. Express Funding Is Unique Among Online Brokerages
Sharebuilder’s Express Funding feature eliminates the need to transfer funds to your brokerage account before filling a buy order. By linking your Sharebuilder account directly with an outside bank account – or a Capital One 360 bank account, which eliminates the additional $6.95 fee for Express Funding - this tool basically turns your bank account into an extra source of cash for your investing activities.
Although Express Funding includes a $5,000 limit on outstanding transactions, no other discount brokerage has such a feature. Most brokerages do offer real-time inbound transfers that allow you to trade with transferred funds almost immediately after initiating the deposit, but this still requires an extra step on your part.
1. Little Support From Human Professionals
Sharebuilder’s customer service team is available between 8am and 9pm, Monday through Friday. The folks who answer the phones at Sharebuilder’s call center are generally friendly, helpful, and knowledgeable about the platform.
However, unlike some members of the support staff at full-service online brokerages such as TD Ameritrade and Fidelity, Sharebuilder’s customer service executives aren’t financial professionals. Investors who want advisors to actively manage their accounts or deploy customized advice about their portfolios and investing goals, or who need help executing complicated investment strategies (such as advanced options spreads) should probably turn to a different brokerage.
2. No Access to Individual Bonds
Unlike Scottrade, TD Ameritrade, Fidelity, and some other discount and full-service online brokerages, Sharebuilder doesn’t have any facility for individual bond purchases. The company frames this as a customer-friendly move that reduces risk and eliminates the complexities of individual bond buying – and it’s true that new or low-net-worth investors may have little reason to purchase individual corporate or Treasury bonds. However, experienced investors who want the freedom to purchase individual corporate or government bonds through their brokerage account won’t find it at Sharebuilder.
3. Account Holders Can’t Sell Stocks Short
Sharebuilder doesn’t allow its account holders to sell equities short under any circumstances. Short selling is a relatively risky strategy by which experienced investors can profit from falling stock prices. Unlike long investing, whereby investors buy shares of a stock at a low price in the hopes of selling them later for more money, short selling involves borrowing shares of a stock in order to sell them at a specific price, then using a portion of the proceeds from that sale to repurchase them in the future at a lower price.
The short seller’s profit is equivalent to the spread between the initial sale price and the (hopefully lower) buy price. Since short selling represents a bet that the price of a stock will fall, it can backfire when the target stock’s price rises. As such, it’s decidedly not recommended for novices.
Unlike Sharebuilder, Scottrade, TD Ameritrade, and Fidelity all allow account holders to execute short sales. Sharebuilder does offer qualified investors (you have to apply for privileges) the opportunity to open margin accounts, which allow traders to leverage their accounts by borrowing up to double the amount of cash that they currently have available for trading. But it only allows this for long trades.
4. Restrictions on Real-Time Quotes
Real-time quotes are an integral feature of most online brokerages, including Sharebuilder competitors Scottrade and TD Ameritrade. Although Sharebuilder claims to offer real-time quotes, past customers have claimed that these quotes are actually delayed, and that quoted prices don’t accurately reflect bid-ask spreads (the difference between what buyers are willing to pay for a stock and what sellers are willing to offer). Those who don’t apply for real-time quotes see equity prices quoted at 15- or 20-minute delays, which renders responsive trading difficult.
Separately, Sharebuilder has a reputation for slow trade execution and less-than-ideal pricing on limit-order trades, which are trades placed with a specific buy or sell price in mind. Although anecdotal execution issues are hard to verify, the company has received complaints about this aspect of its service since at least 2008. Investors who rely on rapid-fire execution may wish to look to one of these brokerages or even to a professional-grade day trading platform such as Lightspeed Web Trader.
5. No Currency Trading
Sharebuilder doesn’t give account holders access to an increasingly popular activity for experienced retail investors: currency trading, or forex. Since forex markets are truly global, it’s possible to buy and sell any commonly traded currency – the vast majority of forex volume involves the U.S., Canadian, and Australian dollars, as well as the Euro, Swiss franc, yen, and pound – as long as an open global market is available. (In the United States, this period runs continuously from the middle of Sunday afternoon until the dinner hour on Friday.)
Some discount and full-service online brokerages, such as Scottrade, also don’t make arrangements for currency trading. Others, such as TD Ameritrade, do. Professional-grade online brokerages like Interactive Brokers and Lightspeed Web Trader also have forex capabilities. If you’re interested in integrating forex into your investment strategy, bypass Sharebuilder and look to one of these platforms.
Sharebuilder is one of many low-cost online brokerages that bring everyday investors much closer to the stocks, options, and funds that they trade. The platform’s low cost – just $6.95 for a regular trade – is particularly noteworthy, as is an automatic investing program that costs just $3.95 per trade. Unlike some other online brokerages, Sharebuilder offers retirement accounts for both individual investors and small business owners.
Users might also appreciate its lack of a minimum funding balance, and the ability for traders to purchase a stock directly from their linked bank account - preferably a Capital One 360 account as it keeps commissions low. Basically, Sharebuilder is suitable for basic, even inexperienced traders – not advanced traders or day traders – who value convenience, low commissions, and no minimum funding requirements.
However, Sharebuilder doesn’t offer access to individual bonds, including corporate bonds and treasuries. It also doesn’t allow investors to sell stocks short (although it does allow margin accounts), which is a major drawback for advanced investors who want flexibility to take advantage of a range of market conditions. These features make it less attractive to veteran investors.
In general, Sharebuilder is a great tool to use if you’re just starting out as an investor and want to hone your skills on your own terms, and it offers even clearer advantages for current Capital One 360 customers. However, experienced or high-net-worth investors should definitely look at more comprehensive brokerages before opening an account with Sharebuilder.
Do you use an online brokerage to invest for retirement, to make extra income, or earn a full-time living? What’s your experience with Sharebuilder?