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LOYAL3 Review – Buy & Sell Stocks Online for Free

At a Glance
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loyal3 logoThere are dozens of options for trading stocks online, but none quite like LOYAL3. This online trading platform caters to less experienced traders who want to demystify the stock market and own shares in recognizable companies.

It lacks many of the features of full-service brokerages, including stock screeners, retirement accounts, and securities other than stocks. However, LOYAL3 boasts several rare features: It makes it easy for relative novices to get in on corporate IPOs, it makes fractional shares of stock available for purchase, and it never charges commissions to buy or sell stocks.

How It Works

Like other online brokerages, LOYAL3 has a trading platform that facilitates the buying and selling of individual stocks. However, unlike traditional brokerages, it lets you buy fractional shares, allowing you to maximize your investment if you have limited financial resources. For instance, if you have $125 to invest in a stock that costs $50 per share, LOYAL3 lets you buy 2.5 shares. Other brokerages would only let you buy two shares, leaving you $25 in cash.

LOYAL3 also aims to broaden regular investors’ access to corporate IPOs, which are very difficult to participate in via regular brokerages. When an IPO is available on LOYAL3, the platform walks interested investors through the process of reservation (when you request a specific number of shares), confirmation (when you’re asked to confirm your order), and allocation (when you actually receive your shares). Due to the competitive nature of the IPO process, the number of allocated shares may be lower than what you requested. It may include fractional shares too.

LOYAL3 also lets you buy and sell stocks on the open market. However, it doesn’t offer access to every U.S.-listed stock: It currently features a menu of about five dozen companies, with supposed plans to add more in the future – although it doesn’t say which. All orders are filled at market prices.

To keep its costs low, LOYAL3 combines its customers’ orders and executes them as a single trade, a practice known as “batch trading.” This results in a significant lag – potentially up to two business days – between when you place your order and when it executes.

You can’t place a limit order, which is an order to buy or sell a stock for a specific price. And, the platform has a glaring lack of basic tools that users of other brokerages take for granted, such as real-time quotes, stock charts, screening tools, and analyst recommendations.

Despite a complete lack of trading commissions, LOYAL3 makes money by offering certain services to the companies in its database:

  • Corporate IPO Services. The company underwrites IPOs for recognizable companies, including AMC Theater Group. It touts its social media savvy as a major advantage, as it directly advertises these offerings via Twitter and Facebook. It also emphasizes its “long-only” platform, meaning that people can’t use it for short selling. And, it plays up the fact that its customers are consumers with emotional attachments to listed brands.
  • Social Stock Plans. This feature integrates with LOYAL3’s trading platform to allow individuals to buy and sell a company’s stock, in increments of $10 and up, through its website or Facebook page. LOYAL3 frames this as a way for companies to build a broader class of small but engaged shareholders and create new marketing opportunities.
  • Stock Rewards. This feature allows LOYAL3 client companies to offer stock ownership as an incentive or reward for their customers. For instance, a company might add it to an existing credit card rewards program or create a new frequent shopper program that pays customers in stock. LOYAL3 doesn’t give examples of specific companies doing this right now, so it’s unclear how many – if any – offer stock rewards.

LOYAL3 doesn’t publicly disclose the size and type of fees it charges for any of these services.

loyal3 screenshot

Key Features

  • Access to Fractional Shares. LOYAL3 lets you buy fractional shares of stock, something uncommon among U.S.-based brokerages. Instead of specifying the number of shares you want to buy, you allocate a specific dollar amount to your purchase, meaning you almost always end up with a non-whole number of shares.
  • IPO Access. LOYAL3 doesn’t offer access to every single IPO, but it does let you get in on the ones it helps underwrite – and makes it easier to do than just about any brokerage out there. You need $350 in your account to place a reservation for an IPO, but you can buy as little as $100 worth of a given company’s shares. Since it may offer a limited number of shares, LOYAL3 can’t guarantee to fill your entire reservation. If there’s a shortage, it awards shares on a first-come, first-served basis. You can’t invest more than $10,000 in a single LOYAL3 IPO.
  • Basic Investment Education. LOYAL3’s New to Investing section contains more than a dozen in-depth articles on basic investing concepts, including dividends, trade settlement, the buying and selling process, and IPOs. Its FAQ section offers additional material, including definitions of common investing terms.
  • Stock Browser. You can peruse all of LOYAL3’s stock offerings in the “Browse Stocks” tab. Click on the corporate logo to see the last closing price, read a brief primer on the company, and place trades.
  • SocialStocks 50. Many of the stocks on the LOYAL3 platform belong to this so-called index, which includes the 50 companies with the most Facebook likes.
  • Stock Trading Platform. LOYAL3 has a platform to buy and sell the several dozen U.S. stocks it lists. You can buy in increments as low as $10, with fractional shares awarded if your specified purchase price doesn’t produce a whole number. LOYAL3 notifies you when your trade executes. Purchases are limited to $2,500 per stock, per month. LOYAL3 doesn’t let you sell stocks short.
  • Tied Accounts. You can tie your checking account, debit card, and credit card to your LOYAL3 account. Though you can purchase stock with funds in a tied checking account, this can add an extra three business days to your trade’s execution time. Execution is faster with credit and debit card purchases, though individual credit card transactions are limited to $50. You can transfer funds directly between your LOYAL3 account and checking account via EFT.
  • Recurring Investments. Provided that your brokerage account or tied accounts remain funded, LOYAL3 lets you set up automatic, recurring investments in a particular stock, at a monthly frequency. You can set the purchase price in an amount as low as $10. If your account lacks funds, the transaction fails.

Advantages

  1. Easy Purchase of Fractional Shares. LOYAL3 is one of the few online brokerages that lets you buy fractional shares outside of a dividend reinvestment program (DRIP). If you want to make a $100 investment in a stock priced at $55 per share, you can: It would result in 1.81 shares. Since LOYAL3 investments tend to be made in small dollar amounts, this is especially useful.
  2. Buy and Sell Individual Stocks Without Commissions. One of LOYAL3’s biggest advantages is commission-free stock trades. Other brokerages, such as Sharebuilder, may offer trades for as low as $3.95. Some now offer commission-free access to a select group of ETFs. However, it’s very unusual to see free stock trades across the board.
  3. Use a Credit Card to Fund Stock Purchases. LOYAL3 is unique among U.S.-based online brokerages in that it allows you to fund stock purchases with a credit or debit card. Though credit card transactions are limited to $50 each, it still allows you the opportunity to earn credit card rewards by purchasing stock. (Update: As of November 19, 2014, LOYAL3 no longer allows stock purchases with a credit card due to frequent abuse.)
  4. Easy Access to IPOs, With Few Restrictions. LOYAL3 makes it easy for even the most modestly funded traders to access IPOs. The company doesn’t give you a crack at every single IPO that hits the market, but those that it does make available come with few restrictions. You are only limited by the $350 minimum account balance, $100 minimum purchase amount, and – possibly – the need to confirm your IPO reservation as the offering nears. Many discount online brokers, including Scottrade, don’t offer access to IPOs at all.
  5. Intuitive, Easy-to-Use Interface. It’s easy to use LOYAL3’s trading platform and account management tools. Unlike many online brokerages, you don’t have to deal with a confusing array of tabs, charts, and ticker symbols. To buy a stock, you can simply visit the Browse Stocks page, make your selection, specify a purchase amount, and place the order. You don’t have to choose an order type, calculate how many shares you want to buy, or fund your account. LOYAL3 does all of this automatically.
  6. Free Account Transfers to Other Brokerages. If you sour on LOYAL3, the platform lets you transfer your entire account to another brokerage without paying a fee. Generally, online brokerages charge you for a full outbound account transfer – Scottrade and TD Ameritrade both charge $75.

loyal3 stocks

Disadvantages

  1. No Real-Time Pricing or Execution. LOYAL3 doesn’t offer real-time pricing of stocks – or any type of ticker function at all. Its trading platform simply shows the stock price at the close of the previous trading day. And, since it buys shares in batches, your trades might not be executed for one to two business days, or longer if LOYAL3 needs to dip into a tied checking account to fund a purchase. Though Sharebuilder doesn’t offer real-time quotes for all members – you have to apply specifically – and has had issues with slow execution in the past, it’s not nearly as slow as LOYAL3. More expensive brokerages pride themselves on near-instantaneous execution and real-time quotes.
  2. Monthly Purchasing Limits. LOYAL3 sets a monthly purchasing limit of $2,500 per stock for all users (applied cumulatively to purchases of regular stock and IPOs). If you want to be able to invest more than $30,000 per year in one stock, or buy more than $2,500 of a single stock at once, you need to open another brokerage account. Other low-cost platforms for novice traders, such as Sharebuilder and Betterment, don’t impose purchasing caps at all.
  3. Previous Fee-Free Trading Experiments Have Ended Badly. LOYAL3’s commission-free trading model isn’t entirely new. In 2006, Zecco began offering unlimited online trades for free until competitive pressures and insufficient cash flow forced it to impose increasingly expensive monthly minimums. Eventually, Zecco imposed a cap of 10 free trades per month. It did away with free trades altogether in 2011, charging $4.95 per trade. However, it still wasn’t able to gain traction with customers, and was eventually acquired by TradeKing. LOYAL3 seems to be betting that its corporate services will be sufficient to fund its operations. It recently secured $18 million in capital investment, which means others seem willing to bet on this model, as well. However, don’t be shocked if it proves unsustainable and the platform starts charging for trades.
  4. Very Limited Availability of Stocks. Though many have strong name recognition and well-regarded corporate governance, LOYAL3 offers access to just a few dozen stocks. This makes it difficult to build a truly diversified portfolio. Commission-free index ETFs may offer better diversification prospects, while remaining affordable.
  5. No Retirement Accounts. LOYAL3 doesn’t currently offer tax-favorable options for retirement savers. If you want to start an IRA or roll over an existing one from a higher-cost brokerage, look elsewhere.
  6. You Can’t Trade Anything Besides Stocks. In addition to a limited portfolio of available stocks, LOYAL3 doesn’t offer access to any other securities – not mutual funds, ETFs, bonds, preferred stocks, options, currencies, or commodities. Other brokerages, including lower-cost options like Sharebuilder and TradeKing, provide access to a wider selection of investment options.
  7. No Research Tools and Little Advice. LOYAL3 offers lots of helpful information for finance novices. However, basic articles like “What Is a Dividend?” and “How You Can Make or Lose Money Owning Stocks” don’t really constitute investing advice or guidance. Even deeply discounted brokerages like Sharebuilder and TradeKing provide basic resources like stock screeners and analyst reports.
  8. Automatic Investing Isn’t as Flexible as Alternatives. LOYAL3 lets you set up recurring, automatic investments in stocks of your choosing, but you’re limited to just one automatic purchase per month. By contrast, Sharebuilder allows you to make automatic purchases as often as once per week, and in any amount.

Final Word

For companies, LOYAL3 isn’t just a cheap way to buy and sell stocks. According to the website, it’s a means to “grow sales, increase loyalty, and reward the people that care most about your brand.” Were it not for the companies that pay for its IPO services and social stock plans, LOYAL3 would probably have to charge trading commissions and other fees, or shut down entirely. In other words, despite its apparently investor-friendly policies, LOYAL3 serves people on both sides of the trade – and it should be judged accordingly. Since it’s a pretty new player on the field, don’t be surprised if it tries new things from time to time.

Verdict

LOYAL3 is great for novice investors with limited assets and those who want an uncomplicated way to buy stock in recognizable companies. Its commission-free trading is a huge advantage as well. However, other limitations, including a lack of retirement accounts and securities besides stocks, might make more experienced traders think twice.

Score

3.5 out of 5 stars: A truly innovative investing platform aimed at inexperienced, low-asset investors. Great IPO access, but lack of other securities and retirement accounts is a big flaw.

Has LOYAL3 changed the way you look at online investing?

Verdict
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Editorial Note: The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Brian Martucci
Brian Martucci writes about frugal living, entrepreneurship, and innovative ideas. When he’s not interviewing small business owners or investigating time- and money-saving strategies for Money Crashers readers, he’s probably out exploring a new trail or sampling a novel cuisine. Find him on Twitter @Brian_Martucci.

Comments Disclosure: The below responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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