Loyal3 – Is Fee-Free Investing For Real?

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There are all kinds of investment brokerages hitting the market these days. But along comes one that advertises Fee-free investing. That sounds too good to be true, but it looks to be legitimate. Loyal3 is the platform, and while it won’t work for all investors, there are a select few who could seriously benefit from…

There are all kinds of investment brokerages hitting the market these days. But along comes one that advertises Fee-free investing. That sounds too good to be true, but it looks to be legitimate. Loyal3 is the platform, and while it won’t work for all investors, there are a select few who could seriously benefit from an affiliation with this company. Like new investors and serious buy-and-hold types.

Note: Loyal3 shut down their operations effective May 22, 2017. Those with active Loyal3 accounts had the option to automatically have their shares transferred to FolioFirst on May 22. Like Loyal3, FolioFirst offers commission-free trades on over 200 companies. However, they do charge a $5 monthly fee, starting August 1, 2017. A $5 per month fee can be a relative bargain if you are a trader who takes advantage of the free trades. However, it is a bit steep if you don’t plan on making new investments. If you are in the latter group, I recommend checking out other discount brokerages.

Who is Loyal3 and how does it work?

Loyal3 is a San Francisco based investment platform. It is a highly specialized platform that fits the term boutique broker. The company motto is Invest In What You Love, which is their way of saying that you should invest in brands you know and feel good about. The list of companies you can invest in is filled with household names, like Starbucks, Kelloggs, and Coca-Cola.

Loyal3 describes itself as being “about using social technologies to democratize the capital markets, making stock ownership easy and affordable for everyone.” The collective investment philosophy is “ownership makes everything better”, and the company believes that creating a direct link between companies and stockholders – by cutting out the middleman – expands ownership and creates shareholder loyalty.

The Big Deal about Loyal3 is that there are no fees to the investor, and that applies across the board – buying, selling, and transferring. There are no account maintenance fees either. In fact, there are no financial obstacles to investing with Loyal3 whatsoever.

How can they do that?

Loyal3 doesn’t need to charge fees to investors for a simple reason: they earn their income from services provided to the companies whose stock they offer for sale on the site. This can include doing work for company IPOs. What Loyal3 is doing then, is offering stock trades of companies that are their clients as an add-on service. This is also why the platform offers such a limited number of stocks to invest in.

Speaking of which, I counted just 55 stocks available for trade on the site, and they also have their proprietary Social Stocks 50, which includes most of the same stocks – but curiously only 49 of them, not 50.

Fortunately, the list of 55 includes some of the most prominent companies on the market: Amazon, Apple, Berkshire Hathaway, Walt Disney, Google, Intel, Microsoft, Pepsico, Target, Twitter, Time Warner, Unilever, Viacom, WalMart, and Yahoo.

The platform has no minimum account balance requirement either, though IPO participation does require a minimum $350 cash balance, though unused funds can be withdrawn at any time.

You fund your account with a credit card, and the monthly minimum contribution is as little as $10. The maximum is $2,500. Customer support, including trade authorizations, are available on a 24/7 basis. But unlike traditional brokers where you can trade continuously throughout the day, Loyal3 batch trades all orders from all customers just one time each day.

The site claims military-grade security and participation in SIPC (protection against broker default or illegal acts).

The Loyal3 advantages

As mentioned above there are no transaction fees for investors on the platform. We could report that fact and call it a day – but the platform has a few other features that are worth mentioning.

Investing in small increments. This is made to order for the small investor. You can invest as little as $10 per month, or all the way up to $2,500 per month. Virtually any investor can do this, regardless of how small their investment budget is. Though you are buying stock, it is a practice typically found only when you are buying mutual funds with fixed monthly amounts.

Partial shares. Loyal3 actually allow you to purchase partial shares, and once again there’s no fee for doing so. Most brokerage accounts will either prohibit this practice, for charge a steep fee for handling it.

Email updates on pending IPOs. You can sign up for email notifications when IPOs are available.

No transfer fees. A fee to move your funds to a different brokerage account is virtually an industry standard. Not so with Loyal3. You can transfer funds anywhere free of charge.  This even beats what we round in our Ally Invest review and their low fees.

There is yet another feature that could be considered an advantage by some – and a disadvantage by others. Loyal3 allows you to invest by credit card. The fixed amount that you authorize to be invested in the account will be withdrawn on a monthly basis.

This can work well for some investors, since many people are much better at paying bills than they are and investing on a regular basis. But if you are prone to running up credit card balances, this could also be a potential train wreck. Proceed with caution.

The Loyal3 caveats

Practically no investment platform is perfect, and that includes Loyal3. There are some pronounced negatives, and how important they are will depend upon what it is you hope to do with your account.

Limited stock selection. Since the platform is currently limited to 55 stocks, you won’t have the ability to purchase just any stock that you’re interested in.

No diversification. Not only are your investment choices limited to a few dozen stocks, but there are no investment options beyond those stocks. No mutual funds, ETF’s, bonds, or even money market funds.

Cash balances don’t earn interest. This won’t matter if you don’t keep much money in cash, especially since interest rates are so low right now. But if you were to liquidate your positions, preferring to wait for better investment opportunities at a later date, you’ll have to withdraw your money from your account if you hope to earn any interest on it.

No automatic dividend reinvestment. This is really curious considering that Loyal3 is all about individual stocks and maintaining investor loyalty. But so be it – maybe it will be added in the future.

You can’t time your trades precisely. Since all trades are executed in a batch once each day, you will not be able to buy or sell a stock at a precise price. You’ll get whatever the price is at the time the trade is executed.

Can Loyal3 work for you?

Despite the limitations, Loyal3 can have a place in a lot of investor’s portfolios. The absence of transaction fees is always attractive. The limited number of stocks that the platform does offer are among the best of the best, so it may be the ideal place to hold certain blue-chip stocks that you plan to keep for many years.

Obviously, Loyal3 is not a one-stop shop for investing, and it hasn’t been built to be one. But it could be an excellent supplemental investment account to hold select stocks.

It may also be the perfect investment vehicle for new investors. It has four major advantages in this regard:

  1. No fees to reduce investment returns.
  2. No account minimums.
  3. Low investment contributions that will work with any budget.
  4. A portfolio of some of the best stocks available.

Loyal3 isn’t right for everyone, but if you would benefit based on any of the above, you need to check this platform out.


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About Kevin Mercadante

Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids and can be followed on Twitter at @OutOfYourRut.

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  1. Kumare says

    It’s very expensive to both buy and sell shares with LOYAL3. You get the worst lowest price on sell for the day and highest price on buy, again for the day. If the stock fluctuates $1 during the day you can lose as much as $100 – or an average of $50 per trade.

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