May 30

Review of Brokers – Loyal3 and Robinhood


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It’s been 60 days since I opened accounts with Robinhood and Loyal3. I was inspired to give these two no fee brokers a chance after learning that several of the bloggers I follow have added these no fee brokers as part of their investment strategies.  Loyal3 was easy to set up where Robinhood was tougher.  Luckily I had a friend extend a pre-launch invitation to me so I could try Robinhood.  In this article I will share my likes, dislikes, and wish list of features that I hope one of these no fee brokers add in the future.

Review of two brokers – Robinhood and Loyal3

Loyal3 is more established and has been around longer, but Robinhood has had much more press coverage lately. This could be because Snoop Dog and Google Ventures are investors, or because Robinhood created demand for their app by announcing it and creating demand by rolling out via friend invites and waitlist. Regardless both companies are live and serving customers in no fee brokers space.

Robinhood Review

Founded in 2013, Robinhood is a no fee broker and is the brainchild of two Stanford Grads, Vladimir Tenev and Baiju Prafulkumar Bhatt. Robinhood has raised $16 million in Seed and Series A funding. There are 16 investors. Google Ventures was the first seed investor, the amount invested in not listed.
Robinhood currently offers investors the ability to buy over 5,000 U.S. stocks and indexes, via an easy to use iPhone App. The company does not charge any trading fees. Today, company revenues come in the form of earning interest on customers cash balances. In the future, revenues will likely include margin account interest and app ad revenue.

Loyal3 Review

Founded in 2008, Loyal3 is a no fee broker that has raised a total of $75 million, with the latest being Round D funding of $30.2 million. Loyal3 currently offers investors the ability to invest in 64 companies. Investors can trade through their website at Loyal3 or through an iPhone App. Additionally, Loyal3 makes some IPO stocks available for purchase.

Today, company revenues come in the form of earning interest on customers cash balances. In the future, revenues will likely include margin account interest and app ad revenue.

Likes And Dislikes

No fee brokers is an interesting concept. I believe over the next 15-years, no fee brokers will be the norm, however today the concept is unique with less than a handful of companies offering this service. I like the simplicity of trading via mobile devices. Both Loyal3 and Robinhood have made it very easy to buy stock from anywhere with a cellular connection.

Robinhood Likes

  • Account setup – Takes less than 5 minutes to set up an account and start funding (funding takes between 2-5 days)
  • Stock Selection – Robinhood offers a wide array of stocks
  • Trade Speed – Trading is a three-step process that takes seconds
  • iPhone App – The app is designed well; slick, easy to navigate and fast

Robinhood Dislikes

  • iPhone Only – Everything must be completed through an iPhone (Android App coming soon, but there is no desktop option)
  • No DRIP Investing
  • No fractional share purchases
  • No stock analysis tools
  • Bad Customer Service – Currently email only, and my experience is 5 days for a response
  • No IRA, Roth IRA, 401k rollovers

Loyal3 Likes

  • Desktop and iPhone accessible
  • Fractional share purchases
  • Monthly investment plans, starting at $10 a month
  • Easy website to use and navigate

Loyal3 Dislikes

  • Only 64 stocks to choose from
  • Trades do not happen instantly (actual price paid could vary because trades can take up to 2 days to complete)
  • No automatic DRIP investing (Fractional share purchase possible, so if a dividend is $10 or more, manual DRIP is possible
  • No IRA, Roth IRA, 401k rollovers
  • No stock analysis tools

My Strategy For Using Loyal3 and Robinhood

I like both no fee brokers, however at this time I am more comfortable leaving my money with Loyal3 and Robinhood over Robinhood. Loyal3 has a longer operating history and features I like, such as monthly investing plans and fractional share purchases. I have two monthly trades setup with Loyal3 to buy $100 of WMT stock and $200 of MCD stock every month on the 13th.  These purchases are slowly adding up in my Investment Hunting portfolio.  I plan on keeping these monthly plans running for now.
I purchased 6 shares of VLO stock through Robinhood two months ago. I sold out my position a few days ago. It is not that I dislike Robinhood, but the fact that the company has been trading less than a year concerns me. I plan on keeping my account, but not making any new purchases until the company proves its staying power.

What It Will Take To Keep My Business

Loyal3 doesn’t need to add anything to keep my business. The company offers a handful of stocks I currently own in my ETRADE accounts. I may sell my positions and repurchase the stocks through Loyal3. If I do this, I am fine with no DRIP option, because my monthly dividends will be more than 10 dollars. This is actually intriguing to me, because it will allow me to intentionally DRIP my dividends into a stock with the lowest price valuation.

Robinhood will need to add fractional stock purchasing and stay in business another year to earn my business.  Robinhood is positioned to beat out Loyal3 because of the number of stocks available for purchase.  If Robinhood offered retirement rollover accounts I would be very interested in moving my money over to the company.

Loyal3 and Robinhood Brokers Conclusion

Both no fee brokers are disrupting the financial industry. It was not too long ago that brokers ripped consumers off with astronomical trading fees.  Companies like Robinhood and Loyal3 have forced the industry to once again question the value of a trade.  If  one of these no fee brokers offered IRAs and Rollovers I believe they would have staying power.

Both companies are positioning themselves in social and targeting the Millennial crowd.  If either company can capture America’s youth as they begin trading, their future will be bright.  I see it going two ways; these companies become large enough that a major broker buys them as an asset or to shut them down, or both companies go out of business before they can attract a large enough crowd and figure out monetization.

What’s your opinion of no fee brokers?  What is your experience with Robinhood or Loyal3?  Do you think these companies are here to stay?


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