Embracing the ability to invest in fractions of shares can provide advisors with an avenue to attract new clients, according to Gayathri Rajan, chief product officer for DriveWealth, a digital financial services company headquartered in Jersey City, N.J.
Fractional investing is gaining in popularity and more large firms are adding the capability to their platforms, Rajan said. Morgan Stanley is one of the latest to make the leap by announcing last month that it would add fractional trading capabilities to its platform. Charles Schwab, Fidelity, TD Ameritrade and Merrill have already added fractional trading to their platforms.
“This is a way for new investors to dip their toes into the market and gain experience,” Rajan said. “You could invest as little as a dollar, if you wanted. It breaks down the psychological barrier to starting investing.”
DriveWealth was one of the digital companies that helped launch the trading ability, Rajan said. More investors are adopting the technique, particularly millennials, which is opening up a new segments of clients for advisors.
“We are just at the beginning of a new world of investing that will make investments accessible to everyone,” Rajan said in an interview.
Twenty percent of DriveWealth’s investors who joined the platform during the first half of 2022 were first time investors, and 46% of those investors were millennials, she said. To break it down even further, 80% of their investments were in fractional shares.
Fractional investing also opens up a new audience for advisors, she added. “Fractional investing is going to continue to grow across all segments,” she said.
Fractional investing lowers the barriers where previously there were high minimum investments that required a significant outlay, and it helps advisors customize portfolios to individual clients, she said.