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Fractional Shares Go Mainstream

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28 February 2024
Jean Sullivan

Wealth managers tap into new markets using fractional shares

Abstract

Fractional share trading for equities and ETFs is not new. Widespread adoption of fractionals in mostly brokerage accounts were spurred on by the move to zero-commission trading in the U.S. (2019.) “Digital custodians” such as Apex Clearing and Folio Institutional (and now Altruist and DriveWealth) were early enablers of this functionality for fintechs and robo advisors. The major custodians also offer fractional shares to serve their brokerage clientele and even RIAs.

Recently, however, access to fractional shares has expanded beyond brokerage accounts into mainstream advisory programs as well as fixed income and alternative investment products.

–Morgan Stanley recently rolled out fractional share trading within its UMA platform while simultaneously lowering account minimums to $25,000 (in some instances $10,000) creating widespread access across all client asset tiers.

–Public.com and Apex now offer access to fixed income fractional shares, lowering the barrier to entry for mass affluent individuals.

–And there are a host of fintechs (and some traditional wealth managers) that offer fractional shares of collectibles, digital assets, and alternative investments.

The importance of fractional trading cannot be overstated as this technology enables access to lower minimums thereby facilitating personalized investment strategies for all investors, regardless of asset size. And while the democratization of solutions enabled by fractional shares is important there are several other often overlooked advantages associated with access to fractional shares. For example, other benefits include enabling a more efficient portfolio construction process, tax optimization for all, and the delivery of a consistent client experience.

For these reasons, we expect to see increased adoption of fractional shares across the wealth management industry as firms look to reach new markets.

As the market expands it becomes increasingly important for wealth management firms to understand the complexities involved in fractional share trading.

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