sceenshots of FinTech investing apps

Pros and Cons of FinTech Brokerage Options

I’ll admit that, once upon a time, I too thought you needed to be pretty wealthy in order to start trading stocks and actively investing your money. Then came the FinTech revolution, bringing (among many other things) a slew of apps that looked to lower the barrier of entry for investing. Some of these startups include Acorns, Stash, Robinhood, and — most recently — SoFi. While all of these apps offer their own pros and cons, there are some benefits and drawbacks to be found across the landscape as well.

If you’re considering utilizing a FinTech brokerage account to start investing, there are definitely a few things you should know. What that, let’s take a look at both the good and the bad of these investment options.

collage of investing symbolsBenefits of FinTech Brokerage Accounts

Low or no fees
Perhaps the biggest selling point of Robinhood, SoFi Invest, and others is that they forgo the traditional transactions fees that most brokerages would charge. As a result those who might not have previously considered investing may be more willing to give it a try. This is undoubtedly what has helped such apps grow in popularity and keep their user figures soaring.

Incidentally the popularity of these no-fee brokerage options seems to be making an impact in the industry as larger firms have dropped their fees as well. For example Chase rolled out free trades to customers last year, while others have slashed fees to $5 or less per trade. All that adds up to a win for investors who can now make their money go further on the market.

Invest with only a few dollars
The other major perk FinTech brokerages have for newbie investors is that they typically have very low or even non-existent minimum balance requirements for new accounts. With apps like Acorns, Stash and others, investors can get started with $5 or less. This stands in contrast to some traditional brokerage accounts that require hundreds if not thousands of dollars to open.

Once again, erasing the requirement to deposit a chunk of change upfront allows customers to dip their toes into investing without a big commitment. From Acorns popular “round-ups” feature that lets users invest their spare change up to the multitude of quality stocks that trade for under $100, you can now enter the market at just about any price point you choose.

Insured funds
Finally, while this point might not put FinTechs ahead of their competitors, it’s important to note that most investment apps do insure your funds. If you look in the fine print of these company’s terms you’ll notice that they’re covered by the Securities Investor Protection Corporation (SIPC). Much as the more famous FDIC insures funds in bank accounts, SIPC will protect customer funds up to $500,000 (with a limit of $250,000 for cash). While this is no different than the big guys, it’s definitely nice to have this piece of info for your peace of mind.

Built for beginners
If it wasn’t already clear, many of the FinTech investment apps on the market today are geared toward beginning investors. Beyond the low fees and buy-in amounts, this also shows in the easy-to-use nature of these platforms. Many feature helpful articles, walk-throughs, and other tools to help you understand what you’re investing in. In some cases, this knowledge could actually be more valuable in the long run than the monetary gains you might see in the short-term.

Profit, Loss, RiskDrawbacks of FinTech Brokerage Accounts

Limited investment options
Depending on which FinTech investment app you choose, the options of where you want to invest your funds may be limited. Take, for example, Acorns where customers can only choose from different portfolio options — arranged by risk tolerance — and cannot select individual stocks to purchase. Meanwhile, although Robinhood and others allow users to trade stocks, ETFs, and even options, those looking to buy into a mutual funds or dabble in Forex will have to look elsewhere. This may not be a deal breaker for most but, as your investment prowess grows, there is always a chance you’ll want to move your money elsewhere.

Fees can add up
This may seem like an odd point to make considering the lack of fees was cited as a “pro” but there’s a reason for that. Despite some apps like Robinhood being free for users trading under a certain amount of money, there are those like Acorns that do charge fees. At $1 a month in Acorns’ case, these fees might not sound like much. In reality, however, that could amount to a tremendous percentage of your gains depending on your much you’re investing. Therefore you’ll want to consider this when exploring your options and continue to run the math to ensure you’re not giving away your gains in the form of a monthly fee.

Lack of support
How many times has the line “I’ll call my broker” been uttered in a movie or television show? For many investors, building their portfolio isn’t a solo climb but a guided hike led by a professional with insights to offer. Of course this type of advice doesn’t come cheap, which is why most FinTech brokerages need to cut out the human touch in order to keep fees low. Because of this, those who are looking for a little more guidance might not be to thrilled with these options.

These days a popular trend has been so-called robo-investing. As the name implies these types of accounts use things like algorithms to help you with your portfolio. Alternatively you can always do your own research and buy stocks directly. In either case, if you’re looking to enjoy benefits such as low starting balance requirements and no fees, you’ll need to get used to managing things on your own.

Uncertain future
Investing your money via a young company’s app can be a be frightening when you consider the number of Silicon Valley startups that have tanked in the past. What if the same were to happen to your favorite investment app? Obviously the same fate could await any brokerage firm but there’s also no doubt that FinTechs are more susceptible to failure than their more well-established peers.

This point is actually something I’ve been thinking about a lot lately — namely ever since Robinhood’s run-in with the SIPC late last year. Thankfully I did discover that there are systems in place that will allow you to transfer your portfolio to another brokerage firm without having to sell your positions. Unfortunately this service can often come at a cost, with Robinhood currently charging $75 for such transfers. On top of that it’s hard to say if this option would still be available if a company were to suddenly cease existing (see: Wow Air). With all that said, this is also where the SIPC’s insurance would come in, so hopefully the outcome of a FinTech brokerage’s demise won’t spell total disaster for your investments.

As a fan of FinTech myself, I’ve personally been thrilled to have the opportunity to start my investment journey with the help of these apps. At the same time I have to acknowledge that these options may not be for everyone and do come with a handful of drawbacks. Ultimately the best plan of action is to do what feels comfortable for you and — just like in investing — weigh the risk and reward of utilizing FinTech apps.

Author

Kyle Burbank

Founder ~ Moneyat30
Kyle is a freelance writer - including being the head writer for Fioney.com. He also serves as editorial director for the Disney fan site LaughingPlace.com and the founder of Money@30.com. In 2015, Kyle and his wife Bekah moved from Los Angeles to Springfield MO in pursuit of greater financial freedom. Together, the pair enjoy travel, coffee, and spending time with their dog Rigby. Additionally, as of 2023, they become first-time homeowners.

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These fintech apps can be a great way to start and learn investing, where the most convenient part is you can invest with even a small amount of money and its accessibility.

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