A slice of the pie: fractional investing deconstructed

[Music] I'm Howie Lim. This is Money Hacks by The Business Times. [Music] Fractional investing is increasingly popular in Singapore, driven by wider awareness of the concept and a growing array of methods available. It enables investors to purchase a portion of a share or unit rather than the full amount of the prevailing market price. As the fractional investing landscape becomes more competitive, platforms are differentiating themselves through varied offerings and investment choices. Although no overall figures for fractional investing activity in Singapore are available, established players are reporting growth and new products continue to be introduced. Welcome to Money Hacks, I'm Howie Lim. And we've got expert help from Jeremy Foo, country manager for Stashaway Singapore, and Jack Pricket, chief commercial officer at SIEF, to talk us through all things fractional investing. First up, we're really seeing a lot of market stress and trading volumes can get pretty high. Is liquidity affected when one's holdings are in fractional shares? Yeah, nice to see you. There's really no difference in liquidity for fractional shares versus whole shares. So it's a very similar, in fact, exactly the same liquidity profile. So the market stress doesn't affect one side of this or the other. It's the same across the board. Great to join you. I think a big part of it is ensuring the ETF itself is liquid. When we select ETFs, both for managed portfolios, as well as our explorer product, we really make sure to look at liquidity as one of the key factors. And if the underlying is liquid, then the fractionalized shares tend to be quite liquid as well. The second one is really around scale. So because our platform has quite a lot of fires and sellers, we are able to essentially net these orders. And so that helps us achieve a better execution price and also by netting these buy and sell orders, we're actually able to lower the cost for our clients as well. Sounds promising. But cost of foremost on everyone's minds these days, thanks to the energy shock everyone's suffering. If things are split into pieces, say one becomes four as an example, wouldn't trading them cost more as well. Here's Jeremy Foo from Staschaway again. Yeah, that's a lot of different types of costs. So we believe in keeping it simple. So we don't have any additional costs or fractional investing. In fact, they're from day one with always maintained that we'll keep it very simple. 0.2% to 0.8% for our managed portfolios. And just one US dollar for our ETFs on ETFX. That's it. So the commission fees for US stocks we charge a flat fee of $1.49 per trade. That said, we do give all customers a couple of free trades to start with every single month. And for higher tiers, they may get even more than two free trades. On top of that, we have no cost to defes. We have no admin fees, no inactivity fees. So there aren't any other fees there. So it's quite transparent. Now, for sure, if someone is trading, let's say they've used both of their two free trades at month, and then they want to buy $10 worth of a share and they pay the $1.49 fee, that will get expensive for sure. There's a percentage of the overall cost of the trade. But we're not really encouraging people to say to buy $10 of Tesla. It's more, it's an ease to access in the sense of rather than thinking, do I want to buy 12 shares or 13 shares or like you just say, I've got $1,000 to invest. I want to buy $1,000 worth of Tesla. And then from that, you might end up with 2.5 shares or 3.5 shares. So it's more about the ease as opposed to updating us. At the time of recording, one share of the Mag 7 companies as namely Tesla, Meta, Alphabet, Amazon, Microsoft, Apple, and Nvidia, cost collectively almost $2,400. Now, I don't know about you, but that's not cheap. The democratization of access is something we hear a lot about as well. And that's looking like one of the biggest advantages of fractional share investing. Okay, for new investors, though, what educational resources or risk assessment tools are out there to help us understand the unique risks associated with partial ownership? Education is a big part of what we believe in and how we also try to differentiate ourselves. We believe in kind of holistic education, really carrying home key points around how regular investing, consistent investing is a surest way to build serious wealth. Specifically for fractional shares, we feel like we do have a wide range of topics we talk about. We don't specifically talk about fractional shares because by investing through a platform, we do separate and disirrigate a lot of those risks on behalf of our clients. We've really focused a lot more on what actionable insights that clients can do, which is really just being very regular common sense stuff like not panic selling during downturns. In episode one, two, four of this podcast series, I talk to experts from Christie's about fractional art investing. And I wondered then as I do now, why someone would just want to own Mona Lisa's eyeball versus the whole painting, or 0.33333 of a share versus the whole share. Here's Jack Pricot from SAFE. I think the Mona Lisa's eyeball is a very different investment case. I don't know how much Mona Lisa is worth, let's say, 100 million. There are not too many people with 100 million bucks spare to go by that, even if they could. Fractional investing is slightly different. It is for ease. I don't think people will always want to kind of go do the sums and say I want to buy X shares of this or Y shares. Of that, they have a pool of cash. So let's say they have $20,000 to invest. And they say, okay, I would like to put 10% into this and 20% into that. And it's just far easier for them to just say, look for the 10%. I'm going to put into Tesla. I just do it at a dollar value as opposed to then going and calculating how much shares I want to buy. This is really just about making it easier for people to use. And there's no additional fee for doing that. We're kind of just taking care of that for the customer, that calculation. So it's not like they have to pay a fee to buy the shares and then an additional fee to get the fractional piece. It's all within that fee that we charge already. So I'd say there's slightly different news cases. Still to come, what about security and what about complex portfolio construction when it comes to fractional investing? More with Jeremy Foo from Stasjoy and Jack Pricot from Siphon in a moment. Good conversations start with the right questions. This season those questions are about us. The people, the policies, the forces shaping all of us. Lens on Singapore with Claresse Montero. Back in May, powered by the journalism of the business times on YouTube and wherever you get your podcast. And now back to Money Hacks from the business times. Welcome back. We've been discussing fractional share investing and its various pros and cons. Another use case that we have is we have a REITS portfolio. We were one of the first players in the market to do fractional in any shape or form. We were the first broker to have single stocks available as fractional in Singapore around five years ago now. The time goes very fast. But with our REITS portfolio and what we did there was we've got 20 SGX listed REITS wrapped in a portfolio. And the question is why would I buy a REITS portfolio? What was the point? We already show you how you could go and look and you can see the 20 REITS that are in that portfolio. So in theory, you could go buy that yourself. Easy. But we do that for you. We basically say that in one transaction, you can buy these 20 REITS. We've fractionalized across them also. You can just invest $1,000 into REITS. And we take care of the rest. So it makes it easier because you're not paying a transaction fee for every single REITS. So you'd have to pay 20 times. And if you were using a traditional broker or a bank, you might even be paying 10 or 15 bucks a trade. So it gets very expensive very quickly. But also we're rebalancing that. So once every six months we rebalancing and we say, okay, maybe this REIT doesn't have such a good outlook. We'll remove that one. We'll put a different REITS and we'll rebalancing existing constituents. There's a lot of different things you can do with the fractional investing. But for me, the real key to it is ease for the end user. That's Jack Pricot from SIFE. Also joining us is Jeremy Foo from Stasyaway who talks us through the technology and security protocols in place to prevent fraud or unauthorized access to fractional holdings. So we treat fractional holdings the same as we do the whole shares as well, both from a custody perspective and then a client withdrawal perspective. So from the custody perspective, we work with banks like DBS in HSBC in order to custody the customer assets. So according to MAS regulations, it's 100% segregated. And so your funds are 100% safe regardless of what happens to us. The next one is around withdrawal. So we always careful that there might be some fraudulent withdrawal. We use two factor authentication as well as frequent verification of bank accounts to make sure that you're only able to withdraw to your own bank account. So in terms of signing up for a SIFE account, you sign up with the same pass. In terms of accessing accounts, of course, as biometrics and one-time pins, etc, to ensure that everything is safe. And when people deposit money into their SIFE account and when they withdraw money, we enforce that they must withdraw money to the account that they have deposited from. It wouldn't be possible for someone to take their money out to another bank account. In terms of security, we of course, very, very tight on that and it's very important. Again, the Fragrance from shares doesn't make any difference there. It's treated in exactly the same way as a whole share and all of the same security protocols apply. With markets in Dissarie and costs going through the roof right now, thanks to the Middle East crisis, Can fractional investing be a tool for sophisticated portfolio rebalancing or targeted thematic exposure for that matter? Here's Jack, Prickett from SIEF again. We have, I think, quite a broad platform. Firstly, in terms of demographics, we have 18-year-olds using the platform. We have 90-plus year-olds using the platform. There's more than 400,000 of them in the region or more. And we're managing well and also 10 billion worth of assets. They have very different needs. Our platform is very flexible. We can enable those investors to access some simple cash products where they're just receiving a safe regular yield of a few percent that there's that certainty. All there, as you said, the more sophisticated users who maybe want to create their own bundle on brokerage, and they can put a variety of different stocks into that bundle and trade it in one go. Or they can use one of our managed portfolios. And those managed portfolios are rebalanced by us. So really, the features and the functionality is there for everyone. And it's all within that one app. And we try to surface it in an intuitive and seamless way so that people can use it easily. Then people can access any of those tools. I think there's this really key message going on today that if you're kind of setting aside a certain amount of money each month, and you're just kind of investing in well-divers of fight funds, you can really build up a solid retirement. That's something we certainly, especially we really believe in as well. If you're setting aside to say $1,000 each month for your paycheck, you really want all of that $1,000 to be invested straight away and to be earning returns for you. And so the fractionalization really allows you to ensure that that full $1,000 is invested. Maybe a secondary point here is that there are certain shares and even certain ETS, which are quite expensively priced. Or maybe the $2,300 mark for people who are just starting with investing, maybe a student with $100 to invest. It's really important for them to be able to just start. If you can't buy half a share, then you're essentially locked out of buying certain things. That's something we really want to avoid that goes hand in hand with that as well. And so for us, I think a big part is why we have no minimums on our platform. It's because we want people to just get started. I believe if you take the first step today, it helps you build that wealth for your retirement. Take away order. Money Hex 265 is up. Fractional investing offers accessibility beyond the whole share, moon releases, eyeball dilemma, democratizing high cost assets. Liquidity is uncompromised and costs can be simplified, though high frequency small trades can still sting. Beyond E's, fractionalization allows for precise portfolio construction and rebalancing. Crucially, your stuff is segregated and secured, so you can buy a sliver of growth without sacrificing security. Next on BT correspondence, our intrepid transport correspondent finds out what the closure of the streets of Hormuz is doing to logistics businesses and the industry at large to stay tuned. A big thanks to Jeremy Foo from Stasyaway. Thank you so much, how are you, it's great to be here. Also Jack Pricket from Siph. Thank you so much, how are you? Until next time, this has been Money Hex and I'm Howie Lim. This is a podcast by the Business Times. Find more BT podcasts at businesstimes.com.sg/podcasts. Or wherever you get your podcasts. This podcast is meant to provide general information only. SPH media accepts no liability for loss arising from any reliance on the podcast or use of third parties products and services. Please consult professional advisors for independent advice.