Fidelity claims the sub-Robinhood segment for itself (among the majors) by offering investors ages 13-17 a parent-lite trading app, and at no cost to go with a neobank.
The Boston giant – following the success of Step and others – is tackling this largely virgin market with a tough teaching philosophy and a seamless transition to a regular brokerage account when the teenager turns 18.
Note from Brooke: My stupidest financial mistake before I was 18 was buying a Honda Trail 90 motorcycle from a local clam harvester, Karl, in Maine. I was 14 years old. I took most of my savings from every Christmas or birthday $ 20 check and the money my mom had set aside for me. I dipped it right away. I’ll never forget Karl’s closing pitch: “And if you shoot a deer in the woods, you can bring it back.” I had already decided before this sales line of choice. I guess I didn’t have very good financial skills, yet even today little in the investment and advisory arena puts me on the run faster than introducing the term “Financial literacy” in the conversation. Get him out of here. So I applaud, I think, the fact that while Fidelity offers “youth” accounts, that includes a way for kids to invest – and lose – their own money with little parent involvement. No one learns much from success or from reading about it. I ended up riding this bike a few times before it didn’t start. My dad, an orthopedic surgeon, loved it that way and wouldn’t help fix it. It was there for several decades before my mom gave it to a friend’s son who was cleaning the garage. He had it repaired and gave it to his sister who used it to commute to work in Bethel, Maine. It was a happy ending. But I vowed not to be careless with the money, again. It still hurts a little when I think of that 1977 madness of my $ 350 in savings.
Fidelity Investments launches a bold ‘get-’em-while-they-young’ marketing strategy that allows children ages 13 to 17 to open their own ‘youth’ account that automatically converts to a full brokerage account once they are ‘they turn 18. hopefully then they’ll stick around.
For now, Fidelity prohibits RIAs from using youth accounts on behalf of their investors through institutional accounts, but they can get around it by using the retail platform.
“We are currently assessing advisor interest and are exploring inclusion as part of our offering going forward,” Fidelity spokesperson Nicole Abbott said.
The Boston investment giant says it is the first to introduce underage teens with zero subscription fees, no account fees, no minimum balances, no domestic ATM fees and no online commissions.
Last year, the leading full-service online brokerage firms were awakened by Robinhood, its no-frills online rival, which has seen explosive growth among young ‘Gen Z’ investors.
“There is a rush to acquire customers at younger and younger ages, in part because Gen Z has both fintech and crypto solutions at their fingertips,” says Lex Sokolin, co-lead global fintech at ConsenSys
“Teen neobanks like Step are [also] grows significantly, ”he adds.
Calling the shots
Fidelity may be looking to beat Robinhood for young investors with its so called “Fidelity Youth account”.
As it is illegal in most states for anyone under the age of 18 to open a bank or brokerage account, Robinhood only targets investors who are 18 years of age or older.
But adult Fidelity account holders can open youth accounts for minor children. They can maintain surveillance, but not control, according to Fidelity website.
“We believe that the most general characteristics that set us apart are the adolescent who does not need parental consent before making a spending or investment decision, and no fees,” says Robert Beauregard, a spokesperson for Fidelity.
Beauregard’s boast is correct, but only up to a point.
Parents can only monitor account activity online and through monthly statements, transaction confirmations, and by viewing debit card transactions. Parents can also set up alerts to notify them of transactions, transactions and cash management activities, the website says.
But if any illegal or fraudulent activity occurs, parents will be held accountable, according to the fine print of Fidelity.
Fidelity is adamant that the initiative is all about financial literacy – period.
Repeated inquiries about whether the youth program has a strategic aspect were met only with more comments on financial literacy.
Our goal for the Fidelity Youth account is to encourage young Americans to learn by doing and foster meaningful family conversations, ”said Jennifer Samalis, Senior Vice President of Acquisition and Loyalty at Fidelity Investments in a commentary. communicated.
While parent-child conversations can be meaningful, the real teacher may be a teenager’s prerogative to subject the money from mowing the lawn to the mouths of the markets.
“Parents have to co-open the account, but the teenager then creates their own username and password and makes their own decisions about saving, spending and investing,” says Beauregard.
“The parent / guardian must agree to receive statements and can choose to receive alerts on their phone for expenses and investments.”
While Fidelity is breaking new ground among the big discount brokers, it’s not really a disruptive innovation, Sokolin says.
“None of the established brokerages are at the forefront of innovation – they all keep pace with the fintech industry. Some are quick followers and some take a decade.
So far, the Youth offer has percolated with 800 pilot accounts.
Teen accounts would be limited to a maximum opening balance of $ 30,000, but teens can start with as little as a dollar. Fractional trading is allowed, but tools that can accelerate or amplify losses – namely options trading or margin trading – would be prohibited.
Teens using the Fidelity product in a pilot program report providing almost half of the money used to fund the account (44% on average), with parents and other families funding the rest.
Importantly, for both the teen and Fidelity, the account is transferred to a standard brokerage account when the teen turns 18 without the need to transfer assets to another account or generate a new account number or login credentials.
The Youth Account is also a debit card bank account, with reimbursement of national ATM fees, and with a choice of cash swipe options for any uninvested money.
Fidelity also does its best to constructively gamify the way it teaches teens, its exit states.
“Fidelity offers the free online game Five Money Musts for people who want to learn how to manage their money to prepare for the ‘real world’,” he says.
Five Money Musts allows users to explore the basics of budgeting, credit cards, debt, investing and retirement. The game tracks progress and awards points based on decisions users make. choose for different financial choices. “
Deaths and taxes
Taxes and fees are a potential sticking point.
Fidelity makes it clear that the funds in the account belong to the teenager. Thus, they may be required to file an income tax return. Parents can choose to include the income on their tax returns if they “meet certain requirements,” the website says.
Funds used to open the account may also be subject to gift taxes if they come from relatives or a third party.
In the past, parents would invest through their children to pay less tax on this income. But the IRS cracked down on the tax shelter by creating the “children’s tax,” according to CNBC.
The purpose of the children’s tax is to discourage the transfer of income between parents and children, Dan Herron, San Luis Obispo, Calif.-Based CFP and certified public accountant at Elemental Wealth Advisors told CNBC.
The Fidelity website cautions: “The parent / guardian should consult their tax advisor regarding federal, state and local tax consequences and / or the potential impact on future student financial assistance by opening an account regarding their circumstances. personal and adolescent. “
The Boston giant was slow to respond to Robinhood’s “ zero ” commissions for investors between the ages of 18 and 40, so it’s likely to be hot to err on the speed-to-market side in the market. adolescent segment.
“I think Fidelity is faster,” says Sokolin. “But I also think * everyone * is faster this time around – watch Goldman Sachs dance around everyone with Marcus, his integration into Google Pay, being behind the Apple Card and all kinds of other gymnastics. early adoption. Selling YOLO shares to teens is the least of it. ”YOLO stands for“ You only live once ”.
It also faces competition from startups such as Step, a San Francisco-based company that has recruited over 500,000 clients in two months and Recently raised $ 50 million in a round led by Coatue Management.
Coatue is based in New York and also supports Apex Clearing and M1 Financial to a large extent, according to Reuters. See: Tackling Schwab, Robinhood and Wealthfront, VCs Keep Throwing Money – Now $ 153 Million – at M1 Finance It Doesn’t Need to Burn
The round saw Justin Timberlake and Eli Manning invest for the first time and existing investors like Stripe and Will Smith’s Dreamers VC added to their stakes.