I’ve been contemplating some innovation investments in the US market for a couple of months now and on the weekend I decided to take the plunge. My next step was to find out how I could make the investment from all the way over here in Oz. Hopefully without paying exorbitant brokerage fees and without too much hassle. Enter Stake app.
Here’s how it all went down.
Having made my investment mind up, I consulted father Google about where I could make my purchase. The consensus on whirlpool forums (there were no other websites that could answer my question) was to do this through Interactive Brokers Australia (IBKR). IBKR is a brokerage firm here down under that markets itself as the lowest commission option for Aussie global investors.
So I jumped on their website to find out more and if it all looked good I planned to open an account.
That’s where my IBKR plans went to hell in a hand basket.
Why crypto, blockchain and DeFi will eat up the financial services industry, one millennial investor at a time
What I found when I read through the requirements to open an IBKR account incensed me. To lodge an account application I needed all the standard KYC (know your customer) requirements of a regulated financial services enterprise. Name, address, DOB, and government ID number. But here’s where it gets ridiculous. I was also obliged to provide my:
- Citizenship information
- Tax File Number
- Employer name and address
- Information on assets and income
- Information on investment objectives and experience, and
- Any bank or 3rd party broker account numbers for funding purposes
WTF, you say?
Why my TFN, my employer, my assets and income, and my investment experience is any of their business I’m yet to understand.
But it didn’t stop there.
On top of all that, IBKR required me to physically mail to them via snail mail certified copies of my government ID, my proof of Citizenship and blah, blah, blah at this point I just stopped reading and killed the page. It was going to take me weeks to set up an investment account just to send my money over to Wall Street…
Now, I’m a crypto and DeFi investor and enthusiast and I’m used to transacting at the bleeding edge of Fintech innovation. My investing world is now a world of mobile wallets, digital money, minimal and instant KYC verification, 3-minute account set-up and immediate access to global transactions that complete within minutes. It’s intensely gratifying to make up your investment mind and start making money on the spot. And I’m not going back
So I went back down the Google forum rabbit hole to find a better option. And that’s when I stumbled on Stake app.
Stake app – best for investing in US markets?
Here are all the critical questions answered about Stake so that you save time on research. The upshot? There are risks, and these are probably higher than investing through someone like the Commonwealth Bank’s trading and brokerage arm Commsec. But if you’re looking to invest in US markets, they offer a lot of convenience, some innovative features and cheaper fees to do so. Read on for all the benefits and our experience using Stake app.
What is Stake app?
Stake is a Fintech company that provides a mobile phone app to invest in US markets directly with zero brokerage commission. They provide access to more than 6000 US stocks and ETFs. Sounds total fly right? That’s because it is. It also explains why Stake has tripled its Aussie customer base in the 12 months to February 2021, hitting 300,000 users. On recent checking their user count has grown by another 10% in 6 months.
Now, Stake is not alone in increasing customer numbers. Stock market platforms overall have run up pretty widely with everyone bored at home in 2020 watching stock markets go on a tear and wanting to get in on the action.
But the interesting thing about Stake app is 65% of its customers are under the age of 35. More on that later.
How does Stake app work?
Stake partners with Macquarie Bank, DriveWealth, POLi and Airwallex and Citibank to deliver its services.
Drivewealth LLC is a US brokerage company. When you set up an account with Stake you are setting up a broker agreement with Drivewealth. Stake doesn’t place any trades but simply facilitates the order placement. Drivewealth acts as the broker and executes all trades on US markets.
Your shares are held in custody by Citibank in the US.
Airwallex provides mobile wallet services to Stake users.
Macquarie Bank provides services to users that operate Trust and Company accounts through Stake.
POLi provides bank integrations to move your funds into you Stake account direct from your bank account.
As Stake leverages US partnerships for its share trading service it’s not the same as buying Australian shares on Commsec. Staked does not provide your with a Holder Identification number (HIN) or Security Reference Number (SRN) for the shares that you buy. Instead, you investments are pooled with all other Stake users (which is how they provide fractional investments). You are the beneficiary of your shares not the legal owner (with a HIN or SRN).
They run the custodial share investing model, which is common place in the US so you’ll probably come across it irrespective of broker.
Who owns Stake app?
Stake is a division of Sanlam Private Wealth Australia and was founded by Matt Leibowitz, John Abitz and Dan Silver..
Sanlam Private Wealth Pty Ltd provides financial services for high net worth individuals and corporations in Australia and it seems a number of other locations worldwide.
Is Stake legit?
Stake is a registered Australian business trading as STAKESHOP PTY LTD (ACN 610 105 505, ABN 99 610 105 505) Registered to Sydney, NSW 2000.
The first thing to understand is that Stake operates under the Financial Services License held by Sanlam Private Wealth Pty Ltd. It is regulated by both the Australian Securities and Investments Commission (ASIC) as well as the US FINRA and SEC (because of its partnership with US brokerage firm Drivewealth LLC) – more below.
Stake’s website states that if their business goes under, you still have access to all your cash and securities through broker partner, DriveWealth and share custodian Citibank & Velox Clearing LLC. We’re not too sure how easy it would be to access these companies from Oz however.
Stake also holds Professional Indemnity Insurance cover for the activities conducted under its licensee authorisations of up to $500,000. The insurance is provided through US Securities Investor Protection Corporation (SIPC) who acts for investors if their broker goes bust.
What are the benefits of using Stake app?
After using Stake for a while now the benefits over a standard brokerage are pretty clear
- Easy, instant account set up with mobile trading
- Fractional investing
- Save on trading fees for smaller amounts
Let’s look at each of these.
1. Easy, instant account set up with mobile trading
It takes three minutes to set up your account. No need for certified documents sent via snail mail. No tax file number requirement and certainly no questions about your income and assets or your investing experience. Stake also submits your US tax filing document on your behalf for $5, saving you time and paperwork. The way financial services should be.
2. Fractional investing
You can buy fractions of a stock. This is a great offering for investors with a little money to start or for anyone who wants to dollar cost average in to the market. It also means you can buy a stake in some of the biggest companies in the US with shares trading above $1000 each. And you don’t need $1000. Think Google, Apple, Tesla, Amazon. The only thing to remember is the FX fee structure for Stake. You need to buy at least $300 worth of any stock or you will be paying more than their advertised 0.7% fee on the trade (they have a $2 minimum fee on small trades).
3. Save on trading fees for smaller amounts
For example, Commsec fees for international trades are:
- Broker fees
- USD $19.95 for trades up to USD $5,000
- USD $29.95 for trades up to USD $10,000
- 0.31% for trades above USD $10,0001
- Plus, FX (exchange) fees of 0.6%.
Stake fees are 0.7% or a $2 minimum.
4. Easy tax reporting
Stake allows you to track your portfolio & run tax reports using Sharesight. This includes completing your CGT, Taxable Income Reports and calculating your Unrealised Capital Gains. They also generate a Sharesight CSV within two weeks of the end of each tax year. You can check out more information on Sharesight’s website.
How does Stake make money?
Stake charges an FX margin fee of 0.7% per trade (minimum $2 on any trade). It also makes 0.5% on any express funding requests you make (which provides cleared funds in USD the next trading day).
There is a 2% fee for funding your Stake account with a credit or debit card, but you can just fund for free via POLi bank transfer.
They also charge $2 to withdraw from your Stake account.
If you want to transfer your stocks out of your Stake account to another broker, be prepared to pay some hefty fees for the privilege ($100 per transaction)
The company also earns some interest on the cash in the trading accounts and earns revenue from their premium offering, Stake Black which comes with a $9/m subscription fee.
What is Stake Black and do you need it?
Stake Black is Stake’s premier trader service. It comes with a subscription cost of $9 per month or $7.50 if you pay annually. For the fee, Stake Black offers added extras like instant buy against sold trades (instead of waiting for settlement), Wall st analyst buy and sell ratings and price targets, as well as full company financials.
You’re only going to need it if you don’t have access to the data elsewhere or if you are day trading and need to access your capital quickly.
Our experience using Stake
Like I was saying at the beginning of this post, we chose Stake partly because it offers an easy three minute sign up with instant KYC verification. We literally had our account up and running and funded in under 5 minutes. Big tick.
Free stock offer ‘up to $150’ – is it worth it
While Stake advertises a free share valued at up to $150 and uses examples like Nike or Dropbox (worth a fair bit per share), you may also get what they call the ‘mystery share’ option. This is because the stock you actually receive is dependent on a ball drop game in the app. We ended up with a random share worth $3.26 or so from our ‘sign up bonus’. We’d like to know if anyone has has received the more expensive Nike stock, or the whether the game is designed to give you the random, cheap ‘mystery’ share each time. The offer seemed like a gimmick to us so don’t sign up for the free stock alone.
To qualify, you sign up with an individual account and fund your account within 24 hours of setting it up. It’s easy to fund your account by sending a few hundred bucks from your bank account through POLi.
You’ll be able to claim your free stock during the sign up process. The free share lands in your account within 3 days and then you can sell it for cash or keep it as an investment.
Funding our account
We didn’t choose their express service to fund our account (for a $3 fee) and needed to wait 3 days for our money (in USD) to arrive. This point we are marking as a fail for Stake because as blockchain continues to infiltrate Fintech companies, users will become accustomed to instantaneous settlement without the $3 fee. Crypto and DeFi on-chain transactions already achieve this for their users. Stake seems like a step back to conventional finance in this respect.
Using the app
It was simple to navigate the Stake app, search on the stocks we wanted to buy and purchase those stocks. The app is user friendly – just don’t be afraid to tap on the different icons and see what is in each part of their menu. They have a wallet dashboard where you can see all of your investments, on the one screen as well as your cash holdings. There is also a stock watch list you can build and a stock search bar. The app also has a US markets overview feature where you can see market news and top stock movers and shakers.
Stake’s next move
Stake wants to shake up super funds for its millennial users. It’s looking to give cheap and easy access to self managed super in the same way it’s led its young investors to Wall Street with zero broker commissions.
Stake claims that customers want control, lower fees, transparency, and the ability to invest in what they want in their own super. The service will aim to take care of all of the paperwork and administration for super funds so owners can focus on investing.
Sounds like a disruptive Fintech idea if they can make it work – we’ll be following with interest.
There’s also apparently ASX trading coming soon to Stake.
The final word – it’s time to innovate or die for financial services
Millennials are the first generation born online. They’re also entering their peak earning and disposable income years. Their preferences and habits reflect this and will change financial services as we know them, and quickly. Stake app and other disruptive digital wallet models will be the early beneficiaries. Their exploding customer numbers reflect this. We signed up because what Stake offers is more convenient, flexible, and cheaper, than many of the conventional investment houses. But we’re not putting all our investment eggs in the Stake basket.
It’s worth acknowledging that even these new and disruptive Fintech companies like Stake still require T+3 to fund your account and T + 2 or 3 to settle trades.
Blockchain transactions of cryptocurrency can already do this instantaneously.
The danger for Stake is that customers will leap frog them and jump straight onto the Blockchain once crypto services become simple and user friendly. Only time will tell.
Oh, and if you want to know what we invested in, it was the genius of Cathie Wood. But you’ll have to stick around for more on that later 🙂