The stock market, according to Adam Dodds, needn’t be scary – “but people are always afraid of what they don’t understand.” The fresh-faced 30-year-old has a contagious buzz about him as he describes the app he hopes will “democratise” the UK’s investment scene.
Alongside partners Davide Fioranelli and Andre Mohamed, Dodds co-founded Freetrade –a mobile-based stockbroker service offering zero-commission on global transactions. Set to be launched this year and available on iOS and Android, Freetrade has raised a total of £1.3m in less than 10 months through crowd-funding platform Crowdcube.
So, what’s the catch? “There’s no catch,” Dodds laughs, while gesturing towards a sofa sunk so low into the ground that it may as well not be there. We’re at a tech exhibition event in Old Street, London, showcasing successful start-ups. There’s a pop-up bar with a craft beer you won’t have heard of and an even rarer coffee. We fall together before Dodds rebalances himself and explains how Freetrade took off.
The former KPMG accountant, who’s dressed more like a student than a CEO, begins: “When I moved to London a few years ago I was shocked at how expensive and intimidating it was to become an investor. This is why Freetrade was created, to make investing in the stock market easy and affordable for everyone.”
Dodds says many people in the UK, especially millennials, are put off stocks and shares. “Costly broker fees, typically around £12 per transaction, stop smaller investors, who usually need to see their investment grow considerably before it returns a profit.” In addition to the fees, receiving the correct advice is difficult to come by because it tends to require an investor meeting with an independent financial adviser (IFA), which also incurs a charge and is time-consuming.
A report, Bridging the Equity Divide, published by Syndicate Room earlier this year, found that 46 per cent of Britons would love to invest in stocks and shares but don’t know how. Dodds appends: “Even when an investor is knowledgeable, a lot of the traditional channels are out-dated and difficult to use.” Other platforms such as Robinhood and Loyal3 both operate similar zero-commission models in the United States, but cross-pond emigrant Dodds was surprised that UK traders didn’t have anything similar on offer.
Freetrade’s zero-commission tagline, however, should be taken with a pinch of salt. Basic Freetrade accounts are totally free, but premium share-dealing accounts come with a flat rate of £1 commission per £1,000 invested. Another rung sees users charged for self-invested personal pensions (SIPPs) or stocks and shares Individual Savings Accounts (ISAs).
Still, Dodds maintains that there’s nothing cheaper. “Basically, broker fees have stopped smaller investors from making money. The app will remove major barriers to stock market investing. There isn’t anything else like it in the UK.”
Blazer-but-no-tie sort of guy Mohamed grabs a coffee, joins us, and pitches in: “The investment market has been inaccessible, not only due to the outrageous commissions, but the process hasn’t really been streamlined through an app. It’s long, drawn out and you’re signing stuff over with a pen. We don’t have a minimum deposit and users can get started with a few taps of their phone.”
If Freetrade’s costs are so low, where do you make money? Mohamed counters: “You could say the same thing about Spotify. I’m not worried about our premium services not being good enough to cover the revenue. What we have at the moment is a hypothesis and we’re right to find the right mix of premium services and product points. It’s about customer acquisition and keeping eyeballs on the app. It’s very sticky compared to something like Revolut.” Revolut, for context, is a global money app that includes a debit card, currency exchange and peer-to-peer payments. Mohamed goes on: “They have half a million customers but people only use them when they go on holiday. We feel we are in a much better position compared to someone like Revolut when it comes to monetising people’s interest. How we make money is similar to any broker – interests on cash balances. If you haven’t invested fully on your account, there’s revenue that’ll be there for us.”
Whereas other brokers charge a huge mark-up, Dodds says that Freetrade’s effective use of fintech has “totally slashed overheads” and by “not employing hundreds of staff or using bricks and mortar” it retains wiggle room. Mohamed adds: “There are no maximum or minimum trades and there are even fractional trades on offer too. They are real shares and this is real ownership. It’s the same as you would get from another broker but without the hassle or the expense. It’s nothing like CFD [contracts for difference].”
What are fractional trades? Dodds beams: “Freetrade will be introducing fractional share-dealing to the UK market. So, if you have Apple trading at £100 per share, you’ll be able to buy part of that and invest just £25.” Fractional trading is available in the US through the likes of DriveWealth and Stash Invest, but Freetrade will be bringing this model to Europe for the first time.
Is this gambling? Dodds takes a deep breath. “I think there’s risk attached to any kind of stock trading, but this isn’t spread betting. We’re about supporting investors in the long-term who would be excluded otherwise. Users have control and visibility. If you have extra cash and you have it in a bank account, not generating much interest, you could instead have it in an ETF [exchange-traded fund] and it’ll earn money on its own.”
Dodds makes it all sound so easy but he insists: “that’s because it is.” The Freetrade app, “which takes seconds to install”, could be likened to “Uber and Airbnb”. Independent advisers will also be able to provide advice directly through the app, opening up a whole new world to the novice investor. Climbing out of the sofa sinkhole with a smile, Dodds closes with this: “Freetrade is digital only and mobile first, built from the ground up using new technology. This means we have significantly lower staff requirements, so can actually afford to remove commissions from the equation. We’ve seen a similar model work with UK challenger banks like Monzo and Tandem. Now it’s time for the brokers to get disrupted.”