Why Fidelity Wants to Be Your Kid’s Stockbroker

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Fidelity Investments wants to handle your child’s stock trading, and it is taking a swipe at Robinhood and other trading apps to capture the Gen Z digital wallet.

Fidelity unveiled a new “youth account” product on Tuesday, designed for teens 13 to 17 years old. The new custodial accounts include a mobile app with streamlined features and content for teens. The app can be used to trade stocks, ETFs, or mutual funds. The accounts also come with a debit card and can be linked to Venmo and

PayPal

(ticker: PYPL) apps for peer-to-peer payments. 

Fidelity is pitching the product as a way to teach kids about financial literacy and healthy spending habits. “We’re hoping it fosters conversations between parents and teens, but we also wanted teens to feel financial responsibility,” said Jennifer Samalis, senior vice president of acquisition and loyalty at Fidelity. 

One of the largest discount brokers, Fidelity has a built-in customer base for its new child-friendly product. The brokerage firm has 28 million retail brokerage accounts, including millions of households with teens, Samalis says. The new custodial accounts won’t have parental controls, giving kids freedom, though parents can get alerts when their teen places a trade or uses the debit card.

Fidelity, like other discount brokers, no longer charges equity trading commissions. It is also offering fractional trading—the ability to buy less than a full share of a stock. That is particularly appealing for people who are just getting started or might not have enough cash to buy a full share of

Amazon.com

(AMZN) or

Alphabet

(GOOGL), at recent prices of $3,287 and $2,284.

“For as little as a dollar, they can try their hand at investing,” says Samalis, referring to users of the app.

The broader strategy, of course, is to try to capture the Gen Z digital wallet. Apps like Robinhood,

Square

‘s (SQ) Cash App, and others have taken off with Gen Z—a demographic group of more than 70 million Americans under the age of 25.

Many young people tried their hand at trading for the first time during the pandemic. Since commissions have vanished, the upfront costs to them are nil. And the markets have cooperated, rising sharply over the past year.

More broadly, financial firms are racing to control the digital wallet through the development of “super apps” that can do it all: online banking and saving, stock trading, crypto trading, and peer-to-peer transactions.

Fidelity hasn’t added things like emojis, social networking, or crypto trading to its new youth app because it is trying to encourage financial responsibility, says Samalis. “Saving, investing, and spending is really serious,” she says.

But a shift in mass financial psychology appears well under way regardless. Mobile apps have made trading more fun, accessible, and easy to execute with just a few dollars. Gamification is getting entrenched. Hooking kids is a tried and true strategy in other industries aiming to create lifelong customers; brokerages don’t appear to be far behind.

While that may not be Fidelity’s goal, it certainly wouldn’t hurt. Children gain full control over their custodial accounts once they turn 18. If they have traded and invested wisely, they could have more money for college, their first apartment, or a bit of crypto on the side. And they are highly likely to stay customers of the brokerage that paved their path to financial adulthood.

But some financial advisors see plenty of ways for things to go wrong by encouraging teens to trade.

“It’s certainly helpful to educate people about investing, but that’s not the most exciting part,” says Gary Schatsky, a financial advisor in New York City. “It’s the possibility of high profit in short periods of time. You can only expect that kids lacking basic financial education will be drawn to the more exciting parts, which isn’t necessarily planning for their retirement. It’s planning for tomorrow.”

Schatsky adds that his own experiences as a teen investor taught him how quickly it can all end in tears. “When I was 16, I invested a small sum, built it to a larger sum, and lost half of it in two days. That was probably one of the greatest lessons I ever had.”

Write to Daren Fonda at [email protected]