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SoFi spotted the opportunity offered by the new class of retail investors and jumped in to make the most of it. But its core business is not offering brokerage services, even though it is registered with the SEC.
It runs a legitimate business and offers excellent services to its investors – that is, for those investors that it targets. Namely – younger generation traders, students, low-income earners, wannabe investors, and people that want to put their small savings to work.
SoFi does run a tremendous business otherwise. However, its loans, insurance, and money services outpace the investing part's importance. This is both a blessing and a curse for investors who want to partner with SoFi.
On the other hand, it signals a lack of expertise. It only shows how easy it is to enter the brokerage industry should one has the funds to meet all the compliance requirements by the SEC. And SoFi does have funds from other businesses that generate more cash flow.
Becoming a SoFi member is free, and the company is immensely proud to offer a bunch of its services this way. For instance, SoFi members get personal career advice or even personal coaching advice for free. The catch is that by becoming a member to benefit from the free services offered, you will eventually lean towards using other products—this time, against a fee.
Account Options
Minimum Deposit
PROS
- No commissions or fees for trading
- One single account to access all investing products
CONS
- Too complex membership structure
- No live chat options
SoFi Trading Products
SoFi divided its product offering into five main categories:
- Borrow
- Invest
- Spend
- Protect
- For business
The names speak for themselves. The borrowing section deals with personal loans, private student loans, SoFi home loans and student loan refinancing. For the other categories, you can guess it is about services offered to private entities, insurance services, credit and debit card services, and so on.
What is interesting about SoFi is the way it approaches the investing side of its business. Called SoFi Invest, it is an easy-to-use all-in-one investing solution.
| SoFi Invest Product | Description |
|---|---|
| Active investing | Easy way to invest in stocks and ETFs |
| Automated investing | Robo-advisory services |
| Retirement accounts | IRA accounts for retirement |
| Crypto | Trade the main cryptocurrencies from the same account |
| Stock bits | Own fractions of shares starting at $1 |
| ETFs | Easy, low-cost way to diversify a portfolio |
SoFi Invest Pros & Cons
Like any other broker, there are pros & cons for investors/traders. Here are the main benefits and drawbacks you should know before applying:
- Diversification Benefits
By giving access to all investing markets from the same account, SoFi provides their customers with the possibility of diversifying their portfolio. Recently, Bitcoin and gold are tight in a direct correlation, showing a mature market and strong demand for alternative digital investments.
Therefore, by being able to add fractions of Bitcoins to a portfolio, as tiny as it may be, provides diversification benefits beyond the traditional stock market. Thus, investors can also hedge against inflation, should that be a worry.
- Anyone can invest – no minimum amount
Anyone can invest with as little as $1. This is where the new generation of brokers like SoFi tries to make a difference. By offering access to the stock market at such a low cost, it invites retail traders to discover a different way to invest.
At a time when the stock market holds the headlines in terms of exponential growth, many retail accounts are willing to put their money to work and postpone spending on consumer goods.
Because traditional brokers such as Schwab, Fidelity or Vanguard require high minimum deposit before opening a brokerage account, brokers like SoFi focus on the wannabe investors that do not
- One single account to access all investing products
Simplicity always works, especially when your target customer is the retail client. These investors belong to the younger generation and are used to have everything in their hands (read smartphone).
Therefore, one single app with access to all products is enough for such investors willing to take risks not using sophisticated trading strategies but mostly following the crowd, rumors, and so on.
Also, because of the relatively small size of the investment for the majority of the customers, there is no need to invest in highly sophisticated trading platforms. One account to serve all purposes suits best.
You can also get a welcome bonus worth up to $1,000 in free stock value.
- No commissions or fees for trading
That is one of the biggest arguments to trade with such a brokerage house. Its targeted customer is very price sensitive and, above all, it lacks the necessary funds to invest with a traditional brokerage house.
This problem is solved as SoFi took it in its own hands and delivered a solution – no fees or commissions for trading, as it gains from rebates on order flows sent to other market participants. A win-win situation both for the brokerage house (that still earns from this part of its business) and for the investors.
- Membership Structure
The list and structure of the benefits offered (for free) is so complex that it is literally impossible to know what you signed up for in the first place.
One thing is sure – SoFi pushes it all the way to offer you those great benefits just if you sign up – and, in the process, offer the personal details the company will probably use then to market its other services.
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- Limited range of products
No commissions and fees for trading with SoFi comes at an unexpected cost – limited investing opportunities. Besides fractional shares investing, ETFs, and crypto, that is pretty much everything you will find on its product offering. No options, bonds, mutual funds, funds of funds – nothing.
This limits the investment potential and perhaps this is one of the reasons why the broker chose not to invest a lot in its trading education services. After all, if these are all the products offered, there is not much of a need to spend money educating traders on complex diversification strategies when the products to use (i.e., forwards, futures) do not exist.
- Poor investing education section
It simply resumes to a few basic articles and terms, otherwise easily to find on Wikipedia or a simple Internet search.
- No live chat options
This is a feature that lacks at all brokers with similar functionalities like SoFi. It seems like the intention is to limit the interaction with the customers, rather than to encourage it. But traders usually want quick answers.
No one wants to browse endless FAQs to see a possible answer to an inquiry. Nor to give a phone call – the easier way would be a live chat option. Not something that you will find when wanting to inquire about something at SoFi.
Account Types
There is one single type of account for the individual investor, from which the trader has access to fractional share trading, ETFs, and crypto.
The retirement accounts are the classic ones involving IRA, and for the automated investing, the broker recommends a strategy based on the risk profile resulting from answering a questionnaire.
When it comes to retirement savings plans, 55% of American adults save their money using a regular saving account, according to T. Rowe Price. 401(k) plan closely follows by a margin of 54% of the respondents.
Depending on the type of risk, the broker sets up the Robo-advisor and it will automatically distribute the funds according to the diversification objective. Investing, in this case, can start with as little as $1 and the payment may be either manual or recurrent.
Commissions and Fees
Active investing with SoFi is done with the SoFi Securities, which will charge certain fees for actions in the trading account. For instance, SoFi charges a $25 fee for wire transfer out, a paper statement fee of $5, or a paper confirm fee of $2. Also, if you decide to transfer the account to another broker, consider paying a fee of $75.
What is important to remember is that SoFi does not charge commissions or transactions based fees. So how does SoFi make money then? The answer comes from order flow rebates. For example, SoFi uses third parties to execute transactions, and for that, it receives rebates for the opportunity offered to execute these transactions.
This is one of the major differences between traditional brokerage houses and the new generation of brokers like SoFi. The company also earns revenue on security lending and interest on uninvested cash in the brokerage accounts.
For the trader, what matters is the bottom line – no commissions or transactions based fees.
Customer Service
There is dedicated support for each product category offered by SoFi. From Monday to Friday, traders may chat via phone with support to solve issues that cannot be found in the quite extensive FAQ section.
Email contact is also possible, but no live chat option available.
Investing Education
SoFi has an educational center called Investing101. It is nothing but several articles put together, commonly used investing terminology and basics about stocks trading.
In other words, it is far from being considered an investing education resource. Probably that is enough for the targeted customers. Anyways, compared with other similar brokers (e.g., Webull, Acorn), the investing education section at SoFi seems a bit more advanced, as notions are presented in more detail.
How to Open an Online Account With SoFi Invest?
Step 1:
Visit the SoFi invest homepage and click on “Invest now.”
Step 2:
Get started by typing your names, and email address.
Step 3:
Next, choose the type of commission-free investing your want and then go to the next page, where you write down your street address, city, and state.
Step 4:
After his stage, them about your employment and citizenship status, by choosing which of the option works for you.
Step 5:
Lastly, review the regulatory statements.
Check the two boxes and then click “Agree and Finish.”
SoFi Invest Best For…
All in all, this is a good broker for those that do not afford trading with a regular, traditional investing house. High transaction costs and other barriers to entry (e.g., high minimum initial deposit) keep many wannabe investors aside – investors that just cannot afford the services but are willing to take a chance.
For such investors, SoFi is the ideal choice. No commissions or fees for transactions, easy-to-understand products (crypto, stocks, ETFs), one account to trade them all from, a friendly app, and the ability to start investing with as little as $1.
What else can a young, wannabe, retail trader ask for?
