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The Rise and Fall of Loyal3 Brokerage


Loyal3 was a brokerage firm that made a significant impact in the investment world. The company made a good show and rose to be a well known provider with unique business models that gave the average investor fee free investment opportunities and it offered a platform that became immensely popular. The company had its hayday, but it eventually fell by the wayside. We're taking a look at how this company rose through the ranks within the industry, as well as the factors that led to its downfall in our review that details the rise and fall of Loyal3 Brokerage.

What was Loyal3?

Loyal3 was a brokerage firm based in San Francisco, that offered a non-traditional business approach to investing. Their model included partnering with public companies and providing a service which included selling their stocks. Instead of charging fees to the investors they served, Loyal3 earned its revenue from the publicly traded companies for which it brokered the sale of stocks. The average prices for the stock sales ranged between $10 to initial IPO stocks of as low as $100 per share. This was something that small investors found appealing and so did the higher stakes investors.

The history of Loyal3

Loyal3 was founded in June of 2008 in San Francisco, California as a private independent brokerage firm. The company employed 214 workers and it raised funds in the amount of $62.4 million for startup costs. The company faced Wealthfront, SigFig and Openfolio as their major class competitors. The company, prior to demise had a revenue of $4.1 million annually. They sought to solve the problem of accessibility for everyday investors to IPO stocks. There were some significant risks in purchasing stock in IPOs because these are new companies that are just making their stocks available, so IPO investing isn't something that some investors are willing to do. While it can be a great way to get in on the ground floor of an up and coming new publicly traded company, it can backfire on investors as well, should the company fail to thrive and perform.

In retrospect, the CEO of ClickIPO offered that Loyal3 along with its users made a significant impact on the brokerage front with a new and unique system that did address some of the problems with investing and they "moved the game forward," but they also made a few mistakes. His assessment is that they took a risky venture and moved it ahead well and even though there were some errors made, they did a lot of things right and for this, they are to be commended.

Changes in Loyal3 leadership

Throughout their brief history, Barry Schneider served as the CEO of Loyal3 Holdings Inc. from its founding until the close of 2015. He left the company for personal reasons and was replaced by John Stellato. who served as the president and COO prior to stepping up to the position of CEO. A spokesperson for the company reported that the change in leadership did not change the business model or the manner in which the company was being run.

Benefits of Loyal3

Loyal3 designed an easy to navigate homepage with features that were easy to use and they even included a video that described the investment offerings that they provided as well as their business model. They included a chart table for fee comparisons along with customer testimonials and customers were given the opportunity to receive email notifications when IPOs became available. The site was educational and the majority of their services were free. Investing in stock was an easy process and these are the factors that contributed to the popularity of the Loyal3 brokerage firm and helped them to become established as a reputable company. They were remarkably transparent and their website also included help sections and pages which were dedicated to proving thorough and detailed information about their products, which basically were stock shares in the companies for which they brokered sales. Their target audience was the millennial crowd.

Other benefits

Loyal3 also offered their clients to opportunity to purchase partial stocks for no fee. Most other firms charge a fee for the process. They offered sale of stocks in some of the most popular companies including Disney, Google, Microsoft, Intel, Berkshire Hathaway, Pepsico, Twitter, Target, Unilever, Time Warner, Apple, Amazon, Walmart, Yahoo, Viacom and several others. There was no minimum balance requirement, and continuous trading was supported throughout the entire day with batch trading of the orders from customers taking place once per day. They also supported the use of a credit card to fund the account, and provided military grade security to guard clients from broker default and illegal activities. Even though the trades are made in batch form, each customer is guaranteed the lock in price that was offered at the time of the trade.

Disadvantages of Loyal3

While Loyal3 definitely had some great things going for it, there were also quite a few drawbacks. The firm provided a limited number of the more popular company stock shares and it focused upon initial public offerings. They did not offer exchange traded mutual funds, nor bonds. In 2014, Loyal3 only partnered with 55 companies to sell their stocks across the stock exchanges. This is a small percentage that didn't give their clientele a wide range of choices. It was difficult for them to establish a large customer base with such limitations. While it was a limited offering, the major factor that offset this shortcoming is the fact that there were absolutely no commissions charged on trading and no fees associated with their services, for the consumer purchasing and trading stocks. This was the thing that made Loyal3 stand out from the crowd of investment brokers. Not all public companies were willing to go with Loyal3 with their business model so they chose to go with those who would consent to paying the fees for the services they provided and it's as simple as that. Nor did Loyal3 charge a fee or transferring your account to another brokerage firm, so in this sense, they were able to build a reputation for being honest and consumer focused.

Who benefited the most from Loyal3?

As we reviewed th history of Loyal3 it became apparent that they were certainly different in their approach to offer fee free investing. In the arena of brokerage firms this kind of a deal is almost too good to be true, but in the case of Loyal3, it was a legitimate firm with the goal of being different so they would stand out from the crowd. Those who benefited the most from Loyal3 services were the investors, both large and small because the buying and trading savings were significant when compared to the majority of other brokerage firms out there. New investors and buy and hold investors did the best when working with Loyal3.

Comparison of Loyal3 and other brokerage firms

Loyal3 was compared with other brokerage firms by Value Penguin to ascertain its true value as an alternative to the more expensive brokerages and it came out ahead in some respects. Capital One ShareBuilder offered what is known as an AIP, or automatic investment plan allowing for partial share trading and purchase, but ShareBuilder only executed trades on each Tuesday of the week, while Loyal3 offered daily batch executions. Another area where Loyal3 came out ahead of Sharebuilder is that Sharebuilder charges fees for every transaction conducted and this lessens the amount of investable funds available while the Loyal3 traders didn't ever take this kind of a hit on their funding.

The decline of Loyal3

Loyal3 had a customer base of over 200,000 clients active in buying, selling and trading of stocks. The Loyal3 brokerage was not able to attract clients who were interested in diversification and there was a serious lack of reaction to quick changes in the market. Loyal3 became defunct because of their inability to attract a large enough audience of investors and IPOs for sustainability and a company that saw value in Loyal3 because of similar trading philosophies acquired and absorbed them into their operations. Loyal3 no longer exists as a business entity and it became a part of he Folio Group after the acquisition. Loyal3 is not retain its characteristics because Folio could not accommodate the same platform, but the Loyal3 customers who became Folio customers were transferred into the new system seamlessly. Peter Jacobstein is the Senior Vice President for Folio and he shared that the customer service volume has been very well handled and there were little adjustments to be made on the part of the consumers. Since they operate on dollar based investing, as Loyal3 had, the only real difference that former Loyal3 customers will truly notice is that there are a lot more trading options open to them.

Where Loyal3 customers were left

Loyal3 attacted a great deal of new investors and it was a great platform that allowed newbies to get their feet wet with small amount stock purchases without having to pay fees. Loyal3 issued a notice to their clients in May of 2017, informing them of the fact that they were closing down. They gave some investors the chance that they needed to become familiar with the process. Clients were not left in dire straits as their investment accounts were transferred to FolioFirst. The biggest change that they would encounter would be the $5 per month account fee charge. This was first time investors' introduction to the rest of the brokerage world where there are not many freebies offered. For some of the smaller time investors, it meant that their yield and reinvestment funds would be cut, some significantly and it impacted the speed of dollar cost averaging.


The Loyal3 clients had the option of maintaining their accounts with FolioFirst which did offer commission free trading of up to 2,000 trades per month which was not a bad deal at all once you get past the $5 monthly fee. The stock options were significantly more when compared to the 55 offered by Loyal3, they provided more than 200 publicly traded stock options as well as around 70 ETFs. Clients also had the ooption for opening IRAs as well as joint accounts with FolioFirst, but in addition to the monthly fee, there is also an annual IRA reporting fee of $25 for those who choose this option, then in 2018, a $15 maintenance fee was instituted. Still, when compared with some of the other brokerage firms such as Ameritrade and many of the other firms, the fees are a lot lower.

Final thoughts

Loyal3 was a brokerage firm that was established with the very good intentions of addressing common problems experienced in the trading industry. They operated on a unique platform that was customer-centric and this was ideal for new investors and those who were able only to make small purchases between $10 up to $2,500. This was a great brokerage firm for helping people to get into the swing of trading without having to pay fees for their services. Experts in the field of the stock brokerage industry see the value and contributions made from Loyal3's unique platform and it was effective in some areas, however, the company ran out of time in addressing some of their major shortfalls. There are Loyal3 customers who are thankful for the experience and they've moved on to other brokers, some choosing to keep their accounts open with FolioFirst, which offers similar services and more affordable terms, but others have moved on to different brokerages. When it comes to customer focused service, it's going to be hard to find another brokereage firm that can deliver on the fee free format of Loyal3.

Dana Hanson

Written by Dana Hanson

Dana has extensive professional writing experience including technical and report writing, informational articles, persuasive articles, contrast and comparison, grant applications, and advertisement. She also enjoys creative writing, content writing on nearly any topic (particularly business and lifestyle), because as a lifelong learner, she loves to do research and possess a high skill level in this area. Her academic degrees include AA social Sci/BA English/MEd Adult Ed & Community & Human Resource Development and ABD in PhD studies in Indust & Org Psychology.

Read more posts by Dana Hanson

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