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On a mission to help people reach financial independence, SoFi is the product of Standford business school graduates. Its story started almost a decade ago, and since then, SoFi grew into a diversified financial entity, serving over a million customers today.
From the start, SoFi promises a modern take for investors' money. Yet another company ready to challenge the traditional investing industry, SoFi is not a bank, although it offers many similar products like a bank does.
Becoming a SoFi member is for free, and the company is immensely proud of offering 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.
On SoFi Invest Secure Website
Minimum Deposit - $1
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, despite the fact that it is registered with the SEC.
It runs a legitimate business and offers great services to its investors – that is, for those investors that it targets. Namely – younger generation traders, students, low-income earners, wannabe investors, people that want to put their small savings at work.
SoFi does run a tremendous business otherwise. Its loans, insurance, and money services outpace in importance the investing part. This is both a blessing and a curse for the investors that wants to partner with SoFi.
It is a blessing because there is a solid business behind the investing part. It suggests that the company has the resources and the power to extend its services in the future. SoFi invest is NOT just another brokerage house into the niche of fractional shares investing. Instead, it is a non-bank extending its services into the investing world.
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 required by the SEC. And SoFi does have the funds from the other businesses that generate more cash flow.
SoFi Trading Products
SoFi divided its product offering into five main categories:
- For business
The names speak for themselves. The borrowing section deals with personal loans, private student loans, home loans and student loans 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 at 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:
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 (e.g., Schwab) require a minimum deposit of $25,000 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.
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.
The investing part is the smallest one in the SoFi’s business
It means that it may lack expertise. When the focus splits into other areas, like mortgages, personal loans, and so on, the investing part may not benefit from all the attention needed.
It seems like brokerage services are just something adjacent to the overall business, that focuses on something else. It feels like a bank, but it is not – so they say.
Too complex 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.
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.
Investing presented as too easy
Brokerage houses should present both sides of the story – the potential returns and the risks involved. The focus here seems to be only on the potential returns, in the detriment of understanding the risk.
This is not valid only for SoFi, but it represents a feature seen at many similar brokerage houses. Perhaps the thinking is that if investors have the chance to trade with no commissions and fees and invest the smallest possible amount, understanding the risk is their business.
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.
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.
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.
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.
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.
Visit the SoFi invest homepage and click on “Invest now.”
Get started by typing your names, and email address.
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.
After his stage, them about your employment and citizenship status, by choosing which of the option works for you.
Lastly, review the regulatory statements.
Check the two boxes and then click “Agree and Finish.”
3 Great Alternative Brokers to SoFi Invest
Here are our 3 choices of brokers which can use as a great alternative to SoFi Invest:
Robinhood has been around for over a decade, and as the name suggests, the overall aim was to democratize finance for all, slashing the cost of trading stocks for U.S. residents.
Today, Robinhood is one of the most popular brokerage platforms. It is also due to expand its services to the U.K. in the near future. With its introduction of fractional shares, Robinhood caters to traders who are cost sensitive. The company also offers access to cryptocurrency markets.
The target client for this company is the younger generation. This brokerage house is challenging the traditional broker, making waves in the industry. Robinhood understands that while traditional brokers have more account types and cover more markets, they lack the ability for quick responses to customer changes. So, they aim to give clients the power to participate without the bulk from the traditional industry.
Although it has caused a great deal of damage to lots of businesses, Robinhood has enjoyed additional business. With little to no sporting events for people to bet on, newbie investors have turned to Robinhood. This is a sure indication that over the coming years, Robinhood will continue to grow.
Webull also belongs to the new generation of brokerage houses challenging the traditional houses for clients. The company’s main tactic to compete is to attract many small retail traders, and by increasing volume, they are able to successfully compete despite only charging smaller fees.
The COVID-19 pandemic has provided the perfect example to understand this type of brokerage house. The $600 weekly checks offered by the government were put to work in many cases. There was a massive number of new retail trading accounts, but which brokers benefited from this new generation of traders? Since brokers like Webull accepted any deposit, they typically attracted clients that would have struggled to meet the minimum deposits required by traditional investment houses. This phenomenon was so large that the financial media often cited it as the primary reason the stock market continued to advance during the pandemic.
Traditional investment houses found these new brokers surprising, and as the competition intensified, they also lowered their commission to try to compete.
However, Webull continues to be highly attractive to new investors since it has no contract fees, and there is no commission for trading options. This is obviously far less than even the highly competitive Merril Edge that not charges $0.75 for contract fees and charges $6.95 options commission. Until the traditional houses learn that the new generation of traders operates in this way, Webull is likely to dominate by offering cheaper rates to gain exposure to the same markets.
Robo-advisory services increased in popularity in the last years. As digitalization takes over our lives, it conquered financial markets too.
Acorns services seem simple and intuitive. Compared with the traditional investing competitors, accessibility is the number one reason why investors choose to use Acorns instead of a traditional brokerage house. And yes, Acorns is a broker, as it intermediates the access to financial markets, albeit it does so for a ridiculously small fee due to extremely low operational costs. One cannot compare the costs of, say, Schwab, one of the largest brokerages in the United States, with Acorns. Hence, the difference in the costs is seen in the fees paid for accessing the market.
Besides accessibility given by the low entry costs, Acorns shines at the simplicity of its products. After all, there are only five portfolios to choose from, based on how much risk the investors are willing to take. By offering much more products to choose from (e.g. options trading, mutual funds), the traditional investment industry makes it difficult for individual investors to pick the right strategy for their portfolio.
Therefore, a robo-advisor like Acorns does not need to invest in trading education as it is its job to calibrate the portfolios and to allocate the investments accordingly – not the job of each individual client. This brings us to the biggest advantage of a robo-advisory firm in comparison with traditional investment services – there is no need to do anything, but send money in every day, week, or month. This is what attracts people scared of dealing with classic brokerage houses either due to lack of knowledge or to high costs.
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?