Hoping to lure more casual investors into online investing, Wells Fargo & Co. this week will unveil a new Internet service that allows customers to buy individual stocks in small batches.
Called "ShareBuilder," the service enables investors to buy stocks in whatever dollar amount that they desire. Stock transactions typically require investors to buy stock in large blocks that require an investment of $1,000 or more.
Under the ShareBuilder system, Wells customers will be able to accumulate shares in companies in relatively small increments.
For instance, an investor could put in an order for $100 worth of Intel Corp. and receive 3.12 shares based on the computer chip company's Friday closing price of $32.06.
The service, which lists 4,100 stocks and 68 indexes, allows investors to invest fixed-dollar amounts in weekly or monthly intervals. Each purchase order incurs a $2 fee. That means buying shares in a stock every week of the year would trigger $104 in annual commissions.
The commission on stock sales is $19.95.
The service is the brainchild of Bellevue, Wash.-based Netstock, which first introduced the system in December 1999. Wells is the first major bank or brokerage to offer ShareBuilder, which will be administrated by Netstock.
San Francisco-based Wells views the service as a drawing card for its Web site, which already serves about 2.5 million customers, as well as a potentially valuable new revenue service.
The new service thrusts Wells into a fiercely competitive field, where its rivals will include leading online brokers, Charles Schwab Corp. and E-Trade.
"We think this system will appeal to a lot of novice investors that are too intimidated to invest in stocks now. We believe this will help democratize stock investing," said Shelley Freeman, a Wells executive vice president overseeing the new service.
ShareBuilder's approach to stock purchases is tailored to appeal to the millions of people who have been investing in mutual funds through their employer's' 401(k) plans.
By allowing investors to buy shares in regular intervals, ShareBuilder deploys the same "dollar-cost averaging" approach inherent in 401(k) plans that invest money from every paycheck.
In theory, dollar-cost averaging minimizes investment risk by buying stock at a variety of different prices spread over an extended time.
By distributing shares in fractional increments, ShareBuilder also mimics elements of mutual funds.
The service sounds promising, said Sutro & Co. bank analyst Campbell Chaney. "This looks like a savings account using stocks instead of interest rates. The devil will be in how this is handled by the back office administration," Chaney said.<
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