Lightyear is a new investment app that offers commission-free investing in UK, European and US shares. The company was founded by one of the first Wise (Transferwise) employees, Martin Sokk with a similar objective of making investing as cheap and easy as possible.
In this review we:
- Give our ratings based on their nearest peers
- Tell you what we think of them after testing them with real money
- Highlight the key costs, facts and figures of their accounts
Research & Analysis
What we like about Lightyear:
A very well-designed commission-free investing app with zero account fees, limit and recurring orders for investing in local and global markets.
- Free investing account
- Low FX fees of 0.35%
- Global market access
- No GBP-denominated UK shares
- No ISA
- No SIPP
Lightyear Expert Review
Just after I interviewed the Lightyear founder, Martin Sokk for this review, I went to the pub with my friend Nick, a fellow ageing stockbroker. One of the things we discussed was how things have changed in the City, in particular, what is happening to Simpsons Tavern.
For over 250 years, Simpsons Tavern has sold meat and beer and wine to stockbrokers for breakfast and lunch, but is now on the way out. When I first went to Simpsons with Nick about 10 years ago I had the mixed grill, with a sausage on the side, but that’s all I’ll say about it because I simply cannot do the food or atmosphere justice, Giles Coren can do that. Along with Sweetings’ Balck Velvet, Simpson’s sausage on the side represents the traditional way of doing things.
But, traditions are changing, Hawksmoor is another good example. A few years, ago in their Guildhall restaurant, everyone was suited and booted at lunch for steak and Shaky Pete’s Ginger Brew. But, last time I went, everyone was wearing trainers and T-shirts.
What’s happening in the restaurants of The City is representative of what’s happening to investment platforms.
Today, people don’t really want Champaign mixed with Guinness, people don’t eat as much meat, and people don’t want to wear suits.
Another thing people certainly don’t want to do these days is pay to invest. Traditional platforms like AJ Bell (LON:AJB) may not say they are too worried, as they just reported net inflows of nearly £4bn, but they obviously are because they have launched their own entry-level investing app, Dodl, but that still costs 0.15% a year (compared to AJ Bell’s 0.25%).
Free investing apps represent the new way of doing things because it’s so easy to get started. Lightyear, for example, lets you invest in global stocks and ETFs, but doesn’t charge a dealing commission or an account fee. Hargreaves Lansdown charges up to £11.95 every time you buy shares, Lightyear lets you buy shares for free. Interactive Investor charges a flat £9.99 per month to have an account with them, Lightyear’s investment account has no custody fees.
This is good because, one of the biggest barriers to entry for new investors is that they don’t really have much money. So if you’ve only got a few hundred pounds to start investing, the small fees charge by traditional investment platforms almost make it pointless.
In all of my CEO interviews, I always ask, “what can investors do to be more successful?” The answer is always invariably a variation of “start as soon as possible by forming good investment habits and let compounding returns do the work”.
Which is what free investing apps like Lightyear help you do. They make it easier and cheaper for investors to get started. Investors will make mistakes, the market will crash at some point. But the earlier you start, with small amounts of money the more you will learn and the less costly market corrections will be.
There is no denying the Lightyear investment app is excellently designed. They were co-founded and are led by Martin Sokk, one of the first Transferwise employees and their head of product. Lightyear has raised $35m so far, he says, for product development, not customer grabs, from investors like Richard Branson. It’s clear they want to do for investing what Wise has done for money transfers.
FX, therefore, is a key part of Lightyear’s monetisation strategy because, if you can’t charge commission or account fees you have to make money somehow. So Lightyear, aim to make it’s money in the background, initially from foreign exchange fees. FX is a very good way to make money, because, a) no-one really understands how the pricing works, and b) because you don’t see the charge, it’s built into the buy/sell spread.
He told me Lightyear aims, to expand into different countries quickly, so they can help people to invest in their local stock markets, but also in America, which is where a large percentage of people want to buy stocks. And rightly so, US shares are all household names, and one of the key drivers for investing is to buy companies you love and use. Lightyear will make money converting GBP, Euros, Krone etc. into USD when people buy US stocks. They charge, 0.35%, which is higher than Interactive Brokers’ 0.02% but much lower than the 0.5% charged by AJ Bell, Saxo Markets and IG, or the 1% from Hargreaves Lansdown and Interactive Investor.
- Related guide: Compare FX rates for buying US stocks from the UK.
Lightyear comes with features like fractional shares, limit orders, and regular investing. You can also quickly see which shares pay the highest dividends or make the most money relative to their share price to help you pick stocks.
However, at the moment, you can only invest in 45 UK stocks, and they are ADRs listed in the US denominated in USD, rather than the local listings on the LSE. So, you are paying an FX fee when you really shouldn’t have to, admittedly, there is no stamp duty so technically paying 0.35% on FX rather than 0.5% to HMRC is cheaper. There is also no SIPP or ISA account for tax-efficient investing. Reverting to my restaurant analogy, restaurants serve their local area and Circolo Popolare, for example, makes Italian food from Italian ingredients, not American. So, to best serve the local investing market, you really should have tax-free investment options and let your customers buy homegrown stocks. Otherwise, it’s just speculation, not investing.
To draw on one final Transferwise comparison, it is very easy to use app-as-a-tool to help you start investing as cheaply as possible. The thing is though is that, transferring money is like car insurance. No-one really has any loyalty to their insurer, they just do it and move on. Investing is different. Investing is not like insurance, when you open an investing account, you could be using it for the next 30 years.
I think there will always be a place for traditional investment platforms because they provide excellent customer service and brand loyalty, they are mature platforms for mature investors and fees will eventually come down, as they have done in the past. Same as with Simpsons Tavern, it may not be as good for you as veganism, but if it survives, people will continue to go because they like it.
But, if free investing apps are a gateway to getting more people to invest for their future, then they are the future too and will hopefully mature along with their customers, and Lightyear, in particular, is a great place to get started.