Lightyear Review: To infinitely low fees and beyond…

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Lightyear Review
Lightyear Review

Name: Lightyear

Description: Lightyear is a new investment app that offers low cost 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.
Capital at risk.

Summary:

A very well-designed low-cost investing app with discounted FX charges, limit and recurring orders for investing in local and international markets.


Special Offer: Sign up with a promo code GOODMONEYGUIDE deposit at least £50 and get 10 trades for free. T&Cs apply. Capital at risk.

Pros

  • Low-cost investing account
  • Low FX fees of 0.35%
  • International market access

Cons

  • No ISA
  • No SIPP
  • Pricing
    (4.5)
  • Market Access
    (3)
  • Online Platform
    (4.5)
  • Customer Service
    (3.5)
  • Research & Analysis
    (3)
Overall
3.7

Richard’s 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 Champagne 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%).

Just another low cost investing app?

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 international stocks and ETFs, but charges a really low dealing fee of £1, €1 for UK and Euro stocks and 0.1%, up to $1 max per order for US stocks. Hargreaves Lansdown charges up to £11.95 every time you buy shares. 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 discount 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 charge very low commission and 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.

They’ll make their money on the FX Fees

However, with Lightyear, they apply the FX fee on top of the interbank rate, so you can actually see the amount you are charged for the conversion.

Lightyear dealing ticket fx charges

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 charging 0.1% per trade  (or $1 what ever is bigger) and converting GBP, HUF & Euros, 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.

Multicurrency account & order types

Another point to make here is that you also get a multi-currency account, where you can hold foreign currency. The advantage of this is that you don’t need to do as many FX conversions which can help keep costs down.

Lightyear comes with features like fractional US 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.

Progression to servicing local customers and local markets

When Lightyear first started, you could only invest in a handful of UK stocks, and they were ADRs listed in the US denominated in USD, rather than the local listings on the LSE. So, you were 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. But anyway, they’ve sorted that now, and if you want to invest in UK shares like Lloyds, you can actually buy them on the LSE, something that eToro is yet to do.  With them, you still have to buy USD-denominated shares. I’ve mentioned how annoying that is many times and yet they continue serve themselves as a global broker instead of their customers as locals. It’s nice to see that Lightyear, fixed that problem early on.

Like Transferwise, like Lightyear

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 low-cost 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.

Customer Reviews

4.3
Rated 4.3 out of 5
4.3 out of 5 stars (based on 68 reviews)
Excellent62%
Very good19%
Average12%
Poor6%
Terrible1%

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