" class="no-js "lang="en-US"> Exclusive: 'Power to the people' - Adam Dodds, Freetrade in "The Fintech Magazine" - Fintech Finance
Tuesday, March 19, 2024

Exclusive: ‘Power to the people’ – Adam Dodds, Freetrade in “The Fintech Magazine”

Adam Dodds was keen to break up the oligopoly that he saw operating in UK stockbroking when he launched the everyman investment app Freetrade in 2015. Now, 250,000 ordinary users later, he’s still finding ways to change things 

Technology has long been praised for its ability to democratise but, while it has already worked its revolutionary magic on many aspects of personal finance, it’s been a little slower off the mark when it comes to trading stocks.

For many people, their concept of traders is still skewed by the images of excess and privilege on a Wall Street populated by wolves like the real Jordan Belfort and fictional Gordon Gekko. But innovative apps and other platforms are now putting a slice of the same pie into the hands of the average Joe.

London-based Freetrade is a commission-free trading app that aims to get everyone investing. Founder and CEO Adam Dodds set up the company in 2015 after relocating from Canada as a manager with KPMG and discovering that the investment account options in the UK were archaic and clunky, to say the least.

“When I moved here, six years ago, I needed to open up an investment account and realised how underwhelming all the options that were available to me were, and how painful it was to open an investment account,” explains Dodds.

“There was an oligopoly that still somewhat exists, here in the UK – a handful of stockbrokers that had settled into a nice, comfortable £12 commission structure. So it was painfully obvious someone needed to come in and smash that up.”  That person, it turns out, would be Dodds.

Setting up Freetrade proved to be something of a personal challenge, too. Having worked as an accountant and then in corporate finance mergers and acquisitions, he saw plenty of companies with what he calls ‘shakier business models’ than the one he was proposing attracting funding.

“I was really getting sick and tired of my day job, at the time, so it was just ‘let’s go and do this,’” he explains. – ‘this’ being the funky Freetrade app, which now boasts more than 250,000 users. With the coronavirus pandemic and Brexit pushing already-low savings interest rates even lower in the UK, there were plenty more people this year looking for alternative forms of investment. Indeed, the app has seen its customer base double in 2020.

Appropriately for an investment expert, Dodds had an eye on future growth from the get-go and determined that the only way Freetrade could become commission-free and sustainable was by owning its platform, end-to-end.So, the company built its own tech stack running on Google Cloud, in order to give the app the agility and ability to scale to meet its future ambitions. From a user perspective, its proprietary Invest By Freetrade system enables them to carry out trades cheaper and faster than if it used third-party solutions.

But perhaps Freetrade’s most important innovative features are those on the surface – most notably its game-changing fractional shares approach. Some US stocks cost hundreds of dollars, if not more, for a single share – meaning many smaller investors miss out due to the share price being beyond their budget.

Fractional share trading means people can choose the amount of money they invest – from as little as £2 – rather than the number of shares they buy. Freetrade then works out how to get the user as many shares as possible for that price, with any resulting dividends split, based on the fraction of the stock owned.

“Fractional share ownership as a concept has been around for a really long time; you just need to think back to DRIPS (Dividend Reinvestment Plans),” says Dodds. But turning that into a mainstream product in an industry that’s slow to update is tricky.

“We challenge all these kind of preconceived notions of how a stockbroker should operate, or what a product should be, and fractional shares is a pretty obvious one,” says Dodds. “Why would you need to have this arbitrary amount of money to buy a share of a company? It’s all fractional ownership of the company anyway.”

A particularly popular feature is Freetrade’s free share referral programme, which has proved the company’s biggest engine for growth – although Dodds is quick to give his colleague, CMO Viktor Nebehaj, the credit for coming up with that initiative.

“Incentivised referrals are pretty common,” he explains. “But where ours is a bit different is that instead of giving cash, we give a share and you don’t quite know what it’s going to be. It could be a Tesla,” he teases, citing the most valuable carmaker in the US, whose investors have seen their share price grow from $7 in 2013 to more than $438 today.

Dodds is quick to shoot down any assertion that Freetrade in some way gamifies investing, but does acknowledge that the free share initiative is ‘a bit of fun’, somewhat like a mystery reveal game.

“It gets you investing right away,” he says. “All of a sudden, we’re minting brand new shareholders that have never owned shares in their lives and they can feel a bit of excitement, feel proud to be a shareholder, and hopefully follow that up with some more investing behaviour.”

There’s a real sense of community among Freetrade’s users and it’s something the company continues to nurture. Dodds puts this down to its crowdfunders and, once again, praises his marketing colleague.

“Viktor started off the community board before we even had a product,” he says. “That’s why people are so engaged, as well, I guess, because they really care about the company and what we’re doing.”

Powered by its people

Crowdfunding has been central to Freetrade’s business model, with the company raising some £20million in alternative finance since its inception. In contrast to venture-backed startups, this has allowed the company to keep customers at the heart of its business.

“We started in 2016 with a tiny crowdfund, £170,000, taking advantage of the SEIS government tax break,” he explains. “Then we followed that up, eight months later, with a £1million raise; a year later with £3million. So, we just, kind of, got our funding through our future customers.”

It was only when Freetrade reached the limit of what it could do in a given year – about £7million – that it looked for its venture capital partner.

“I think we found it in Draper Esprit, the listed venture capital (VC) firm,” says Dodds. “Then we did it again and we plan to do it again, each year, until maybe an IPO.”

The effect of this is that Freetrade is, in many ways, like a public company with 10,000-plus individual shareholders. The majority do not have a significant stake – all less than one per cent – but while other companies may be thinking about the VCs on their board, Freetrade thinks about its investor-customer base. “And, of course, they’re thinking about us, as well,” says Dodds. “And they want to promote the business to everyone they know… it’s a bit of a virtuous circle.”

Freetrade’s sense of community extends beyond its own platform, too, with ideas and information shared on platforms such as WhatsApp – mirroring the company’s transparent, inclusive and mutually-supportive ethos.

Freetrade is also constantly innovating. It recently launched a premium service called Freetrade Plus, giving members a bigger choice of stocks to invest in and advanced order types, for £9.99 a month. Later this year, it will also make available its self-invested personal pension (SIPP) for a monthly fee of £9.99 (or £7.00 to already premium members).

But central to Freetrade’s mission remains its goal of enabling everyone to benefit from having access to wealth creation, with its website proudly stating: “We believe we can make an impact on rising inequality and make the world a more equitable place by giving access to markets and educational information.” For, as Dodds points out: “Finance is notoriously bad for using jargon to try and make it seem like it’s more complicated than it is.”

In addition to providing a ready-to-go app and supportive communities, Freetrade addresses this issue through comprehensive blog posts on how to get started, new investment opportunities and the latest features. For, as every revolutionary knows, knowledge is power and education drives greater participation – even in wealth creation.


 

This article was published in The Fintech Magazine: Issue #06, Page 38-39

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