Stockpile_In Store

The next time you're in a Kmart, OfficeMax, Wegmans, Safeway, or another major retail chain, take a minute to peer at the gift cards by the register.

Some might be for stock.

Since early October, the California-based company Stockpile has offered physical gift cards in stores to present loved ones with $25, $50, or $100 of stock ownership.

"We're making it easy and affordable for anybody to give, get, and own stock in their favorite companies," says Avi Lele, Stockpile's cofounder and CEO.

Here's how it works: You spot a Stockpile gift card at the store (or choose a virtual version online), and buy a card that's worth $50 of Apple stock for your niece's graduation. She goes online, creates an account by entering basic information including her date of birth and Social Security number, and types in a code from the card to redeem her stock.

If Apple closes that day worth $100 a share, she'll own half a share of Apple stock, which she can watch rise and fall through Stockpile's online interface. If she decides she doesn't want Apple stock, she can select the same denomination of stock in another of the 1,000 investments Stockpile offers, including a gold or market-index exchange-traded fund.

If she's uninterested in having a stake in the market, she can trade it for an old-school retailer gift card that functions like cash. If she ends up extremely interested in the market, she can later start buying and selling stocks through the interface for 99 cents per trade. She doesn't pay anything for Stockpile to simply hold her investments.

GiftCard_50Dollars copy

A $25 physical card costs you $29.95, a $50 card costs $56.95, and a $100 card costs $107.95.

A virtual card, which you buy online, instead costs the value of the card plus $1.99 for any amount up to $100. Over that — they're available up to $1,000 — it costs the value of the gift card plus a $1.99 fee and 3% of the card's value.

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"It's something that's never been done before," Lele says. "You can walk in and buy a card for stock like any other gift card you could have purchased in the past. Our whole mission here is to make investing accessible to anyone. Right now it's too expensive, and too complicated, to give someone else stock."

Lele, his cofounder Sanj Kulkarni, and their team built their own fractional-share brokerage from scratch, working closely with the regulatory bodies Finra and the SEC to remove and amend steps to the existing process of gifting stocks.

Traditionally, to give stock, both the gifter and recipient must have an account with the brokerage, and to open that account and buy the stock in the first place, the gifter has to fill out paperwork that takes a few days to be approved.

"Other brokerages ask for everything, hoping you might do more with them later on," Lele says. "We do the opposite — we only ask for what we really need." Recipients who enter their information are verified through the system and approved immediately, barring any issues confirming a person's identity.

Stockpile, which offered online gift cards for about a year before getting regulatory clearance to sell them in stores, doesn't share how many cards it has sold total. Lele does say the company has noticed two buying patterns it didn't expect: Instead of buying just one card at a time, people are buying them "by the fistful" — presumably because they don't have just one child or grandchild or friend to gift at a time — and they're buying them for themselves.

Stockpile Interface

Federal regulations say closed-loop gift cards, those that are offered and redeemed by only a single company, cannot exceed $2,000, so Stockpile capped its offerings at $1,000 per card (digital cards hold more value than physical cards) to be safe. That doesn't mean you can't buy more than one, though.

Lele does say, however: "If we see you buy five cards and the circumstances are weird, like you're buying at 2 a.m., all of your cards are going to the same person and it happens repeatedly, or the recipient immediately sells and pulls out the money as cash, we step in because we have a responsibility as a financial institution to make sure that people aren't using them for bad purposes like money laundering. We have a sophisticated risk-detection system in place that can discriminate between good and bad activity."

Another concern could be the potential for the cards to cause a major tax headache. Stockpile has thought of that. Gifters' taxes are unaffected, as they are simply buying a gift card with prepaid value. The taxes of those who redeem the stock are also unaffected until they sell it or receive a pro-rated dividend. The site keeps track of the activity and at the end of the year presents the investor with a filled-out 1099 form that can be printed and included in a recipient's tax filings.

"It's no secret you need to get started building wealth early, but when you're young, it's hard to get started investing," Lele says. "I had to wait until I was 30. Here, you can start as a high-school student. You can put yourself on the road to financial empowerment early on and build a massive amount of wealth on the way. You have time on your side."

Lele says the cards are largely given by people older than 30 to people under 30. "Normally if you're under 18 you sign up for a custodial account with mom or dad, and they hold the keys to the account," Lele says. "With my kids, for example, I'd have the login and my kids barely know the accounts exist. We allow the kid to have their own separate login so they can come in any time they want to see their stuff."

Kids can log in whenever they want, but the account's custodian gets an alert about any activity. "Once you have the account, if you're a kid, you can place trades that your parents approve or decline," Lele says. "I approve or deny, but as far as kids can tell, they're placing a trade right to the market." Stockpile's chief commercial officer, Dan Schatt, even sends his kids allowance through the site.

"Also, it starts a conversation," Lele, a father of two, says. "My kids have started owning Apple and Disney and Tesla, and they're starting to pick up the paper to check out their companies. I never thought they'd ever open the business section of The New York Times."

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