3 Ways To Gift ETFs This Holiday

Financial technology advancements are changing the way everyday people can give the gift of an investment. Today buying someone stocks or ETFs as a gift they can own for a long time is surprisingly simple.

The idea is about giving someone ownership of a company or of a part of the market for what will hopefully bring profitable returns down the line. And to some people, like Brian Roemmele, who runs a tech startup, it’s really about giving the gift of early investing.

“My grandparents used to give me physical paper stocks when I was a kid,” said Roemmele, who is now a father of two and has been giving stocks to his children regularly. “It made me understand the value of a company. Looking back, those gifts connected me to the business world, helped me become an entrepreneur.”

“I learned that anybody can be the owner of a company, but the key was that I had to promise not to cash [the stocks] for at least 10 years,” he added. “Giving a stock to a child is about teaching the idea of long-term investing.”

Today there are different ways you can go about gifting a stock or an ETF, even to a minor. Here are three ways to do it, some simpler—and more cutting edge—than others:

Online Gifting Service Such As SparkGift

Choosing to give stocks or ETFs through SparkGift is the easiest way to go about this.

The company, which launched at the end of March 2015, centers on the idea that people want an easy way to give an investment gift, and that this type of gift is personal, says Peggy Mangot, CEO of SparkGift.

“So far, that has very much been the case—a lot of our growth has come from families sharing with one another, wanting to encourage savings for future generations,” Mangot said. “The idea is that these are financial gifts that will grow and be there for them in the future. That’s how people are describing this type of gift.”

The process is simple: You go on the SparkGift website, type in the dollar amount you want to give, pick the stock or fund you want, and hit send. SparkGift then creates a digital gift certificate for, say, $50 of the Vanguard Total Stock Market ETF (VTI).

The gift recipient accepts the gift, opens an account that’s managed by Spark Advisors, a registered investment advisor that works with Folio as the broker partner, and the trade is executed. If the recipient doesn’t accept the gift, the company issues the giver a refund because the trade doesn’t get executed until the recipient OKs it.

What’s innovative here beyond the simplicity of the process is the fact that SparkGift can handle fractional shares. So, your gift can be as small as $20 for shares of any company or ETF offered, no matter the share price.

That feature makes this service akin to handing a child a silver dollar over the holidays, or teaching them about collecting pennies in a jar, as Roemmele put it—any little amount can be translated into ownership of a company, or ownership of a sliver of the market.

“Common folks now can own companies and vote on companies they believe in with pocket change,” Roemmele said. “It was about time we got access to the tools of the wealthy.”

The cost is $2.95 per gift plus 3%, paid upfront by the gift giver. As Mangot puts it, the fees are akin to shipping costs for gifts bought online.

The 3%, she adds, covers credit card processing fees, but next year, SparkGift will be able to handle payments via personal checking accounts, so different pricing will be available then. Also, through the end of 2015, SparkGift is waving the 3% fee, and charging only $2.95 for all gifts up to $100.

Your Broker-Dealer

You can gift shares of an ETF at platforms such as TD Ameritrade. But you need to have an account. If not, you open an account and purchase shares from any of the ETFs included in the company’s commission-free list.

“To send directly to someone, you fill out a transfer form, add the recipient’s information—usually full name, address and Social Security number—and you’re done,” a TD Ameritrade spokesperson said.

You can also gift ETFs to another TD Ameritrade account by adding the recipient’s TDA account number. Or you can send your gift to a brokerage account or an investment account at a bank elsewhere by providing account numbers, bank information and a contact person.

TD Ameritrade does not charge a transaction fee on the transfer. You pay only the cost of the investment itself.

Through Some ETF Issuers

You can go directly to some ETF issuers who also manage money, such as Vanguard and BlackRock, and buy shares of an ETF to give to someone else. But again, you first need to have your own account.

With Vanguard, the second-largest ETF issuer in the U.S., the process of gifting ETFs isn’t complicated, but there’s paperwork involved.

At its simplest, the process includes a form the gift giver has to fill out, while the recipient must either open an account or give his or her existing account information to the giver to have the gift transferred.

In the end, it’s more about figuring out what types of accounts are involved in the transaction than the securities themselves.

“If I wanted to gift from my joint nonretirement account to an individual/joint account at Vanguard, I would need to fill out a change of ownership form, and then the owner of the receiving account (or the gift receiver) would need to follow the normal open account procedures if they do not have an existing account,” a Vanguard spokesperson said.

“If the gift receiver has an existing account, I would need the account number and information to transfer the shares,” she added. “We mostly see clients present the gift to the receiver and then work through the logistics together to make the transfer.”

There’s also an additional step if you are giving an ETF to a minor. The account will be set up as a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act—custodial-type accounts that are set up by an adult on behalf of a minor—which may incur a gift tax depending on the gift amount, according to the company.

Beyond that, there are no additional fees associated with gifting an ETF or shares other than the cost of the ETFs themselves, the spokesperson says. However, she notes that redemption fees are taken “if/when the recipient liquidates shares upon completion of the gift transfer.”

Contact Cinthia Murphy at [email protected].