NEW YORK (MainStreet) — Let’s say you’ve got a friend’s wedding coming up, or a child’s graduation. You may think about wrapping up a gift card or sending a check, but a new startup called Spark Gift has another idea for you: why not give stocks as a present?
The process is simple: select a stock or index fund within the Spark Gift platform and enter the recipient’s name and email. Spark Gift, in turn, sends a gift certificate to your intended recipient (charging you a $2.95 fee for gifts up to $100 and a 4% fee for gifts above $100). The recipient must then add the gift to an existing brokerage account or set one up in order to accept the gift. Spark Gift even sets the recipient up with an investment advisory firm to help manage the account.
The idea isn’t entirely new--you can always retitle assets through your brokerage company--but the platform simplifies the process and takes care of all the details. There have also been some small websites like Oneshare.com and GiftsOfStock.com that have taken a stab at gifting investments online, but it seems as though they had some difficulty growing. Oneshare’s site says that it “is currently undergoing maintenance, and we cannot accept orders at this time,” and GiftsOfStock looks as though it hasn’t been updated since around 2010 when it was covered in the Wall Street Journal.
It’s been no easier for larger platforms with a robust following already in place. Betterment, an online management firm with $1.6 billion under management, actually tried creating a Betterment Gifts feature but shut it down a little over two years ago. It remains to be seen if Spark Gift will see more success than those who have attempted stock gifting before.
One factor that may help Spark Gift succeed is the experience its founders bring with them. Spark Gift’s CEO Peggy Mangot was most recently a Google Wallet executive and before that worked at Visa, so she comes from a strong financial-technology background. Her two co-founders, Bob Haigler and Tia Gao, also come from a fintech pedigree, with Haigler coming from Sun Microsystems and various startups and Gao coming from Google Wallet as well.
“I think the success of this startup is really going to be hinged on the fact that it is being started by some individuals who are well versed with innovation,” says Brian Neal, a financial advisor at Hefty Wealth Partners. “They’re coming from that background, so they have the ability to integrate that with some more seamless technology.”
Mangot left Google at the end of January to focus on Spark Gift full time as a part of the current class of startup incubator Y Combinator. Her co-founders and she feel that the timing is right. She believes that there is a latent demand ready to be addressed as the economy has shifted.
“People used to give U.S. savings bonds as gifts,” Mangot explains. “That was a huge industry, a $2 billion industry. People would buy bonds, stick them in an envelope and give them for birthdays or graduation.”
There are a few main drivers behind the change. First of all, interest rates dropped, making a U.S. bond not that great of an investment. And beyond that, in 2012, the U.S. government stopped selling the bonds in financial institutions, so you had to buy bonds through the TreasuryDirect website. That required you to know the Social Security number of the recipient along with other bothersome steps.
“It created all this friction and people just said forget it,” Mangot said. “We’re addressing this latent demand of consumers who want to give investments and savings.”
Society has grown accustomed to giving more commercialized gifts, Neal explains. Yet those gifts usually depreciate in value over the years. Stocks, on the other hand, are “a neat way to flip that around and give a gift that can appreciate in value,” he says.
Another factor that makes the timing right for Spark Gift is the increasing ease of managing stocks online. The rise of robo advisors have enabled more casual players to enter the stock market.
The true worth of the investment gifts may be beyond the monetary value: there’s also the potential to provide a financial education and inspire others to save, according to Mangot.
“I have seven nieces and nephews,” she said. “I would much rather give investments to them on a regular basis, than give them gift cards or presents that they may not need.”
Mangot is not alone, according to Neal.
“I definitely think there’s a market for this,” he said. “And I think that market will only expand as we go forward. I think you may start seeing people utilize this for their children to teach them about investing.”
Of course gifting stocks may not be for everyone. Some of your friends may just want the $100 to Bloomingdale’s. It's important to consider whether the potential recipient would appreciate the gift of stock; if so, try to match the company whose share you buy with his interests.
“For some people, the gift of stock might be the best thing you could give them,” says Daniel Post Senning, etiquette expert at the Emily Post Institute. “You want to give a little thought to the relationship and the person, and anything you can do to personalize a gift is really appreciated.”
—Written by Rebecca Borison for MainStreet