On January 8th, Banco Santander (SAN 2.67%) filed to take its subsidiary Santander Consumer USA public. Today, it begins trading. This IPO is bound to whet some appetites after the awesome IPO year we just had. In 2013, 29 IPOs doubled after going public, with six of these companies doubling in the very first day of trading. Unfortunately, you had to either be a bigwig or filthy stinkin' rich to get in on the action. 

Source: https://ipo.loyal3.com/santander.

Last week there was an ad floating around online promising regular ol' investors like you and me the opportunity to invest in Santander's IPO before it trades on the open market, completely free. Is this promise too good to be true?

What's in it for Banco Santander?
Before we talk about how average Joes can buy an IPO for free, let's talk about Banco Santander's motivation for taking its U.S. subsidiary public in the first place.

Companies go public -- begin trading stock on the stock exchanges -- to raise money. Simply put, companies sell investors a piece of ownership in the company. Banco Santander's situation is a tad unique. It owns dozens of subsidiary banks around the world, and in an effort to maximize its capital raising potential, it's taking its largest subsidiaries public. In 2009, it took Banco Santander Brasil (BSBR 2.12%) public, and Santander Mexico (BSMX) in 2012. 

These IPOs netted $6.8 billion and $4.3 billion respectively, and strengthened Banco Santander's -- the parent company -- financial position. But Banco Santander still retains majority ownership in these two subsidiaries, allowing it to continue reaping the gains from Brazil's and Mexico's growing economies. 

While raising capital is the primary motivation to take its subsidiaries public, creating brand awareness is also a factor. Consider that 80% of Santander Mexico's shares were offered on the New York Stock Exchange, while the remaining 20% were listed on the Bolsa Mexicana de Valores -- Mexico's stock exchange. Banco Santander Brasil also lists locally in Brazil. This allows both companies to gain a local following and, hopefully, more business.

The Santander IPO ad you've seen is in reference to its subsidiary Santander Consumer USA. Like other Santander IPOs, this is to raise capital and brand awareness. And Santander believes it can best accomplish both of these goals by partnering with Loyal3 to bring the IPO to you.

What's in it for Loyal3?
Loyal3's mantra is "making stock ownership easy and fee-free for everyone." The platform is indeed extremely easy to use. You don't see charts or financial jargon on its website, just the names and logos of the 54 companies available to invest in. Simply click and enter the amount you want to invest. There are no fees, commissions, or fine-print clauses associated with buying or selling. All the money you invest goes to buying stock. And it really is for anyone -- anyone with at least $10 to spare. Pretty cool, right?

But Loyal3 is a business, and it has to make money somehow. Rather than charging investors fees to buy and sell, it has opted to charge the companies that are being invested in. Loyal3 claims that customer-investors spend 54% more than just regular customers, and refer their friends 107% more. Therefore, it behooves these companies to pay Loyal3 to turn ordinary people into investors and loyal customers. 

Banco Santander has decided to take its U.S. branch public with Loyal3. You're seeing the ad because Loyal3 has to get your attention if it's going to turn you into a loyal customer-investor. It's extremely uncommon to see an advertisement for an IPO. Typically, average investors cannot get shares until they are available to trade, therefore, an ad targeting average investors would be a complete waste. But this is a very different IPO.

In addition to charging companies to turn customers into investors, Loyal3 also charges companies for these IPOs. The benefit cited by Loyal3 is that an IPO available to the general public will create more small-stake investors rather than large instutional and megarich holders. This can create better market stability and leaves more decision-making power with the companies themselves. But I believe an unmentioned benefit is also being exploited.

A couple of months ago, Twitter (TWTR) was priced at $26/share, raising the company $1.8 billion. But when shares hit the open market, they quickly jumped to $45/share and spiked up to nearly $75/share a month later. Apparently, there was quite a demand from average investors on the market. Had Twitter sold its IPO to these average investors directly instead of just extremely wealthy and institutional investors, it could have raised $3-$4.5 billion. 

To sum it up, Loyal3 is a business, and Banco Santander is its customer. Loyal3 must satisfy this customer by delivering on its promise to create many small-stake loyal shareholders/customers. Therefore, Loyal3 needs to advertise the IPO to average investors to make sure we get in.

What's in it for us?
Imagine holding Potbelly or Noodles & Company when they both doubled in their first day of trading. Finally, a sure-fire way to get rich quick. Not so fast...

Yes, IPOs are quite successful these days, but don't expect that huge surge in share price with Santander's IPO. IPOs are rising so quickly because many people that wanted in on these IPOs weren't able to buy until they debuted on Wall Street. This time around, anyone who wants in can get in -- the demand simply won't be there post-IPO. In the long run, Santander Consumer USA could still be a good investment, it just won't see the initial spectacular returns in stock price.

What is truly concerning about the Loyal3/Santander arrangement is how easy it will be for people to invest. Now, I'm obviously all for investing, and I don't have a problem with things being simple, but this arrangement opens the door for many investors with unrealistic expectations, who don't really know the first thing about investing.

When Facebook (META 2.98%) went public, myriad people who had never invested before wanted in. Fool Eric Bleeker reported receiving an email from a would-be investor wanting to invest $40,000 in Facebook's IPO. The only hiccup was this person didn't even know how to buy stock. That's dangerous.

Another concerning feature of Loyal3's platform is the ability to invest via credit card. This jibes with the platform's ease of use, as credit cards are extremely convenient online. But this opens the doors for the financially irresponsible to invest money they don't have in the hope their investment soars.

Fortunately, Santander won't create the pandemonium that Facebook did. It's not a household name like Facebook, and Loyal3 has a monthly $2,500 per stock investing limit to prevent someone from loosing their shirt in a bad investment. But with the amount of fortune seekers online today, I believe the real need is not for easier investing, but for better investing education. 

To all would-be investors
When it comes down to it, the normal rules of investing apply here. Don't invest because you clicked on an intriguing ad or watched a flashy video. And definitely don't invest the kitchen sink hoping to hit a first-day home run. Only invest if you understand and love the business. If you're new to investing and want to know more, I highly recommend you start where I did, with the Motley Fool's 13 steps to investing.

If you do have experience in investing, Loyal3 might not be a bad way to go. With no fees, it could be a particularly effective platform for investing with a dollar-cost averaging method -- investing a set amount at regular intervals.

And finally as far as Santander Consumer USA's IPO goes, be sure to check out the prospectus, and -- should you decide to plop down your hard-earned cash -- be mentally prepared for the bumpy ride that typically goes with IPOs.