No surprise, nearly nine in 10 customers said Robinhood made it easier for them to buy and sell stocks.īut only a little more than half (54%) said the digital brokerage helped them become more educated about investing, and just 37% credited the firm with helping them improve the overall return on their investments.īecause Robinhood makes money by selling order flow, it will always place the needs and priorities of the companies that pay for that order flow over the needs and wants of its users.Īddressing this problem will be firms I call the “ Anti-Robinhoods”-companies like Invstr, Public, and Wizest who may never be valued at $30 billion, but are far more “authentic” than Robinhood will ever be. As Scott Galloway tweeted:Ī recent consumer survey from Cornerstone Advisors asked Robinhood users what impact trading with the brokerage firm had on their financial lives. Really? Is there any fintech company less “authentic” than Robinhood? Its claim to “democratize finance for all” is total nonsense. In an article about Gen Z, CNBC wrote, “Gen Z craves a personal, authentic connection.The Huffington Post published an article titled Millennials Want Brands To Be More Authentic.A 2019 study from Deloitte focused on “a generation’s search for authenticity.”.Supposedly, these generations want “authenticity” from the companies they do business with: What burns me up, however, is the hypocrisy of its users, predominantly Millennials and Gen Zers. I’m truly happy for its founders who will become billionaires when the stock goes public at its anticipated $30 billion valuation. Personally, I couldn’t care less how Robinhood makes its money. They don’t charge me anything so to me its free.Ī recent report from BestEx Research titled The Good, The Bad, And The Ugly About Payment For Order Flow suggests that there is some benefit-in terms of lower order price-from payment from order flow (PFOF) to retail customers.īut the report goes on to demonstrate that the downsides-the bad and the ugly-of PFOF far outweigh the benefit to the average retail investor. I like trying a little of this and a little of that and it works because its free.įrank: Do you realize they make money by selling your order flow to electronic trading firms? They make a little on stock trades, more on crypto and even more on options.įriend: First I’ve heard of it. They don’t make any money on my trades so I can move my money around a lot. Here’s a snippet of the thread:įriend: It’s free and super easy. The other reason Robinhood’s train isn’t slowing down is because many of its customers don’t know-or don’t care-about the company’s fines and business model.Ī sample of one is not a great sample size to draw conclusions from, but a conversation between a leading VC and a Robinhood customer raises questions about how well the brokerage’s customers are informed about how the company operates.įrank Rotman, co-founder of QED Investors shared on Twitter a conversation he had with a friend who used Robinhood as his on-ramp into the trading world. Do Robinhood’s Customers Understand Its Business Model? With that kind of money invested, by these high-powered venture capital firms, there’s no way a few nuisance fines and lawsuits is going to slow this cockroach down. In addition to Ribbit, other well-known investors in the brokerage include ICONIQ Capital, Sequoia Capital, Andreesen Horowitz, and New Enterprise Associates. The most recent round was a $2.4 billion injection from Ribbit Capital, which should cover the penalties Robinhood will likely have to pay over the next few years (if history is any guide). Robinhood has raised a total of $5.6B over 23 funding rounds. Moreover, Robinhood requires users to sign a user agreement that (1) requires users to go to arbitration before instituting a lawsuit and (2) provides that Robinhood may, in its sole discretion, prohibit or restrict trades without prior notice.” Cockroaches Are Indestructible-And So Is Robinhoodįines and legal action won’t slow Robinhood down for two reasons: 1) the big money behind Robinhood, and 2) the willingly-clueless customers doing business with the brokerage. Robinhood’s fiduciary duties to its customers are highly limited courts have determined that stockbrokers generally do not owe a fiduciary duty unless a customer has delegated discretionary trading authority to them. “Robinhood will not be held accountable because the lawsuits are almost certain to fail as a matter of law. According to an article in the Minnesota Law Review: Robinhood Financial, LLC, alleges breach of contract and breach of fiduciary duty for halting trading unfairly and causing massive losses for users. Since the GameStop debacle earlier this year, nearly 90 lawsuits have been filed against the brokerage. The FINRA fine isn’t Robinhood’s only legal trouble.
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