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Brokerage App Is a Dangerous Culmination of Intersecting Trends

By Jeff Liguori

 

It was supposed to democratize Wall Street — yet another DIY trend, this time with your hard-earned money.

Robinhood is a popular brokerage application that allows subscribers to open an account with as little as $1, charges nothing for commissions, and allows users to buy fractional shares of stock. Backed by venture capital and slated to go public with an estimated $30 billion valuation, the company has enjoyed meteoric growth with an estimated 13 million users, 50% of whom use the mobile app daily, often multiple times, and 90% of whom use it on a weekly basis. The overwhelming majority of its user base belongs to the millennial demographic.

Robinhood achieved what it set out to do, but at what cost?

I’ve worked in the investment field since 1994 and have managed assets for clients since 2006. I’m also an entrepreneur, so I appreciate disruptive technology amid a changing business landscape. Robinhood, however, is the dangerous culmination of intersecting trends that have harmed investors and, according to financial regulators, may have contributed to a death by suicide.

Jeff Liquori

Jeff Liguori

“Robinhood is not the Home Depot of investing. Do-it-yourself portfolio management has been around since the advent of E-Trade in the mid-’90s. That company disrupted the brokerage industry and forced commissions at most every other firm lower in order to compete for customers.”

The basic business model for financial advisory or money management is that the client pays a percentage of his or her account balance as an annual fee, generally around 1%. To be clear, Robinhood is a brokerage; the firm does not use discretion to manage a client account or offer advisory services. Many brokerage firms have morphed into advisors and now focus more on money management as trading commissions have trended to zero. Overall, this trend has been a positive for individual investors and has improved access to many financial solutions — mutual funds, exchange-traded funds, or individual stocks — as well as financial research and news.

Robinhood is not the Home Depot of investing. Do-it-yourself portfolio management has been around since the advent of E-Trade in the mid-’90s. That company disrupted the brokerage industry and forced commissions at most every other firm lower in order to compete for customers. Just as E-Trade blazed a path for lower commissions, Schwab, Fidelity, and TD Ameritrade slashed commissions to zero in 2019 in response to Robinhood taking market share.

But growth has consequences. Robinhood was at the center of some incredibly volatile trading in a handful of individual stocks. You may have heard of GameStop (GME). The Robinhooders gathered virtually in chat rooms, most notably on a platform called Reddit, and decided as a community which stock they wanted to manipulate. It was no small feat. From Jan. 18 to Jan. 28 of this year, the price of GME went from about $18 to a high of $478, an increase of more than 2,600%. The Robinhood crowd is believed to be the main catalyst for this action. The day GME hit $478, it also went down to $112 before finally closing around $193.

In the month of January, 1.26 billion shares of stock changed hands in GME, almost 15 times the average monthly volume. Robinhood eventually cut off any trading in GME shares on Jan. 28, as well as trading in several other stocks with a similar backstory. Imagine being a small investor, buying GME shares at, say, $250 on Jan. 27, watching your investment nearly double the next day, but not being able to trade and exit your position profitably.

As previously stated, the Robinhood story is the intersection of several trends: fiercely independent millennials, ‘killer app’ technology, and the rewards reaped from the instantaneous decision making of like-minded people, all backed by institutions awash in venture capital, looking for the next big idea. I cringe at the thought that Robinhood may compete with what firms like mine provide for clients, namely deep expertise, sound financial advice, and disciplined investing backed by serious research.

FINRA, a regulatory agency that oversees brokerage firms, recently fined Robinhood $57 million and ordered $13 million in restitution to customers. It is the largest fine ever imposed by that regulator. In the press release, FINRA even referenced the suicide of a 20-year-old trader who panicked when his Robinhood app may have incorrectly displayed a massive $730,000 loss and received only a generic autoreply when he e-mailed Robinhood customer service three times seeking help.

Robinhood the idea is a good one. Robinhood the company has a lot more growing pains on the horizon, which likely won’t prevent the founders from becoming fabulously rich. And I have no problem with wealthy entrepreneurs, who typically risk everything for a single idea. Time and again, however, the investment profession is plagued with these stories in which investors are persuaded to pursue the next big thing. I think FINRA’s message is a powerful one. Now, if someone would just listen.

 

Jeff Liguori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

 

Business of Aging

Peace of Mind

By Mark Morris

 

Heidi Cornwell says families looking for a senior-living community should consider its continuum of care.

Heidi Cornwell says families looking for a senior-living community should consider its continuum of care.

Between now and 2030, 10,000 Americans each day, on average, will reach age 65. That type of growth affects all the industries that serve the senior population — and, not surprisingly, senior living is one industry paying close attention to this trend.

Kimball Farms Life Care provides independent and assisted living as well as dedicated memory-care services. In 2020, the Lenox facility received more inquiries about its residential offering than in any year prior. Heidi Cornwell, marketing and sales director for Kimball Farms, said potential residents are doing more online research to educate themselves about senior community living.

“Many people are ‘shopping around’ earlier because they saw their own parents ill-prepared for this part of their life journey,” Cornwell said. She also noted that, as people live longer, they are moving into senior at a later age.

As a continuing-care retirement community (CCRC), Kimball Farms offers increasing levels of care for those who need it. Residents can easily move from independent living to assisted living, giving the individual and their families greater peace of mind.

For residents who develop dementia or Alzheimer’s disease, Kimball Farms offers memory-care services through its Life Enrichment Program (LEP). Cornwell explained that the program is centered around a philosophy know as habilitation, which increasingly emphasizes a person’s remaining skills instead of the skills they have lost.

For example, if a sandwich is placed in front of a person with dementia, they may not be able to process what to do with it. “However, if someone sits across from them with a sandwich, picks it up, and takes a bite, that is the only queuing they need to understand what to do,” Cornwell said, adding that they can then enjoy their lunch without any further assistance.

“We are so grateful to our residents and their families because they worked with us to find creative and innovative ways to stay engaged and informed, while at the same time keeping everyone healthy.”

Singing is another good example of emphasizing a remaining skill. “The individual may not sing along to a song by themselves, but if an activities person or nurse sings with them, they can sing with pride and remember every word.”

The LEP puts its focus on maximizing quality of life for each resident. Regular routines and programs built around the interests of the individual keep them busy all day and into the evening. As a result, the residents thrive, Cornwell said, noting that the stimulation helps residents with dementia maintain the abilities they still have for as long as possible.

“We place no expectations on them, but encourage them to be the best person they can be,” she said. “We celebrate the good days, bolster self-esteem, and we treat them with the utmost dignity and respect.”

 

Safe Spaces

As research on dementia has evolved, caregivers have increased their understanding on how to manage the condition. Embracing the skills that remain for those with dementia can encourage feelings of acceptance and personal success. That’s important, Cornwell said, because, even though the disease can have an effect on a person’s ability to communicate or recall recent events, they still have a sense of the quality of life they desire.

Or, as she put it, “although they may no longer be able to dance, they still enjoy the music.”

Kimball Farms social worker Jackie Trippico leads what is known as Reminisce Group. This weekly activity begins with staff presenting a specific topic and asking residents to recall a significant memory related to that theme. Cornwell said one popular reminiscence involved talking about a trip to an ice-cream parlor.

Providing comfortable spaces is also part of the program. Kimball Farms’ memory-care neighborhood is a secure, self-contained community. Private apartments are modeled after a typical home with an open floor plan, while residents also have access to a secure outdoor courtyard so they can garden, see visitors, or take part in other activities. The staff ratio is higher than traditional assisted living, and they have all been trained in specialized dementia care.

When COVID-19 hit last year, families could no longer make in-person visits to residents in LEP. Cornwell said the activities professionals and nursing team quickly adapted to using tablets to arrange virtual visits or phone calls so families could stay informed on the care and well-being of their loved ones. Celebrating special occasions simply became virtual events.

“Zoom birthday and anniversary parties, as well as Skype holiday festivities, became our new normal,” she explained.

As COVID vaccine levels rise, Kimball Farms is able to welcome families to visit by appointment. Cornwell reported that residents and their families have been thrilled to resume the personal visits.

“We are so grateful to our residents and their families because they worked with us to find creative and innovative ways to stay engaged and informed, while at the same time keeping everyone healthy.”

As more Americans reach their senior years and live longer than previous generations, the demand for memory-care facilities to treat dementia and Alzheimer’s disease will continue to increase.

According to Seniors Housing Business magazine, from 2013 through 2018 (the latest figures available), the number of new memory-care units increased by 55%.

Cornwell advises those who are looking at senior-living options to consider the continuum of care a community offers. Healthy seniors who may choose independent living in senior housing to downsize from their homes need to think about future needs as well, she said.

“The community they choose should be a place that will provide them with the best quality of life, for the rest of their life, with increasing levels of care when and if they need it.”

Law

A Disturbing Trend

By Amelia J. Holstrom, Esq.

Amelia J. Holstrom, Esq.

Amelia J. Holstrom, Esq.

The #MeToo movement exploded back in 2017. With #MeToo in the news almost a daily, women everywhere became more comfortable coming forward and reporting harassment and telling their stories.

As a result, women felt empowered, but has sharing their stories hurt them in other ways? According to a recent survey conducted by LeanIn.org, the answer to that question might be yes.

Over the past two years, LeanIn.org — an organization dedicated to helping women come together and achieve their goals — conducted surveys to gain an understanding of what individuals are experiencing at work. One of the surveys revealed that, in the post-#MeToo world, women may be receiving less support at work from male managers and may be hindered in their ability to seek career advancement.

The survey, titled “Working Relationships in the #MeToo Era,” suggested that 60% of male managers reported they were not comfortable participating in common work activities — mentoring, working alone, or socializing — with women.

To put that into perspective, according to LeanIn.org, that percentage was only 32% just a year ago. The survey also noted that senior-level men were 12 times “more likely to hesitate to have one-on-one meetings” with junior female employees, nine times “more likely to hesitate to travel [with junior female employees] for work,” and six times “more likely to hesitate to have work dinners” with junior female employees. According to the survey results, 36% of men said they avoided mentoring or socializing with women because they were concerned about how it might look.

Worrisome Results for Employers

The results suggest that #MeToo may actually lead to more gender discrimination in the workplace. If male members of management distance themselves from mentoring, working alone with, and socializing with women, they might be creating legal liability for their employer because they are giving women less opportunity to advance and succeed with the organization.

For example, while work performance is always a factor in decisions regarding promotions, skills learned through mentoring and workplace connections and relationships also play an important role. If a female employee is denied a promotion due her lack of mentorship and/or workplace connections and relationships, and she did not have access to those things like her male colleagues did simply because of her gender, the employer could be subject to a gender-discrimination lawsuit.

The survey did contain some good news for employers: 70% of employees, compared to 46% in 2018, reported that their company was doing more to address sexual harassment. The increase in this statistic is likely because more employers are conducting annual sexual-harassment training in the post-#MeToo world. Unfortunately, the remainder of the survey results suggest that training alone is not enough.

Proactive Steps

Employers should continue to address harassment in the workplace through their anti-harassment policies and by conducting annual anti-harassment training, but they also need to do more to educate employees regarding other forms of discrimination.

First, employers should have an equal-employment-opportunity policy that clearly outlines that discrimination based on gender or any other characteristic protected by law is expressly prohibited. The policy should also outline how an employee may file an internal complaint of discrimination at the workplace.

Second, employers should add annual anti-discrimination training to their training agenda. Implementing effective training will demonstrate that you care about the issue and are taking it seriously, which could help you defend against a lawsuit if an employee decides to bring one.

Finally, employers should remember that gender discrimination doesn’t just arise in this context. Businesses should take a close look at compensation practices to be sure there are no pay-inequity issues. Studies show that women in America earn about 80 cents for every dollar paid to men. Not only is this wage gap a fundamental problem, but it can also lead to serious legal trouble for an employer. Case in point: the World Cup-champion U.S. women’s soccer team’s lawsuit alleging pay inequity and “institutionalized gender discrimination.”

Bottom Line

It is clear that #MeToo has led to important changes in the workplace, but LeanIn.org’s recent study suggests that employers need to continue to be proactive and take steps to create a culture free from harassment, but also address other forms of discrimination.

The full survey results can be found at leanin.org/sexual-harassment-backlash-survey-results.

Amelia J. Holstrom is an attorney with Skoler, Abbott & Presser, P.C., one of the largest law firms in New England exclusively practicing labor and employment law. Holstrom specializes in employment litigation, including defending employers against claims of discrimination, retaliation, harassment, and wrongful termination, as well as wage-and-hour lawsuits. She also frequently provides counsel to management on taking proactive steps to reduce the risk of legal liability; (413) 737-4753; [email protected]

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