Page 20 - BusinessWest July 7, 2021

Taking Stock of Robinhood
Brokerage App Is a Dangerous Culmination of Intersecting Trends
By Jeff Liquori
It was supposed to democratize Wall Street — yet another DIY trend, this time with your hard-earned money.
Robinhood is a popular brokerage applica-
tion that allows subscribers to open an account with as little as $1, charges nothing for commis- sions, 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 over- whelming 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 disrup- tive technology amid a changing business land- scape. Robinhood, however, is the dangerous cul- mination of intersecting trends that have harmed investors and, according to financial regulators, may have contributed to a death by suicide.
The basic business model for financial advi- sory 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
ers. Just as E-Trade blazed a path for lower com- missions, Schwab, Fidelity, and TD Ameritrade slashed commissions to zero in 2019 in response to Robinhood taking market share.
into advisors
and now focus
more on money
management
as trading com-
missions 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 invest- ing. 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 custom-
“Robinhood is not the Home Depot of invest- ing. Do-it-yourself portfolio management has been around since the advent of E-Trade in the mid-’90s. That company disrupted the broker- age industry and forced commissions at most
every other firm lower in order to compete for customers.”
But growth has consequences. Robinhood was at the center of some incredibly volatile trad- ing in a handful of individual stocks. You may have heard of GameStop (GME). The Robinhood- ers gathered virtually in chat rooms, most nota- bly on a platform called Reddit, and decided as a community which
stock they wanted
to manipulate. It
Robinhood
Continued on page 21
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