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SIPC Says It Has Serious Concerns About Robinhood's New Product

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Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#131

Post by bbaumgar »

tomtimtall wrote: post #79
strict9 wrote: post #52

The whole "this can't end well" seems to come at every Robin Hood product announcement. The somewhat recent addition of crypto is just depressing. They've integrated it with chat and live announcements of transactions, so you see people's names as they buy $1500 or $2500 worth of crypto as the whole market makes an inverted hockey stick nosedive to zero. But the most absurd thing was seeing the HN comments yesterday…

If they make a ton of money but give users an easy 3% account I wont complain. Why is everyone so mad at them for being successful when they are offering cheaper services then the rest of the market!? Do they need to hire a homeless CEO to actually qualify as doing something good for society overall?

They are exposing a vulnerable and naive class of investors to a higher-risk asset class in an arguably deceitful way. If their 3% account was SPIC protected (and therefore low-to-no risk), this would be a totally different conversation.

Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#132

Post by axaxs »

Apocryphon wrote: post #97

Let's talk about conventional alternatives to this. I've heard good things about Ally bank's 2% saving account. Does anyone here use anything comparable? How about credit unions?

Ally, Alliant CU, Amex, and Barclays always offer the safest hassle free savings rates. I think they're all at or above 2% now. If you're willing to put in some 'work', you can generally get 3% or more on balances up to an amount. For example, ETFCU will give you 3% up to 20k in balance IF you use their debit card x times a month.

Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#133

Post by jldugger »

jartelt wrote: post #66
kinkrtyavimoodh wrote: post #38

Earlier quoted context omitted.

> bad idea about personal finance Such as?

The vast majority of people should just be maxing out their 401k and investing in index funds. They shouldn't be using Robinhood to buy individual stocks, buy cryptocurrency, or do options trading.

I just use Robinhood to buy ETFs for SP500 and AGG without trading fees. I don't have that much left over after maxing out all my tax advantaged options, so trade fees aren't insignificant.

But people like me should recognize that the people using Robinhood to trade individual stocks, buy cryptocurrency, trade options or trade on margin are effectively subsidizing those who do. Along with the participants of Robinhood's funding rounds, I guess.

Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#134

Post by ryandrake »

tomnipotent wrote: post #106
eclipticplane wrote: post #85

Earlier quoted context omitted.

Push notifications around a pre-defined 'watch list'? Notifications of major stock movements? Showing 'popularity' of a stock? 'Most Popular Under $25'? Gifting people free stock for referrals?

I had a good laugh at this. I expect a certain level of professionalism from financial businesses, and this sort of fluff marketing / gamification makes my skin crawl... mostly because it tells you about the rest of the maturity of the organization if the product and marketing team is sending out this kind of amateur crap.

Just wait for really fun stuff, like the huge "Buy Stock" button with a tiny "Maybe later..." 8pt link below it. Or "Let us scan your photos and location and have AI generate a TOTALLY LIT suggested portfolio for you!" Or even better: "5 of your friends are currently pumping NVDA! Tap here to write a few naked puts!"

Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#135

Post by stilky »

mrfredward wrote: post #35
ajross wrote: post #20

Earlier quoted context omitted.

Presumably they structure it as an investment fund and not a bank account? I think "what am I missing?" is the whole point really: this thing doesn't fit within existing regulatory structures. It likely wouldn't qualify for FDIC insurance either. The question then becomes whether this is a good kind of move-fast-and-break-things a la early Uber breaking into an over-regulated market, or if it's defeating an important…

I did some quick research. Discover has a money market account for 1.9% APR that is FDIC insured and has a debit card. Money market accounts have been around a while. Is Robinhood's account different because they are subsidizing it to hit 3% APR?

Difference is the FDIC insurance, mainly. Being member FDIC means that you have to go through a ton of regulatory requirements to be sure that you're financially stable. A bank can offer whatever interest it wants on its account if it manages to stay in compliance. If Robinhood were to become member FDIC and offer 3% I imagine there'd be no qualms about it.

SIPC on the other hand is more relaxed because it covers less. It only covers when a member broker becomes insolvent and is unable to return a security to you that you own.

There are similar funds that invest in short term treasuries and often that you can write checks against, however they don't offer 3% and they're very transparent that you own these securities and are subject to the (very low) risk that comes with owning them.

Robinhood's marketing sounds a lot more like a standard FDIC insured bank account but they're saying it's SIPC insured instead, and the SIPC is confused about what securities they would actually be insuring

Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#137

Post by axiak »

binarymax wrote: post #65
hn_throwaway_99 wrote: post #13

Through all of this I can't help but be reminded of the 2008 financial crisis and think "this is not going to end well." One part of that crisis was Icelandic Banks making a huge push for savings all over the UK and other parts of Europe ("IceSave") with the promise of better interest rates. When it all went belly up those savers realized these Icelandic banks were not quite the same thing as UK banks and Iceland ref…

I remember (but cannot find a citation) in ~2005/6 AIG was offering 4% saving accounts. I'm having deja vu all over again.

That's extremely reasonable for a savings account. The fed rate at the time was around 5% [1]. Today's is much lower which raises questions about where this rate is coming from.

1: https://en.wikipedia.org/wiki/Federal_funds_rate#Historical_...

Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#138

Post by TeMPOraL »

ummonk wrote: post #94
ticmasta wrote: post #83

Earlier quoted context omitted.

If I buy a house in a neighbourhood that is zoned single family residential, Am I an "inefficient incumbent" because I expect that over the mid-to-long term it will stay that way? These companies are not democratizing investment, accommodation, tranportation or whatever they are rent seekers that use a combination of technology, business model and rule breaking to extract a portion of every transaction. They explicit…

>If I buy a house in a neighbourhood that is zoned single family residential, Am I an "inefficient incumbent" because I expect that over the mid-to-long term it will stay that way? Yes, you are. You're trying to freeze your neighborhood in amber, which is most definitely a sign of an inefficient incumbent.

No, they just bought it with reasonable expectations - expectations, which were priced in the home valuation. If they didn't care about single family aspect, they probably could've found a cheaper house elsewhere.

Also, let's not pretend that AirBnB is progress. It's just a third party that encourages people to start illegal hotels, to earn money for themselves at the expense of their neighbours. This is not a case of local owners having opposing interests to society at large; this is a case of a company enabling some people to parasite on the others.

Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#139

Post by kpwagner »

kinkrtyavimoodh wrote: post #61
scrumper wrote: post #59

Earlier quoted context omitted.

Single stock trading sold as an investment product to the low-end of the retail market (i.e. people like me who's limited investment dollars should be dumped into passive, diversified funds.)

As a user of RobinHood I have not felt any specific push for buying single stocks. A lot of people just buy index funds on RobinHood. If RH had made it more difficult to buy those compared to single stocks, your claim might have some weight...

I remember hearing one of the founders talking about users trading stocks. He explained their data shows people get better at trading stocks with more experience. I can't remember the source, but I think it was on This Week in Startups podcast. This is really suspect--kind of like a casino telling blackjack players they will get better the more they play.

If Robinhood is incentivizing or encouraging frequent trading by users, that's not really good in my opinion. It doesn't make them worse than other brokerages, but it doesn't make them better either. And with a name like Robinhood, they are positioning themselves as white knights.

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