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

bloomberg.com

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

#161

Post by warp_factor »

aakilfernandes wrote: post #96
300bps wrote: post #27

Earlier quoted context omitted.

You can open an Ameritrade or any other brokerage account and deposit money into the account with no intention of purchasing securities. There is no dispute that the SIPC would cover your account in that instance. The only thing that has changed here is Robinhood is explicitly marketing their brokerage account as being able to be used as a savings account without any need to invest in securities. It’s not black and w…

What other reason would you have an Ameritrade account?

Zero fees on their international debit card (one of the best )

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

#162

Post by sokoloff »

CydeWeys wrote: post #14
IshKebab wrote: post #5

Irrespective of if it is protected or not, surely there is some other catch? Normally impossibly high interest rates are time-limited or balance-limited. I think somebody mentioned this is a variable rate so presumably this is a marketing ploy and they'll put it down to 1.5% in 6 months.

Is there a "catch" when Uber rides cost less than the equivalent taxi ride, and in fact cost less money than the ride itself actually costs to provide? It's just VC money being burnt to acquire more market share. The intent isn't to be profitable on the actual services provided, but to grow revenue and profit on an eventual IPO.

It's not at clear to me that Uber costs less than the ride takes to provide due to the differences between marginal and total cost accounting.

As an example, if I'm going to own my car anyway, I'm going to pay the time-based depreciation whether or not I drive Uber. My marginal cost to drive a mile is around 10 cents for power, 2 cents for tires/brakes, and 2-3 cents for miles-based diminution of value. The fact that GSA/IRS allows $0.545/mile doesn't mean that's my actual marginal cost, just that that's a permissible financial rate for profit-seeking business usage. (As one example, the IRS only allows $0.14/mile for charitable deduction driving, which squares pretty well with my marginal cost estimate above.)

Near as I can tell from a few minutes of Googling, Uber pays $1.35/mile and $0.21/minute in Boston, or roughly 10x the marginal cost of driving a mile. That leaves a lot of margin for driving to/from fares, positioning yourself to an in-demand area, disputed rides, Pool differences, etc.

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

#163

Post by icedchai »

all_blue_chucks wrote: post #34
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…

Short term investment grade debt has a default rate of near-zero and pays more than 3%. See for yourself: https://investor.vanguard.com/etf/profile/VCSH It is entirely possible for them to safely promise a 3% account under these conditions. This is not at all like the financial crisis. It's just wrapping an investment grade bond fund in a bank account interface.

You get your dividend, but the actual price may (and did) decline. Actual performance over the past year is under 0.1%.

If you want a guaranteed return you do not buy bonds or stocks. You buy a money market fund like VMMXX. See https://investor.vanguard.com/mutual-funds/profile/performan...

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

#164

Post by geezerjay »

pembrook wrote: post #141
binarymax wrote: post #65

Earlier quoted context omitted.

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 because interest rates were around that level at the time and the bank was also getting paid that much to hold your money. It wasn’t a conspiracy. Consumer savings accounts had absolutely nothing to do with the crisis. Like, on the list of “things that caused the crisis,” they would literally be dead last. Did you know your parents had savings accounts that delivered 10% interest at one time? Look up historica…

IIRC, high interest rates are caused by an economic boom, as raising interest rates is caused by both an increase in demand for cash flows to finance investments and also as a monetary policy to put economic pressure to control inflation.

Currently the world in general is very far from an economic boom, and central banks are actually implementing desperate monetary policies to jump start inflation. Thus, we are very far from those times to the point that nowadays a 3% interest rate is considered huge, as the norm is for interest rates to remain below the inflation rate

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

#165

Post by 40four »

jackconnor wrote: post #95

It's Bloomberg reporting so they probably got it completely backwards, or made it up, or misunderstood what was told to them. Not saying they're right or wrong, i'm saying Bloomberg is a very unreliable news source, especially in tech.

(slow clap) good to see some criticism of news sources. I found this article to be of VERY LOW quality. Barely 5 paragraphs, took about 30 seconds to read. Very little context, basically just parroting the gentleman's quote. No value, no conclusion. Thanks for nothing Julie Verhage. How is that even considered a news article?

The only other story I can find on this quote right now is on CNBC. It's a little better. https://www.cnbc.com/2018/12/14/sipc-chief-raises-concerns-t...

NOTE: I do think these are important points to report, and important to understand if you are considering using the service. I will watch the development of the Robinhood checking with an eyebrow raised. I just really hate poor quality writing from 'top' news outlets. We should demand better.

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

#166

Post by maratd »

devman0 wrote: post #40
300bps wrote: post #27

Earlier quoted context omitted.

You can open an Ameritrade or any other brokerage account and deposit money into the account with no intention of purchasing securities. There is no dispute that the SIPC would cover your account in that instance. The only thing that has changed here is Robinhood is explicitly marketing their brokerage account as being able to be used as a savings account without any need to invest in securities. It’s not black and w…

I'm not sure how Ameritrade works, but the other brokers I've used (Fidelity, Schwab, and Vanguard) you either have an 'uninvested' position where your cash is parked (generally a federal money market fund) or bank sweep that is FDIC insured. They never actually hold cash for you it is either in a money market or a bank sweep.

It's highly likely that Robinhood will do the same. It'll be parked in a money market, with the option of writing checks, etc. all of which you can do already with the other brokerages.

The new thing here I think is the ATM card and them covering the difference between the money market rate and 3%, which right now is less than 1%. They'll probably make up that difference via interchange fees when you use the debit card.

That SIPC thing though ... that's a bit of a wrench in the gears.

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

#167

Post by whatok »

icedchai wrote: post #163
all_blue_chucks wrote: post #34

Earlier quoted context omitted.

Short term investment grade debt has a default rate of near-zero and pays more than 3%. See for yourself: https://investor.vanguard.com/etf/profile/VCSH It is entirely possible for them to safely promise a 3% account under these conditions. This is not at all like the financial crisis. It's just wrapping an investment grade bond fund in a bank account interface.

You get your dividend, but the actual price may (and did) decline. Actual performance over the past year is under 0.1%. If you want a guaranteed return you do not buy bonds or stocks. You buy a money market fund like VMMXX. See https://investor.vanguard.com/mutual-funds/profile/performan...

Very important distinction between money market funds and checking accounts is that they aren't FDIC insured.

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

#168

Post by icedchai »

whatok wrote: post #167
icedchai wrote: post #163

Earlier quoted context omitted.

You get your dividend, but the actual price may (and did) decline. Actual performance over the past year is under 0.1%. If you want a guaranteed return you do not buy bonds or stocks. You buy a money market fund like VMMXX. See https://investor.vanguard.com/mutual-funds/profile/performan...

Very important distinction between money market funds and checking accounts is that they aren't FDIC insured.

True, true. But with a megacorp like Vanguard backing it, I'm personally not too concerned...

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

#169

Post by EpicEng »

Mtinie wrote: post #32
obeattie wrote: post #12

It's a bit jaw dropping that they've launched this without talking to the SIPC to check that they agree with the statement that they provide FDIC-like protection on these accounts. I wonder what happened here…

AFAIK they haven't yet launched, it's not going to be until "early 2019". Not a defense of Robinhood, but their lack of (apparent) SIPC protections today do not necessarily imply they will be missing when they formally launch with actual customer deposits.

Yet it's being marketed as SIPC insured _today_.

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

#170

Post by thatswrong0 »

illumin8 wrote: post #115
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?

Radius Bank offers 2.05% interest on a savings account as long as you have $25,000 balance, or 1.5% for balances over $2,500. It seems to be the best option I've found. (see note for fine print). They also offer a checking account that pays 1.2% with zero fees and even waives ATM fees worldwide. These are all FDIC insured. I've been banking with them for about 6 months now and they're pretty awesome, outside of havin…

Marcus by Goldman Sachs has 2.05% interest with.. effectively no minimum? (https://www.marcus.com/us/en/savings/high-yield-savings)
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