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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

#171

Post by vasilipupkin »

DevX101 wrote: post #11

> “I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC How the hell did this product get launched?

there is little he can do, as cash in brokerage account is obviously protected by SIPC.

Downvoters: you are confused. When you move cash to a brokerage account, it's protected by SIPC. It's a loophole, because this protection was not intended to be for permanent cash parking in an account - but there is nothing that can stop that protection from taking effect. SIPC statute is clear, cash in account is protected. You don't have to invest it, you just have to move it there with the intent of at some point maybe investing it, which is impossible to verify.

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

#172

Post by bashook »

DevX101 wrote: post #11

> “I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC How the hell did this product get launched?

In applying Hanlon's Razor[0], I think the conversation went:

A: Are our customers accounts insured?

B: Yes, through SIPC, which is like FDIC for brokerages.

A: Great! Let's create this product.

No more questions were asked.

[0] http://catb.org/jargon/html/H/Hanlons-Razor.html

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

#173

Post by pascalxus »

For those of you looking for a great place to park your money, try this one: www.mysavingsdirect.com

it's now up to 2.4% for a online savings account, that is FDIC insured. i've been using them for 2 years now, and it's been awesome. As far as i know, 2.4% is the highest there is for online accounts. i'm surprised they don't top the list on nerdwallet.com

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

#175

Post by city41 »

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.

You can buy index funds in Robinhood. That's how I use it. Just a simple, to the point, interface for buying and holding index funds.

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

#176

Post by my_first_acct »

pushtheenvelope wrote: post #49
woolvalley wrote: post #44

Earlier quoted context omitted.

When you buy a bond and the interest rate goes up, the nominal value of the debt goes down when the interest rate goes up, while with bank accounts they stay the same. Ex: You buy a $100 bond at %3, then the prime rate goes up %1 so the typical market price of bonds of your class are now %4. Now your bond is worth less than $100 if you were to liquidate it. Big difference.

that's a good point. However, in this case, won't it be more like a bond-fund, where the fund essentially has a ladder of bonds that are constantly expiring and getting reinvested (and also investing new investments from retail investors), and so the overall value of the fund may still remain close to $100. I could well be wrong, so please feel free to correct me! Trying to learn.

One risk is that the other investors might suddenly decide for some reason (say a sudden wave of panic) to cash out their holdings in the fund. This would force the fund manager to immediately sell some of the bonds, perhaps at an unfavorable price. Bonds (safe ones) eventually pay out at their full value, but their market price fluctuates before maturity, and a sale forced by other investors could stick you with a loss.

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

#177

Post by dwild »

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.

> They shouldn't be using Robinhood to buy individual stocks, buy cryptocurrency, or do options trading.

What if they do it for fun?

Personally, I would have fun having a few thousands there (but I'm Canadian), it's not worse than having a few thousands over a gaming computer, or gambling at the casino.

If you consider Robinhood as the way to finance your retirement, well you are doing something pretty bad, but that was always true for any stock trading.

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

#178

Post by fpgaminer »

pascalxus wrote: post #173

For those of you looking for a great place to park your money, try this one: www.mysavingsdirect.com it's now up to 2.4% for a online savings account, that is FDIC insured. i've been using them for 2 years now, and it's been awesome. As far as i know, 2.4% is the highest there is for online accounts. i'm surprised they don't top the list on nerdwallet.com

As general word of caution: is that extra fraction of interest worth the hassle/risk of dealing with a less known bank?

What I mean is, banks like Ally offer both near-highest interest rates, are well established, and provide a nice experience. Your savings account is bread and butter in your financial life. Using some "janky" bank just to squeeze few dollars probably isn't a good use of your time.

I'm not saying mysavingsdirect.com is "janky"; I really have no idea about them. But I've seen a number of higher interest bank accounts and turned them down because they were from unknown vendors.

As an example, I was pissed at Ally and needed a new vendor. I decided to try Discover Bank, figuring they'd be good with a well established reputation like Discover, and with the same interest rates as Ally. But the experience has been decidedly worse. Slower deposits and transfers, for example.

Also worth noting that usually you shouldn't be carrying a lot in savings anyway. Excess cash should be sitting in investments and doing work. So savings accounts will only be carrying emergency funds et al. If you've got, say, $12k in your account, an extra 0.4% is only going to give you a few extra bucks a year.

Is a few extra bucks worth working with a lesser bank?

Or, to the focus of the original article, is a few extra bucks worth working with an uninsured bank?

I advise extreme caution when it comes to savings accounts, which are explicitly for "safe" money in a health financial portfolio.

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

#179

Post by ceejayoz »

jackconnor wrote: post #124
detaro wrote: post #118

Earlier quoted context omitted.

Then please don't waste your time commenting with sweeping general statements on all their submissions either. It's not like it's news for HN readers.

Why not? If someone posted something from the National Enquirer here I could point out that it's probably bullshit and should be ignored. Bloomberg is 100% exactly the same, they make up news as their source of business, and have been caught doing it many times, most recently in one of the biggest journalism scandals of 2018. So why could I call out National Enquirer here but not Bloomberg?

There's a big fuss over the SuperMicro story because it's notable that Bloomberg appears to have gotten it so badly wrong.

It would not be similarly notable for the National Enquirer to be caught making something up.

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

#180

Post by arbuge »

vasilipupkin wrote: post #171
DevX101 wrote: post #11

> “I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC How the hell did this product get launched?

there is little he can do, as cash in brokerage account is obviously protected by SIPC. Downvoters: you are confused. When you move cash to a brokerage account, it's protected by SIPC. It's a loophole, because this protection was not intended to be for permanent cash parking in an account - but there is nothing that can stop that protection from taking effect. SIPC statute is clear, cash in account is protected. You…

You don't seem to have read the article:

"“The statute that we administer says that we protect money with a brokerage firm that is used for the purchase of securities,” he added. “On Robinhood’s help page, it says that you don’t need to invest to use Robinhood checking and savings, that statement is wrong. If you deposit money for any other purpose, it is not protected.”

If they disagree it's a brokerage account, and it's certainly not being sold as such, then it seems to me there's alot he can do.

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