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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

#211

Post by whitepoplar »

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

Or you can open a Fidelity/Schwab account and buy U.S. Government T-Bills with no transaction costs or markup. 6-month T-Bills are currently yielding 2.54% and they're exempt from state taxes.

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

#212

Post by jkqwzsoo »

whoisjuan wrote: post #193
warp_factor wrote: post #160

Robinhood strikes me as a complete financial amateur-ish company, trying to attract millennials that don't know better by branding themselves as a cool tech company. I have been using Ameritrade for a while and was curious about their no fee platform so gave it a quick go. The graphs have no legends associated in the app. The spreads seems not up-to-date with official quotes, etc. I went back to Ameritrade as fast as…

I have been using Robinhood for years, but I don't disagree at all with this statement. I have always been a little bit suspicious of their approaches. For me the strangest thing about their business is their zero-fee approach. Yes you can make money by getting interest from uninvested funds + premium subscriptions + trade arbitrage, but if it's such a good business why aren't the incumbents taking similar approaches…

> For me the strangest thing about their business is their zero-fee approach. Yes you can make money by getting interest from uninvested funds + premium subscriptions + trade arbitrage, but if it's such a good business why aren't the incumbents taking similar approaches?

They do, they just charge you extra commissions on top of what they make selling order flow, etc, etc. Commissions make up a miniscule portion of income for brokerages. I think that fees a) keep out the "riffraff" and b) brokerages know that it's a zero-sum game to compete on them.

Asking this question is like asking why Ally and Goldman Sachs can offer 2% APY savings accounts, but Bank of America and Chase can only offer 0.01% APY.

There are similarly low-cost brokerages which offer dangerous products, like $500 intraday futures margin (about 250x leverage), 400:1 leverage on Forex products, or more traditional low-cost stock trades. The difference between $5/trade, $1/trade, and $0/trade isn't that significant in reality.

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

#213

Post by PaulHoule »

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…

SIPC insurance is entirely different from FDIC insurance.

FDIC insures the value of your deposits. SIPC covers the case where your broker or mutual fund cannot keep operating (eg. pay the help)

In a case like that all of your stocks and bonds are still there and have most of their value, but you can't get at them because there is nobody to process the transaction. Somehow the holdings need to be transferred to another brokerage or liquidated, and SIPC is there to make sure the resources exist for that happen.

Circa 1970 there was a crisis on "Wall Street" in the sense that many brokerages failed, see

https://en.wikipedia.org/wiki/Securities_Investor_Protection...

for a backgrounder on why we have the SIPC.

The danger that the FDIC protects us from is even more pernicious because fractional reserve banking is one of the most dangerous things people do. By design the assets and liabilities of a bank are very close to each other, in fact far larger than the equity of the bank. If the depositors want their money out, a bank might not be able to support the cash flow -- which means depositors REALLY want their money out.

The stock market on the other hand is "risky" because stocks can go up and down, but it is not dangerous systemically because if your stocks went down you have to accept that they went down. The bank is legally required to pay you back what you put in and promising to do that 100% of the time is a big promise. If people don't trust banks and banks don't trust each other then you can't cash your paycheck, get money out of the ATM, buy groceries, and then you really have a problem...

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

#214

Post by whitepoplar »

gonational wrote: post #99
deadmik3 wrote: post #80

“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.” So it is insured, unless they can prove it's not for investing?

The burden of proof is not on the insurer, but the insured. Think through this like a court case, where the insured is suing the insurer. The insured doesn't simply go in front of a jury and state, " SIPC owes me $N. I rest my case. "

"I deposited $250k with the intention to buy into securities when the market declines by a substantial amount determined by me. Just because I did not purchase stocks does not mean these funds aren't slated for future investment."

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

#215

Post by jkravitz61 »

dawhizkid wrote: post #208
ucaetano wrote: post #89

Which leads to one of two scenarios: 1) They knew SIPC wouldn't cover it, but decided to lie about it anyway 2) They weren't competent enough to assess the risk that SIPC wouldn't cover it, but decided to launch anyway without contacting the SIPC Regardless of which is the truth, I wouldn't trust my money with someone who does either. Might as well jump into a tried-and-true pyramid scheme like bitcoin!

Apparently they purposely called it a "checking & savings" account because they were well aware that technically it is neither a "checking" nor a "savings" account and that a "checking & savings" account does not really exist to protect themselves from accusations of false claims...

They are still claiming it is SIPC insured- which is false, regardless of what you call it.

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

#216

Post by whitepoplar »

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?

You can purchase 6-month T-Bills without transaction fees at several brokers. They're currently yielding 2.54% and are exempt from state taxes. Even 3 month T-Bills are yielding 2.41%.

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

#217

Post by dragonwriter »

harryh wrote: post #24
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?

It hasn't launched. Their website says "Robinhood Checking & Savings is launching early 2019."

But they are accepting signups for the waitlist (which require signing up for RH) and moving positions on the wait list based on referring other people to RH.

Which may be the whole point of the offering.

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

#218

Post by jkqwzsoo »

jldugger wrote: post #133
jartelt wrote: post #66

Earlier quoted context omitted.

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 Robinhoo…

But you could buy those same ETFs with the same $0 fee on Vanguard (or Fidelity and a couple other platforms now), a substantially more established financial firm, and you could keep your residual cash in well established money market funds like VMMXX, also with $0 fee, or VMSXX for tax-exempt growth.

The only real reason to have money in RH, IMO, is if you're gambling with <$1000 on penny stocks and options-cum-lottery tickets.

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

#219

Post by jkravitz61 »

ucaetano wrote: post #89

Which leads to one of two scenarios: 1) They knew SIPC wouldn't cover it, but decided to lie about it anyway 2) They weren't competent enough to assess the risk that SIPC wouldn't cover it, but decided to launch anyway without contacting the SIPC Regardless of which is the truth, I wouldn't trust my money with someone who does either. Might as well jump into a tried-and-true pyramid scheme like bitcoin!

also option 3) Very unlikely scenario that they outsmarted everyone and had some great legal work done to identify a loophole in the SIPC insurance requirements that nobody else has yet identified.

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

#220

Post by smileysteve »

alehul wrote: post #82
peteradio wrote: post #21

Is this how it works?? consumer securities purchases protected by sipc robinhood bank checking format: deposit: money -> account -> robinhood backend securities purchased withdrawal: robinhood backend securities sold -> account -> money Is this the argument made by robinhood? Perhaps if that is laid out clearly in contract, i.e. robinhood is granted agent status to purchase and sale securities on behalf of consumer

Receiving agent status to purchase and sell securities on behalf of the consumer would mean the consumer is consenting to possible losses from the performance of those securities.

As is the case with any money market account...
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