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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

#221

Another example of startup hubris. Much like Uber and AirBnB got started (and in many cases, continue to operate) by flouting regulations, Robinhood thinks they're being innovative, when they'll really just hoping they can get big enough that they can buy or bully their way past the rules. At least long enough to get acquired. It might work, but in this case, the people most likely to get screwed are the customers.

I agree with the comparison, but it feels as though Robinhood has another layer of hubris or ignorance beyond that - it doesn't seem to have studied those models terribly closely.

Uber and AirBnB both flouted primarily city-level regulations that are tough to enforce against external players, and where they broke larger rules it was by pushing vulnerability onto their service providers (e.g. drivers who assume Uber handles taxes like they're direct employees). And at least some of the regulations they ignored were so obviously protectionist that "look, we're breaking the law!" could actually form a selling point. (Which let them redirect focus from more popular rules like property hygiene.)

Robinhood is tangling with national financial regulations, which for all their loopholes and weaknesses are made to take on far larger players with a history of bad behavior. Meanwhile, the rules they're breaking are pretty much all directly tied to consumer protection, so it's going to be mighty hard to run an ad campaign to raise sympathy.

It reminds me a bit of Theranos, actually - "fake it till you make it" wasn't novel, but they neglected massive differences like offering an unsustainable service versus signing unfulfillable contracts, or failing random website visitors versus crossing major corporations and the DoD. It's like a clumsy new lobbyist offering a bribe instead of making a campaign contribution and expecting consideration; the dynamics might be similar, but the gap in execution could easily destroy them.

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

#222

“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. "

What if I'm buying stocks with just some of the money? So I buy a couple shares of some penny stock but keep the rest of my 25k uninvested, am I only insured for the amount I have invested or is my entire account insured?

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

#223

Earlier quoted context omitted.

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!"

I can't wait until they bring in all the dark patterns from travel sites; "1,213 people currently considering this stock" or "act now; only 6MM shares left!"

>1,213 people currently considering this stock

If I had browser data from everyone on RobinHood, and was able to track which stocks they were looking at, I might be able to make money front-running.

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

#224

Earlier quoted context omitted.

> bad idea about personal finance Such as?

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.)

I've got no problem with people who want to trade as a hobby. They should just treat it like Vegas money. Know you're going lose most of it.

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

#225

Earlier quoted context omitted.

That's great. It's like the "chicken wyngz" you can buy at the grocery store that are probably chicken but can't legally be called wings.

I prefer the chikken wings, which are probably wings but cant be legally called chicken.

You should try the Frozen Dairy Dessert.

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

#226
post #177
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.

> 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…

This is a big part of it, which true some people get burned and lose money. But that doesn't mean they shouldn't do it. In fact, I'd argue it's slightly healthy to have a little bit of skin in the game to understand how these things work. If you're into numbers, it's nothing more than a game or say fantasy football and you can cheer for your favorite players (companies).

Robinhood presents a nice way of making it easy to get into the stock market with a pretty interface and without going through a cumbersome broker and paying fees for things you don't understand. Do seek professional help if you are looking for 401k and retirement guidance.

If anything, RH is sophisticated gambling.

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

#227

Earlier quoted context omitted.

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 in…

> I think that fees a) keep out the "riffraff" and b) brokerages know that it's a zero-sum game to compete on them.

There are also costs per position per investor. Some services that brokerages have are based on position counts. An investor with 10 shares in 1 stock is cheaper to maintain than an investor with 1 share in 10 stocks.

(One example is prospectuses. If you buy a fund, you're entitled to the prospectus to be delivered within a certain amount of time post trade. If you just by 1, 2, 3, then 4 shares of the same fund, you only get one file/document delivered to you.)

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

#228
post #92

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.

This is extremely misleading and no one should be using bond funds as a checking/savings account replacement. You have mark to market and liquidity risk here which in normal circumstances you do not have with a savings/checking account. Additionally, Robinhood is reportedly investing proceeds in US Treasuries. US Treasuries have a completely different risk profile than corporate investment grade bonds.

> no one should be using bond funds as a checking/savings account replacement

Literally all money market accounts are bond funds under the hood, actually.

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

#229
post #153
post #23

Earlier quoted context omitted.

Probably because someone took "ask for forgiveness, not permission" a bit too far.

This works in certain industries (e.g. Uber), but not in others, especially heavily regulated ones.

Didn't Uber's self-driving car hit and kill a jaywalker?

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

#230
post #24

Earlier quoted context omitted.

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.

Ya, could be.

Though hanlon's razor makes me think this was more them not thinking things all the way through than a devious plan to get a bunch of signups without ever launching anything.

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