Robinhood Sets Sights on New Bounty: The Rising Rich
Recent moves by the online brokerage hint at ambitions in wealth management
By Telis Demos
Robinhood exploded to an enormous size during the retail trading surge of the pandemic. PHOTO: ANDREW KELLY/REUTERSYou remember the story of Robinhood: the one where a hero takes money from the rich, and then gives some of it back, in the hopes they bring him still more riches?
That may not be the fairy tale.
But one could say it is increasingly the tale of Robinhood Markets.
Lately, the online brokerage has been giving back quite a lot to users who subscribe to its Gold service—especially those who bring it loads of cash, savings and, now, spending.
First, the company began offering high-interest rates on cash.
Then, it launched into retirement accounts with a big, limited-time lure: a 3% match on transfers or rollovers from an existing retirement account.
Now, it is offering a credit card that pays 3% cash back on any purchases.
Robinhood is still aiming to be a hub for traders, and increasingly more advanced ones, who presumably also have more money.
But another rationale for all those perks is seemingly to help propel Robinhood into the wider business of wealth management.
The upstart of course made its fame offering commission-free trading on your phone, and exploded to an enormous size during the retail trading surge of the pandemic.
But trading can be boom-and-bust, and Robinhood’s shares have reflected that.
They climbed as high as $85 shortly after going public in 2021, but dipped below $7 the next year.
The shares have stabilized as Robinhood has steadily diversified its business, close to doubling over the past year and approaching $20.
The company’s assets under custody in the fourth quarter of 2023 finally surpassed the level they hit in the second quarter of 2021.
For Robinhood to reliably grow through cycles of trading activity and interest rates, a key question is whether it can actually steal share in the steady wealth business.
Robinhood gained millions of users during the GameStop craze.
But many have left as interest rates have gone up.
“The shift to savings and retirement products is bringing wealthier clients to its platform,” says Autonomous Research analyst Christian Bolu.
“They have the opportunity to do for millennials what [others] did for boomers.”
Of course, to manage wealth, you have to go where the wealth is.
It generally isn’t with neophyte investors.
It is typically with people who are older, and who have day jobs that pay a good salary—the so-called Henrys, short for “high earners, not rich yet,” who are highly desirable to hook in early because they will be bigger customers in the future.
Already, Robinhood’s customer base is aging.
Back in 2020, its customers’ median age was 31.
In the company’s most recent investor presentation, it had risen to 34.
And it is millennials—a group that now includes people in their 40s—that account for nearly 60% of assets under custody, or $59 billion out of $103 billion.
Offering perks to draw in assets is hardly a new idea.
Fidelity, for example, also offers a cash-back credit card.
But established firms also have somewhat different business models.
They often aim to convert people to advisory customers, which earns fees.
They also may offer their own investment products, such as mutual funds or exchange-traded funds, which carry fees.
And they typically pay little on uninvested cash to customers, to earn a bigger spread for themselves.
Robinhood, for now, primarily monetizes its retirement customers like it does a customer in a taxable account.
That includes transactional activities such as trading and stock lending.
Robinhood also still generates revenue on sweep cash, and charges a fee for Robinhood Gold as the gateway to many of its offerings, which is $5 a month.
But some people don’t like to do much if any trading on their own with retirement money, perhaps especially if they are at the dicier stages of their financial life, like starting a family or buying a home.
Advisory services are on Robinhood’s road map, according to the most recent investor presentation, though it remains to be seen in what form, or how it might charge for them.
The services can vary, ranging from digitized “robo” investments to talking to a person.
Long chats at first glance don’t necessarily fit neatly into the mobile-first, commission-free model that has so far been Robinhood’s calling card.
But a range of advisory offerings may be vital to any firm’s long-term ability to retain customers, even those who start with them at an early age.
“People at that middle life stage are the ones who need planning, not just investing to maximize returns,” says Vlad Golyk, leader of the North America Wealth Management Practice at McKinsey & Co.
The good news for upstarts is that younger people, even if they want advice, seem open to finding it in new ways, including digitally.
Golyk says that his firm’s surveys of people with over $100,000 of investible assets found that those under age 45 were four times more likely to find an adviser via an ad, while the word-of-mouth referral model that prevails among older customers was less critical.
Younger investors were also far less loyal to the firms that they are already with.
Customers, not riches, may be the real thing to steal.
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