Robinhood, the misleading app

I am not a Financial Advisor. This is just my point of view made for entertainment purpose only. Please do your own research and talk to a professional.

Robinhood have caught the attention of many millennial investors and traders. It came with a good concept. No fees and a simple process to buy and sell stocks from your mobile. I particularly liked that you can get information and recent articles about the stocks in the app. That help you to understand better where you are putting your money and what is going on lately with each company (In a very superficial way). Then they helped to revolutionize the options world. In a dangerous way. There is even an incredibly sad story about Alexander Kern who killed himself after a confusing message that let him believe that he had a negative balance of $730,000.  Alexander was a 20-year-old kid. Certainly, Robinhood was not up to the standard for big brokers regarding how to educate and protect customers.

They have to make money as any other business. You can get more information directly from their website on this link “How Robinhood makes money”. One of the ways they make money is through rebates thanks to their relationship with market makers. They claim that these market makers offer a better price than exchanges. There is no proof for this. At least in my short experience with Robinhood. I was always getting a better price with big brokers. So their claim is not necessary true.

Other not so good thing is that they failed to come up with checking and savings account. They promised a high interest rate ( 3%) and no fees. These accounts were advertised in a way that was confusing and they thought they could insure those accounts with SIPC which is not allows in the way the were pretending to do it.

I took this comment from thestreet.com

"If there's any uncertainty about regulatory protection, there is serious potential for people to be misled," former Rep. Barney Frank told CNBC in December. "There needs to be a certainty - if there's the stuff that isn't covered it needs to be in big bold [letters] on the top of the page."

On December 16, 2020 filed a complaint against Robinhood alleging the company aggressively marketed to inexperienced investors and failed to implement controls to protect them. One of their claims is that Robinhood falls short of their fiduciary statement. Meaning they care more about their interest than their customer interests. And to complete this, on December 17, 2020. The SEC charged Robinhood with deceiving customers about how the app makes money and fails to deliver the promised best execution of trades. This will cost Robinhood $65 Million

So, as you can see. The key word for Robinhood seems to be “misleading”. They will have to work on cleaning their reputation and stepping up the game. Specially now that big brokers offer free trading among other characteristics that let Robinhood looks like a kids app. I know, I am being harsh with them. Is just that it seems clear that even though they came with a great design and an amazing promise in their app, it does not compensate the misleading part.

I truly hope that Robinhood get to the level were their fiduciary statement does not fall short. I also want to see how they keep innovating in this new era. Specially when the big players are all in to keep their market share.