Securities Investor Protection Corp. voices concerns about new Robinhood banking service | EDIT: Now rebranded to "cash management", not "banking"

[kuhnertdm]

Source - Announcement of new service

Source - SIPC concerns

 

Robinhood, an investing startup marketed towards millenials and younger, has recently announced that they will now be providing a service for checking and savings accounts to their users. In their announcement, they assured potential users that their funds will be handled appropriately and insured correctly:

 

Quote

Robinhood Checking & Savings will not be insured by the Federal Deposit Insurance Corp. Instead, because the product will be offered by the broker-dealer arm of the company, it will be insured by the Securities Investor Protection Corp., which covers brokerage accounts.

 

However, the SIPC, who Robinhood claimed would be insuring deposited funds, has issued a statement claiming otherwise:

 

Quote

“I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC, said in an interview Friday. “Had they called us, I would have told them what I just told you in that I have serious concerns about this. This has gigantic ramifications for the banking industry.”

 

Robinhood has been growing in popularity over the past year or so, and has also earned major concerns from the industry. The startup aims most of its advertising towards millenials and younger (through online ads and podcast/YouTuber sponsored ad reads), a population that generally does not have experience in investment, and encourages day trading of individual stocks, which is a very dangerous and risky way of investing. This most recent issue might be indicative of major problems once this new system rolls out, if Robinhood was wrong about the SIPC insuring users' funds.

[I-r0k]

I understand where they are coming from. Targeting younger audiences that don’t know much about banking is sketch. 

[vorticalbox]

14 minutes ago, I-r0k said:

I understand where they are coming from. Targeting younger audiences that don’t know much about banking is sketch. 

Also a great way to make money.

[Jito463]

Naming your banking service after a man notorious for stealing......

[vorticalbox]

58 minutes ago, Jito463 said:

Naming your banking service after a man notorious for stealing......

Yeah but stealing to give to the poor....

[AlTech]

1 hour ago, Jito463 said:

Naming your banking service after a man notorious for stealing......

Lmfao. Imagine if lowkey they hired bank robbers to rob other banks as a way to give back to their poor customers and pay them interest on savings.

 

 

[Brooksie359]

3 hours ago, Jito463 said:

Naming your banking service after a man notorious for stealing......

So a banking service that targets rich people named themselves robinhood. That seems pretty suspect to me. 

[Drak3]

2 hours ago, vorticalbox said:

Yeah but stealing to give to the poor....

The full story is stealing from the rich, who stole from the poor, and giving [what was stolen from the poor] to the poor.

 

The "poor" that this bank would be serving haven't had anything stolen from them.

[Brooksie359]

3 minutes ago, Drak3 said:

The full story is stealing from the rich, who stole from the poor, and giving [what was stolen from the poor] to the poor.

 

The "poor" that this bank would be serving haven't had anything stolen from them.

Yet they are trying to steal from the rich. 

[Syntaxvgm]

2 hours ago, vorticalbox said:

Yeah but stealing to give to the poor....

well if you pay attention to wallstreetbets most people are using their trading app to BECOME poor. 

[kuhnertdm]

9 minutes ago, Brooksie359 said:

Yet they are trying to steal from the rich. 

They're really not, though. Robinhood as a platform is centered around trying to get people to day trade, who should definitely not be day trading. If you're in the bracket that Robinhood is targeting, you should really be holding on a diversified investment, as it's the safest strategy for people who can't afford to lose a lot. Instead, Robinhood is really pushing the idea of investing in individual stocks, which is a lot more risky. They're being pretty irresponsible about that, for the purpose of getting more and more users.

 

EDIT: I should also mention that "getting more and more users" isn't really the end goal. The end goal is to either prop up numbers for a buyout, or to push their new margin trading services, which are even MORE risky than the base service, and make Robinhood a ton of money at the expense of the "poor that they're helping".

[Canada EH]

If its an American bank, dont trust it one bit.

Canada's banking system is robust and secure!

[Trik'Stari]

Funnily enough, I use Robinhood.

 

Mainly buying some AMD stocks, and have a few stocks in a local power company that has dividends. Don't care about the share price so much, I'm investing for the long term for money off of dividends. Getting rich from buying and selling stocks is the main problem with this economy and this form of capitalism.

 

Investing in a good company making profit and earning money from the dividends, is what should be encouraged.

 

The AMD stocks? That's just a bit of fun. Not putting a whole lot into it.

[poochyena]

49 minutes ago, Trik'Stari said:

Mainly buying some AMD stocks

My man

[DKL]

I actually just signed up to get myself some AMD stock. Funny timing.
 

 

[abazigal]

Robin Hood feel pretty suspect. They offer 3% interest on checking accounts, yet it’s not clear where or how they are earning the money to pay you that. 

[Canada EH]

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

 

https://en.wikipedia.org/wiki/List_of_banks_acquired_or_bankrupted_in_the_United_States_during_the_financial_crisis_of_2007–08

 

 

Lots of American banks on the lists!

[Brooksie359]

1 hour ago, Canada EH said:

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

 

https://en.wikipedia.org/wiki/List_of_banks_acquired_or_bankrupted_in_the_United_States_during_the_financial_crisis_of_2007–08

 

 

Lots of American banks on the lists!

That because we have alot of banks. 

[dalekphalm]

15 hours ago, kuhnerdm said:

They're really not, though. Robinhood as a platform is centered around trying to get people to day trade, who should definitely not be day trading. If you're in the bracket that Robinhood is targeting, you should really be holding on a diversified investment, as it's the safest strategy for people who can't afford to lose a lot. Instead, Robinhood is really pushing the idea of investing in individual stocks, which is a lot more risky. They're being pretty irresponsible about that, for the purpose of getting more and more users.

 

EDIT: I should also mention that "getting more and more users" isn't really the end goal. The end goal is to either prop up numbers for a buyout, or to push their new margin trading services, which are even MORE risky than the base service, and make Robinhood a ton of money at the expense of the "poor that they're helping".

This is why I prefer Roboinvestors like WealthSimple - you can choose between 3 levels of "risk", but all 3 levels are still very well diversified. It's automated, and they constantly reinforce the golden rule of investing - DON'T PANIC SELL WHEN THE MARKET GOES DOWN!

 

They also have their financial experts rebalance the portfolios every now and then when needed. (Shameless plug PM me for referral code)

12 hours ago, abazigal said:

Robin Hood feel pretty suspect. They offer 3% interest on checking accounts, yet it’s not clear where or how they are earning the money to pay you that. 

The Federal Benchmark is 2.25%, so it's possible they're just floating the 0.75% extra and paying for it with profits from investing the capital into the market. Certainly not without risk, but it is doable.

[Drak3]

13 hours ago, abazigal said:

Robin Hood feel pretty suspect. They offer 3% interest on checking accounts, yet it’s not clear where or how they are earning the money to pay you that. 

The same way all banks do, investing in low risk.

[Canada EH]

12 hours ago, Brooksie359 said:

That because we have alot of banks. 

Hahahahahaha yes yes you do have a lot of banks but no that is not the reason. It is the regulation. I doubt nothings changed.

[Brooksie359]

1 hour ago, Canada EH said:

Hahahahahaha yes yes you do have a lot of banks but no that is not the reason. It is the regulation. I doubt nothings changed.

It is because we have alot of banks. How can you have alot of banks failing if you only have 2? Number if banks failing doesn't mean much unless you have a percentage. 

[abazigal]

Update. 

 

https://www.bloomberg.com/news/articles/2018-12-15/robinhood-will-retool-checking-product-following-scrutiny

 

Looks like Robinhood was trying to game the system, by trying to get the benefits of a bank (deposit insurance) without the accompanying regulatory oversight. Essentially, it’s a brokerage trying to pass itself off as a bank. 

 

Can’t see this being approved by the authorities. It’s a package deal. You can’t have one without the other. 

[kuhnertdm]

1 hour ago, abazigal said:

Update. 

 

https://www.bloomberg.com/news/articles/2018-12-15/robinhood-will-retool-checking-product-following-scrutiny

 

Looks like Robinhood was trying to game the system, by trying to get the benefits of a bank (deposit insurance) without the accompanying regulatory oversight. Essentially, it’s a brokerage trying to pass itself off as a bank. 

 

Can’t see this being approved by the authorities. It’s a package deal. You can’t have one without the other. 

Wow, this is even more scummy. Instead of taking the right actions to make sure the users' money is safe and insured, they're now wiping their marketing of anything that might suggest that the money is insured like a bank account.

[Canada EH]

6 hours ago, abazigal said:

authorities

So you think "authorities" have got your back with your hard earned money in the United States?

 

Even after the big crash, there are some glaring holes in the system.

Big Money has got the regulators and authorities on the payroll, politicians and even the Presidents.