Robinhood stock suffers sixth straight record low as its reverse 'fiduciary' conundrum goes unsolved, while CEO takes shots at 'gadflies' and eggheads
The Menlo Park, Calif., discount broker needs to put client interests first while making them feel like it's flouting authority
Author Brooke Southall
November 24, 2021 at 2:30 AM
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Jeff Spears
November 24, 2021 — 11:52 AM
The company needs to invite two types into the management tent. An experienced Compliance professional and an RIA professional. I have some ideas.
Galton
November 24, 2021 — 7:02 PM
How much did the ox actually weigh!?
Brian Murphy
November 24, 2021 — 8:58 PM
Seems Robinhood co-founders are finding that there is "no free lunch" in the investment industry. Their service isn't "free" to their clients and the "democratization" they boldly claim to be ushering in isn't free of conflict or regulatory scrutiny either.
Payment for order flow should be either banned outright, or clearly charged to clients as commission on trade ticket...ie) a trade that crosses at $8.30 with .05 for order flow should be shown as $8.25 + $0.05 commission.
This industry continues to be a cesspool of exploitation of the un-informed. Payment for order flow is only one way; mutual fund share classes are another. The "bring money over to our firm in exchange for a lower mortgage interest rate" game played by banks is still another. These bullshit shell-games should be stopped by the SEC before they become multi-billion dollar standard practices. Robinhood has been doing business for more than 5 years using the same business model...why does it take an billion $ ipo to get the SEC's attention?
Ron A Rhoades
November 24, 2021 — 11:01 PM
Under the duty of best execution, a broker (as agent of the customer) has a quasi-fiduciary (limited fiduciary) obligation, rather than a broad fiduciary duty applicable to the whole relationship. The same fiduciary principles apply - in this case, seek the very best execution for the client, under a duty of loyalty arising from the principal-agent nature of the relationship.
It is troubling that, over several decades, the SEC has never stepped in and banned payment for order flow, which artificially inflates bid-ask spreads - thereby causing investors to pay larger amounts in transaction fees. Payment for order flow, which was popularized by Bernie Madoff's BD firm, should be banned.
If banned, this would bring back commissions for trades. But the increased transparency would result in a competitive marketplace for customers of BDs, which would likely result in far less expense to investors. And it would remove one of the many unnecessary conflicts of interest that currently exist between BDs and their customers.
Knut A Rostad
November 26, 2021 — 11:27 PM
Thank you, Brooke, for bringing Robinhood into RIAs main view. Your piece is much needed. Only question is why Charle Munger's view is not heard more often. As Munger said in the WSJ, “I hate this luring of people into engaging in speculative orgies,” Mr. Munger told The Wall Street Journal from his Los Angeles home. Robinhood “may call it investing, but that’s all bullshit.”
