Finance start-up Robinhood promises to “democratize the financial markets” by creating a mobile-first brokerage that offers unlimited free trades with no minimum balance requirement. That is a pretty bold move, and I was skeptical when they started getting noticed in late 2013.
A year later, they’ve gathered $16M in venture capital and last week publicly launched their iPhone app (no Android yet). I’ve already been a beta user of their app for ~5 months (thanks to you guys) and here’s my review.
Application process. You must provide your personal information including Social Security number, net worth, income, investing experience, etc. This is the same as any other brokerage firm, but this may also be the first such account for many users. Everything was done online; there were no paper documents that required mailing or faxing.
Core features. Yes, the app gives me $0 commission trades with no minimum balance requirement. That means you could open account, put in five bucks, and buy a single share of Zynga (ZNGA) if you wanted to. You can make market or limit orders. You can open a cash or margin account. Along with all the other legit brokerage firms, Robinhood Financial is a member of the SIPC which protects the securities in your account up to $500,000. Data is encrypted with SSL. Apex is their clearing firm.
Funds transfers. You can link any bank account with your routing number and account number, but you can also directly use your username and password at these 9 banks: Bank of America, Wells Fargo, Chase, Citibank, US Bank, USAA, Fidelity, Charles Schwab, and Capital One 360. Such ACH transfers are free.
What’s missing? Getting free trades is great, but I think it’s also important to know what you won’t get, at least right now:
- You must access your account via your iPhone, iPad, or iPod Touch. Android and web interface are “coming in 2015″.
- There is no phone number for customer support, at least that I can find. All their contact links direct you to compose an e-mail to email@example.com. I’d feel more comfortable with a phone number, but customer service agents cost money.
- No advanced order types like trailing stop-loss or trailing stop-limit.
- According to their fee schedule, broker-assisted phone trades are $10 each. But again, I can’t even find a phone number to reach a broker.
- Electronic statements are the default. I don’t even see an option to enable paper statements in the app, but according to their fee schedule paper statements cost $5 a pop.
- Currently, they do not support ACAT transfers, so you can’t move over your existing assets from an outside brokerage. (Or move out your assets via ACAT either, I’m guessing.)
How do they make money? For now, Robinhood will make money the same way other brokers do: collect interest on your idle cash, charge you interest for margin loans, and sell order flow. The most innovative prospect is to the plan to sell API access to other financial apps.
User interface. Over the last 10 years, I’ve opened an account at the majority of the “discount” brokerage firms. I’ve had $0 trades before, along with $2 trades, $2.50 trades, $4.95 trades and so on. What makes Robinhood special is their modern, app-centric approach. I agree with this quote from Wired:
But the app’s simplicity is meant to be about more than style. Ease of access and understanding is meant to make Robinhood compulsively engaging for a new generation of investors that don’t find the stock market very accessible from the mobile screens at the center of their lives.
Even though I don’t trade frequently and I only hold one ETF in this account, I still check the app all the time. That’s more often than my primary Vanguard account. Why? Because it’s so easy. It takes only 5 taps. One tap on the Robinhood app logo, and four quick taps to type in my PIN. If I had a more recent iPhone, I could use Touch ID and get in with a tap and a thumbprint. I know, security, but I just won’t type in a 16-character password on a tiny keyboard just to check a balance.
Recap. Robinhood delivers on their free stock trades with no minimum balance promise. The app-only user interface is clean and intuitive, if a bit minimalist on features like order types. You do give up some traditional brokerage features like phone customer service and paper statements. I’m still skeptical about whether they can make the economics work over the long run, but they do appear to be streamlining wherever they can.
Note: If you’re still on the waiting list, they state plans to onboard you within the first two months of 2015. If you’re signing up now, you can set up a stock watchlist on the app, but don’t expect to open an account for a couple of months.