On Thursday evening, during an invite-only event in San Francisco where Robinhood launched a suite of products to help customers access financial services, such as private wealth management and private banking, CEO Vladimir Tenev took a shot at the 1% fees most financial advisors charge.
“As you can see, they might have clients paying tens of thousands, or hundreds of thousands, every single year,” Tenev said. “There’s literally no limit to this. It’s a great deal for them [the advisor] and a terrible deal for you. You’re literally paying more and more for the same exact service. If you go with a robo advisor instead, that’s a little bit better, but those fees still add up to $50,000 or more per year as your portfolio grows. With Robinhood Strategies, we’re changing all this.”
That launch includes a new robo advisor platform, Robinhood Strategies, featuring zero management fees for accounts over $100,000 for Robinhood Gold members.
But despite the pageantry and boasts, the launch has been met with mixed responses by industry players.
Tyrone Ross, CEO of 401 Financial and CEO/co-founder of fintech Turnqey Labs, said he understands what Robinhood is trying to do in terms of giving people a family office in their pocket.
“Then when he went into the whole investment advisor thing, and he took a shot at our industry with the fees and our value add, I was like, ‘That is a bold strategy to announce this after the TradePMR acquisition,’” Ross said.
Last November, Robinhood entered the advised wealth management space with its plan to acquire TradePMR, a Florida-based technology and custodial services provider for RIAs. The acquisition closed earlier this year.
“If I’m a TradePMR advisor, I have a problem with that,” Tyrone said.
Whenever you combine digital platforms with human advisors, you create channel conflict, added Tim Welsh, president and founder of Nexus Strategy. This debate has been ongoing for many years in the industry, with several custodians targeting investors in their discount brokerage platforms. Schwab launched its robo advisor service, Schwab Intelligent Portfolios, in 2015.
But they’ll argue those offerings are for do-it-yourselfers and small investors, not the high-net-worth investors advisors target, Welsh said.
This could signal that Robinhood is not going to be the Promised Land for TradePMR, he added.
“I just think they wallpapered with smiles and grins when they made the announcement, not knowing that reality would soon set in, and it actually is going to be much more choppy than anyone ever thought,” Welsh said.
Jason Pereira, partner and senior financial consultant at Woodgate Financial Partners, agreed that this is channel conflict, but it’s no different than what other custodians, like Schwab, Vanguard and Fidelity, do. He views a robo advisor as a natural extension of what Robinhood already does.
“They are hell-bent or determined to be a player in wealth across every distribution channel: direct to consumer, the RIA channel—you name it. They want a piece of it,” Pereira said. “They also are leveraging the fact that they had one really big core strength, and that’s the fact that they’ve started their own custodian. And they’re now basically going to try to build that across various distribution channels because they have a kind of core competency in that. So the reality is, this is not unusual that you will have both a competitor and a supplier in this business.”
He added that advisors should not be worried about it. There’s a difference between providing comprehensive advice, which is worth 1%, and just picking investments and creating a portfolio.
“Advisors should never be threatened by the fact that cheaper alternatives exist that involve no advisor because that’s not the same service, and there’s a market for all of that. There’s a market for doing it themselves,” Pereira said.
This robo advisor isn’t going to keep larger clients from going to an advisor when they need complex wealth management, said Doug Fritz, co-founder and executive chairman at F2 Strategy.
“To me, this doesn’t seem like something that is revolutionary or transformative to the industry,” Fritz said. “Ten years ago, all advisor businesses were terrified of fee compression and technology-enabled things like robos that were going to steal their clients, and it never happened. This guy can take as many shots at advisors as he wants to, but 10 years ago, you might’ve had a case for why people should be worried about that. We’ve got 10-15 years of proof that that’s not going to happen.”
When the markets get choppy, as they are now, clients want a human advisor, he said. This will not become a competitive force for advisors.
Ross disagrees. He said the Robinhood technology on the back and front end is sleek, minimal and seamless, and it’s going to appeal to many younger investors.
“It’s damn good, and our industry is ignoring the fact that they are going to make a dent in it one way or another; it’s just a matter of how,” he said. “It’s not going to end well for a lot of firms in our space.”
He cited a recent Bank of America report, which states that Generation Z will become the largest and richest generation by 2035. That generation, the one Robinhood is targeting, will have globally amassed $36 trillion in income by 2030, up from $9 trillion in 2023.
“The smart thing to do, if you’re TradePMR, you lean into that relationship heavy,” Ross said. “You can’t fight what’s happening here.”
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