Robinhood’s Move to Become More Traditional

1/6/2022

Markets

0 min read



	Image Credit: PiggyBank Canada (Flickr)

Robinhood Will Be Adopting More Traditional Investment Programs

Some of the trading patterns and techniques that once allowed brokerage app Robinhood (HOOD) to flourish have largely faded from popularity. This may be pushing the once disruptive newcomer to adopt more traditional investment tools and services.

News Out of
Robinhood

Robinhood Markets is adding a top executive with a traditional brokerage pedigree. They are adding him while they also plan to introduce new investment tools to guide investors into more accepted investing techniques. As the momentum that helped the company during the era when investors were locked down with their smartphone and their stimulus checks slowed, the company that went public in July 2021 at $38 has found its stock is now trading below $16. While some of the company’s more traditional peers have learned a few new business practices from Robinhood, in order to regain its footing, Robinhood is now adopting some more tried and true online brokerage practices.

The announcement on Wednesday (January 5) that it would appoint Steve Quirk, the former executive vice president of trading and education at TD Ameritrade, in a new position as chief brokerage officer may be welcome news for some stockholders. Mr. Quirk will be responsible for overseeing Robinhood Financial and Robinhood Securities which are the company’s broker-dealers. In its announcement, Robinhood highlighted the depth of Quirk’s 35 years of experience within the securities brokerage community.

Background

After Charles Schwab (SCHW) acquired TD Ameritrade, it was known that top executives from TD Ameritrade would be leaving after the transition. Robinhood has been viewed as a tech and data company that is in the securities business. Several of its top executives have been previously employed by Amazon (AMZN) and Alphabet (GOOGL), their focus is now broadening.

While the app’s technology may be easy to use, other brokerages are catching up. And relying heavily on meme stock fads and cryptocurrency trading may not be diversified enough for the company to withstand the test of time. The newer additions to its program will help users accumulate assets and follow a wealth accumulation strategy with less risk. This may be a safer road for both the company and the clients when compared to its history of free stock give-away for opening an account, and other game-like features to encourage usage.

While this is a significant step toward remaking Robinhood’s business model, the new direction could come at the expense of repetitive trades. More than three-quarters of Robinhood’s revenue comes from transactions. However, becoming less dependent on high-frequency traders and more on assets on the platform could level Robinhood’s earnings and lower the volatility in its own share price.

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