Written by Eiko Wang and Crystal Ho
(Reuters) – Robinhood Markets CEO and co-founder Robinhood Markets is considering launching retirement accounts in the United States, CEO and co-founder Vlad Tenev said Saturday in a webcast for users of its trading app looking to participate in its initial public offering. , which is scheduled to be released next week.
The online brokerage has about 18 million funded investment accounts on its platform, most of which are owned by retail traders.
Introducing Individual Retirement Accounts (IRAs) and Roth IRAs, which offer tax benefits to those who save for retirement, would allow Robinhood to tap into a broad market. Americans owned $12.6 trillion in the IRA at the end of March, up 2.8% from the end of December, according to the Investment Company Institute.
“We’re interested in building more account types, including IRAs and Roth IRAs, we’ve heard a lot from our clients. We want to convert first-time investors into long-term investors,” Tenev said in response to an investor question.
Due to the penalties involved in withdrawing funds, IRAs tend to attract long-term investments, rather than the rapid flipping of stocks, options, and cryptocurrencies that some investors turn to Robinhood for.
However, Tenev said in his webcast, “We see evidence that the majority of our customers are basically buy and own.”
Robinhood, which is targeting a valuation of up to $35 billion in its initial public offering, said it will allocate 20% to 35% of the shares offered to its users, an unusual move for a high-profile offering. One of the reasons many IPOs are so popular on day one is that retail investors invited by Robinhood are disqualified and must buy shares on the open market.
Robinhood launched its IPO Access platform earlier this year to enable users to buy into other companies’ IPOs if they can negotiate deals with their investment banks.
Some individual investors are calling for a boycott of Robinhood’s IPO on Reddit and other social media over its handling of the “meme” stock trading frenzy in January. Robinhood has placed purchase restrictions Jim Stop Corp (NYSE:) and other stocks that hedge funds have bet on, on the grounds that they are essential to the financial and operational stability of their platform.
In Saturday’s webcast, Tenev said Robinhood has invested in the stability of its program to avoid another such incident.
Payment for order flow
Robinhood’s popularity has skyrocketed over the past 18 months of social restrictions caused by the coronavirus that have kept many retail investors at home. She said her mission is to “democratize finance for everyone” by allowing users to make unlimited, commission-free trades in stocks, exchange-traded funds, options, and cryptocurrencies.
The brokerage has been criticized for reliance on “pay for order flow” for most of its revenue, under which it receives a fee from market makers to direct trades to them and does not charge users for individual trades, anyway.
Critics argue that this practice, used by many other brokers, creates a conflict of interest, on the grounds that it incentivizes brokers to send orders to those who pay higher fees. Robinhood stresses that it directs deals based on what is cheaper to its users, and that charging a commission will be more expensive.
Robinhood’s chief financial officer, Jason Warnick, has left the door open for the company to change practice if necessary.
“If a ban or other restrictions are imposed on it, we believe Robinhood and the industry will adapt and explore other sources of income,” Warnick said.
A stock exchange report showed that Robinhood was founded in 2013 by fellow Stanford University colleagues Teniv and Baiju Bhatt, who would retain nearly two-thirds of the voting power after the bid.
Robinhood client Minjie Xu, who works as a software engineer in Missouri, remained unfazed after the presentation over concerns that the offer was overblown.
“This is not unique to them because I think most of the initial propositions are exaggerated,” Shaw told Reuters.