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SIPC Says It Has Serious Concerns About Robinhood's New Product

480 points by jakarta 8y ago

peteradio 8y ago
Is this how it works?? consumer securities purchases protected by sipc robinhood bank checking format: deposit: money -> account -> robinhood backend securities purchased withdrawal: robinhood backend securities sold -> account -> money Is this the argument made by robinhood? Perhaps if that is laid out clearly in contract, i.e. robinhood is granted agent status to purchase and sale securities on behalf of consumer
- alehul 8y ago
  Receiving agent status to purchase and sell securities on behalf of the consumer would mean the consumer is consenting to possible losses from the performance of those securities.
  - smileysteve 8y ago
    As is the case with any money market account...
    - alehul 8y ago
      Yes, point being that's not really the bank account Robinhood is trying to offer.
smaps 8y ago
I had a bit of interest on this when I first read about it, but was a bit skeptical then... I wouldn't touch this at all now with no guarantee that the deposits are insured.
caymanjim 8y ago
Another example of startup hubris. Much like Uber and AirBnB got started (and in many cases, continue to operate) by flouting regulations, Robinhood thinks they're being innovative, when they'll really just hoping they can get big enough that they can buy or bully their way past the rules. At least long enough to get acquired. It might work, but in this case, the people most likely to get screwed are the customers.
- deleted 8y ago
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- wallawe 8y ago
  AirBnB and Uber are both examples of companies that were huge wins for customers/consumers. Just because they flout regulations which are often times outdated and unnecessary (re: protecting inefficient incumbents) doesn't mean they aren't doing what's good for the consumer. I agree though that Robinhood is a different story with potentially harmful consequences for unsophisticated investors looking for a safe/easy investment.
  - ocdtrekkie 8y ago
    The people sexually assaulted, discriminated against because of their skin color or sexuality, and those recorded in their beds without their consent would all presumably disagree that Uber and AirBnB flouting regulations made for huge wins for customers/consumers. EDIT: The fact that these crimes "have happened at hotels/in taxis as well" ignores the fact that they are far more likely in an environment where regulations meant to prevent or reduce them are wholesale ignored.
    - freehunter 8y ago
      The people sexually assaulted on the subway, discriminated against because of their skin color or sexuality in taxis, and those recorded in their beds without their consent in hotels would all presumably argue that crimes happen even without SV investment money.
    - wool_gather 8y ago
      I don't want to defend either of - Uber/AirBnB's regulatory abitrage - assault, harassment, or illegal discrimination but this is a complete non-sequitur. The laws that they're avoiding have nothing to do with individuals hurting other individuals. And assault, harassment, or illegal discrimination are perfectly possible in the context of a licensed hotel or taxi.
    - ceejayoz 8y ago
neom 8y ago
"“The statute that we administer says that we protect money with a brokerage firm that is used for the purchase of securities,” he added. “On Robinhood’s help page, it says that you don’t need to invest to use Robinhood checking and savings, that statement is wrong. If you deposit money for any other purpose, it is not protected.”" -- If they are using the deposit to then behind the scenes purchase a security directly, why wouldn't that be protected??
- CydeWeys 8y ago
  The SIPC insures and protects consumers, not the brokerage/investment bank itself. So if the funds are deposited by the customer in order to buy securities on behalf of the customer, then it's protected. If the funds are deposited by the customer in order to pay out interest, and the only one with the intention of investing that money into securities is the brokerage itself, then it's not protected.
  - neom 8y ago
    Got it, thanks for that!
  - metafedora 8y ago
    Isn't Robinhood's Checking & Savings service about the same as non-invested cash in an E*Trade account? That would mean there are a lot of consumers assuming the same risk if they invest with the many brokerages covered by SIPC, since its impossible to not have cash floating around after you fund your account or take profits.
    - freeone3000 8y ago
      The problem with this is that Robinhood claims you can have a Robinhood "Checking and Savings" account and not buy stocks with it - and the SIPC is saying no, you actually do need to intent to buy and sell stocks with it and to use this account as a source of funding in order for it to be insured.
- Xixi 8y ago
IshKebab 8y ago
Irrespective of if it is protected or not, surely there is some other catch? Normally impossibly high interest rates are time-limited or balance-limited. I think somebody mentioned this is a variable rate so presumably this is a marketing ploy and they'll put it down to 1.5% in 6 months.
- CydeWeys 8y ago
  Is there a "catch" when Uber rides cost less than the equivalent taxi ride, and in fact cost less money than the ride itself actually costs to provide? It's just VC money being burnt to acquire more market share. The intent isn't to be profitable on the actual services provided, but to grow revenue and profit on an eventual IPO.
  - GuiA 8y ago
    VC money being burnt, yes. The true cost is additionally being offloaded to the drivers - taxi fares factor in things like insurance, wear and tear, etc, which Uber fares do not.
  - sokoloff 8y ago
    It's not at clear to me that Uber costs less than the ride takes to provide due to the differences between marginal and total cost accounting. As an example, if I'm going to own my car anyway, I'm going to pay the time-based depreciation whether or not I drive Uber. My marginal cost to drive a mile is around 10 cents for power, 2 cents for tires/brakes, and 2-3 cents for miles-based diminution of value. The fact that GSA/IRS allows $0.545/mile doesn't mean that's my actual marginal cost, just that that's a permissible financial rate for profit-seeking business usage. (As one example, the IRS only allows $0.14/mile for charitable deduction driving, which squares pretty well with my marginal cost estimate above.) Near as I can tell from a few minutes of Googling, Uber pays $1.35/mile and $0.21/minute in Boston, or roughly 10x the marginal cost of driving a mile. That leaves a lot of margin for driving to/from fares, positioning yourself to an in-demand area, disputed rides, Pool differences, etc.
- deleted 8y ago
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dmarlow 8y ago
When I saw the original announcement I thought to myself, that's a high interest rate, but it sounds to good to be true; I probably ought to stay away as I'd rather play things safe with my money.
mlthoughts2018 8y ago
“Had they called us...” ffs - they didn’t even do the most basic due diligence on this? This is not just an indicator that this particular product might be in trouble, this is another order of magnitude kind of incompetence that makes me wonder why anyone would trust this company at all. Wouldn’t you have to feel like the probability they end up with a major security issue, funding issue, executive behavior issue, etc., are all magnified by this knowledge? I mean really, this is a staggering thing to read. I don’t think there could be hyperbole in this, it’s just incredible hubris-based incompetence.
mrfredward 8y ago
Normally brokerage accounts fall under the SIPC and bank accounts under the FDIC. Robinhood thinks their checking account should fall under the SIPC...so is their bank account not a bank account? What am I missing?
- ajross 8y ago
  Presumably they structure it as an investment fund and not a bank account? I think "what am I missing?" is the whole point really: this thing doesn't fit within existing regulatory structures. It likely wouldn't qualify for FDIC insurance either. The question then becomes whether this is a good kind of move-fast-and-break-things a la early Uber breaking into an over-regulated market, or if it's defeating an important protection that consumers need.
  - mrfredward 8y ago
    I did some quick research. Discover has a money market account for 1.9% APR that is FDIC insured and has a debit card. Money market accounts have been around a while. Is Robinhood's account different because they are subsidizing it to hit 3% APR?
    - stilky 8y ago
      Difference is the FDIC insurance, mainly. Being member FDIC means that you have to go through a ton of regulatory requirements to be sure that you're financially stable. A bank can offer whatever interest it wants on its account if it manages to stay in compliance. If Robinhood were to become member FDIC and offer 3% I imagine there'd be no qualms about it. SIPC on the other hand is more relaxed because it covers less. It only covers when a member broker becomes insolvent and is unable to return a security to you that you own. There are similar funds that invest in short term treasuries and often that you can write checks against, however they don't offer 3% and they're very transparent that you own these securities and are subject to the (very low) risk that comes with owning them. Robinhood's marketing sounds a lot more like a standard FDIC insured bank account but they're saying it's SIPC insured instead, and the SIPC is confused about what securities they would actually be insuring
DevX101 8y ago
> “I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC How the hell did this product get launched?
- jfim 8y ago
  Probably because someone took "ask for forgiveness, not permission" a bit too far.
  - yawz 8y ago
    This works in certain industries (e.g. Uber), but not in others, especially heavily regulated ones.
    - bduerst 8y ago
      Didn't Uber's self-driving car hit and kill a jaywalker?
      - bdibs 8y ago
        I think he/she was talking about them avoiding taxi legislation, not the self driving branch.
      - nostrademons 8y ago
        Didn't seem to stop them for long: https://www.cnn.com/2018/11/02/tech/uber-self-driving-tests/index.html https://www.cnn.com/2018/11/02/tech/uber-self-driving-tests/... To be fair, they're proposing significantly improved safety procedures. To also be fair, there are not many people (as opposed to corporations) who would be out on good behavior 6 months after being convicted of vehicular manslaughter.
      - ineedasername 8y ago
        In Uber's defense, killing someone is pretty much always an "beg forgiveness" rather than "ask permission" situation
obeattie 8y ago
It's a bit jaw dropping that they've launched this without talking to the SIPC to check that they agree with the statement that they provide FDIC-like protection on these accounts. I wonder what happened here…
- toomuchtodo 8y ago
  Move fast towards to IPO exit, break users' personal finances. This is what happens when your growth team runs up against competent regulators.
  - objektif 8y ago
    Growth team = MBAs is that right?
    - toomuchtodo 8y ago
      Could just as easily be amoral technologists. Lack of ethics doesn’t discriminate.
      - ryandrake 8y ago
        Also, as in all of these products, at the end of the day a developer (or developers) typed in the code. "Whelp, boss said to do it!"
- Mtinie 8y ago
  AFAIK they haven't yet launched, it's not going to be until "early 2019". Not a defense of Robinhood, but their lack of (apparent) SIPC protections today do not necessarily imply they will be missing when they formally launch with actual customer deposits.
  - EpicEng 8y ago
    Yet it's being marketed as SIPC insured _today_.
hn_throwaway_99 8y ago
Through all of this I can't help but be reminded of the 2008 financial crisis and think "this is not going to end well." One part of that crisis was Icelandic Banks making a huge push for savings all over the UK and other parts of Europe ("IceSave") with the promise of better interest rates. When it all went belly up those savers realized these Icelandic banks were not quite the same thing as UK banks and Iceland refused to make depositors whole. If Robinhood had offered this as a normal bank with FDIC insurance I would have been impressed. For now it just seems they're just moving a little bit higher up the risk/reward curve and trying to pretend the risk is the same.
- binarymax 8y ago
  I remember (but cannot find a citation) in ~2005/6 AIG was offering 4% saving accounts. I'm having deja vu all over again.
  - benmarten 8y ago
    In Germany 5% was common at that time for savings.
  - elif 8y ago
    yeah i had a 4% account from HSBC around that time. This immediately brought up an uneasy feeling for me, like this is the "pump" side of a pump and dump or the books are so ugly they need cash deposits at any cost to make it look sane.
  - toast0 8y ago
    That wasn't an unreasonable rate at that time[1], I don't recall the exact timing, but my credit union was at 4% on savings for a while, before fed set interest rates to near zero for many years. [1] https://www.depositaccounts.com/blog/archive/2005.html https://www.depositaccounts.com/blog/archive/2005.html
  - syncsynchalt 8y ago
    CDs were in the 5.10% range in 2006-2008, I had a ladder of them. Many of the institutions I had CDs with were dissolved and I was refunded the principal (without interest) by the FDIC. Compared to the losses everyone else was seeing I was more than happy with my 0% "return".
aresant 8y ago
“I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC. Not sure that leaves a lot of room for speculation - don’t sign up to use Robinhood as a savings account unless you are comfortable doing so without an FDIC level of guaranteed protection.
- MrRadar 8y ago
  Without deposit insurance Robinhood would be extremely vulnerable to a bank run. In the event of even a slight market downturn I can't see why depositors wouldn't immediately withdraw their funds to an insured account (at the cost of only a slight reduction in interest) just to hedge their risk.
mizchief2 8y ago
Maybe the funds are still used for securities but done on the behalf of the account holder who makes no investments directly?
luckydata 8y ago
I don't understand the infatuation silicon valley has of Robinhood. Take almost every possible bad idea about personal finance and put them in an app, you get Robinhood. The business model is also suspect, I think there's a little more that hasn't been disclosed and I suspect the chase for cash started when the crypto currency fad started deflating in a hurry. I wonder if Robinhood is hiding something bigger under the covers.
- pjc50 8y ago
  > almost every possible bad idea about personal finance and put them in an app, you get Robinhood That sounds extremely profitable, so long as you stay ahead of the law - just like Robin Hood, in fact. But in this case it's not taking money from the rich ...
  - crankylinuxuser 8y ago
    Now, do I have the tranch for you! It's 4* tranch, only spun from the best tranches of junk debt!
- kinkrtyavimoodh 8y ago
  > bad idea about personal finance Such as?
  - matte_black 8y ago
    Crypto, options, and margin investing for the unwary masses.
    - liveoneggs 8y ago
      impulse/app-driven day trading? selling spread as "free"?
  - Swquenzer 8y ago
    Idk why this was downvoted, but I would like to know as well. I feel like a know a decent amount about personal finance, and Robinhood is amazing. Primarily, I can trade stocks with zero fees. The app is easy to use. It's not outwardly pushing me to make bad decisions as far as I can tell. If there are issues on the business side, that's a separate concern(?)
kyleblarson 8y ago
Not to mention this: https://old.reddit.com/r/wallstreetbets/comments/a5iwgh/robinhood_options_fat_finger_glitchbug_thread/ https://old.reddit.com/r/wallstreetbets/comments/a5iwgh/robi...
jschmitz28 8y ago
Assuming patio11’s comment[1] from yesterday is correct that this is a loss leader intended to target millennials with low value accounts rather than whales, maybe this is Robinhood’s intended outcome to make it less attractive to the customers they don’t want? [1] https://news.ycombinator.com/item?id=18673426 https://news.ycombinator.com/item?id=18673426
- gus_massa 8y ago
  It may be true, but it's not relevant for the current article. The questions is if these accounts will be insured by the FDIC or the SIPC or neither?
adrr 8y ago
Behind the scenes, it is getting invested in a money market, tbills, or some other investment. So why wouldn't it be covered? Robinhood is only putting a checking account facade around this investment.
strict9 8y ago
The whole "this can't end well" seems to come at every Robin Hood product announcement. The somewhat recent addition of crypto is just depressing. They've integrated it with chat and live announcements of transactions, so you see people's names as they buy $1500 or $2500 worth of crypto as the whole market makes an inverted hockey stick nosedive to zero. But the most absurd thing was seeing the HN comments yesterday as people were saying they were living up to their name of taking from the rich and giving to the poor. They're doing something worse--tricking non-rich people into thinking they'll get rich, while making a ton of money in the process.
- tomtimtall 8y ago
  If they make a ton of money but give users an easy 3% account I wont complain. Why is everyone so mad at them for being successful when they are offering cheaper services then the rest of the market!? Do they need to hire a homeless CEO to actually qualify as doing something good for society overall?
  - bbaumgar 8y ago
    They are exposing a vulnerable and naive class of investors to a higher-risk asset class in an arguably deceitful way. If their 3% account was SPIC protected (and therefore low-to-no risk), this would be a totally different conversation.
    - nodesocket 8y ago
      I have a money market account at Capital One that earns 2% and is FDIC. Staying there.
    - pitaj 8y ago
      How dare they give people more options for investment! Despicable.
forgottenpass 8y ago
"You see, Mr. Griffin, what makes us different from other banks is that we're not a bank."
panarky 8y ago
Robinhood's offering is indistinguishable from a cash management account at a brokerage. Short-term deposits, check writing, debit card, interest bearing, etc. Fidelity Investments pioneered this product, and now it's available from others like Schwab. But at Fidelity, the cash management account is distinct from the brokerage account. While the brokerage account is insured by the SIPC, cash management funds are swept into FDIC-insured balances at actual banks. Looks like Robinhood is gonna lose on this one. Source: https://www.fidelity.com/cash-management/faqs-cash-management-account https://www.fidelity.com/cash-management/faqs-cash-managemen...
- acjohnson55 8y ago
  It seems like RH is taking this to the next step (at least with respect to Fidelity) by building typical checking account features around it, with parameters that are best-in-class.
  - SpaethCo 8y ago
    Fidelity already has best-in-class checking account features? The CMA account has mobile image deposit, free online bill pay, check writing (with free checks), free ACH transfers, free wire transfers, ATM/debit card (with ATM fee reimbursement at any ATM worldwide, no less), etc. The only “best-in-class” factor that Robinhood has presented is setting the interest at 3%.
    - acjohnson55 8y ago
      Good to know, I was reading briefly from their site and didn't see any of those things expressed upfront.
deadmik3 8y ago
“The statute that we administer says that we protect money with a brokerage firm that is used for the purchase of securities,” he added. “On Robinhood’s help page, it says that you don’t need to invest to use Robinhood checking and savings, that statement is wrong. If you deposit money for any other purpose, it is not protected.” So it is insured, unless they can prove it's not for investing?
- gonational 8y ago
  The burden of proof is not on the insurer, but the insured. Think through this like a court case, where the insured is suing the insurer. The insured doesn't simply go in front of a jury and state, "SIPC owes me $N. I rest my case."
  - whitepoplar 8y ago
    "I deposited $250k with the intention to buy into securities when the market declines by a substantial amount determined by me. Just because I did not purchase stocks does not mean these funds aren't slated for future investment."
  - deadmik3 8y ago
    What if I'm buying stocks with just some of the money? So I buy a couple shares of some penny stock but keep the rest of my 25k uninvested, am I only insured for the amount I have invested or is my entire account insured?
ucaetano 8y ago
Which leads to one of two scenarios: 1) They knew SIPC wouldn't cover it, but decided to lie about it anyway 2) They weren't competent enough to assess the risk that SIPC wouldn't cover it, but decided to launch anyway without contacting the SIPC Regardless of which is the truth, I wouldn't trust my money with someone who does either. Might as well jump into a tried-and-true pyramid scheme like bitcoin!
- jkravitz61 8y ago
  In an interview yesterday, the CEO said they were an "Engineering first company". While located in silicon valley, they have no right to subscribe to the "move fast and break things" mentality when they are playing with people's money. Any financial institution that holds external accounts should be a finance first company. Good technology is essential, but not as essential as following rules and regulations to protect your customers.
- dawhizkid 8y ago
  Apparently they purposely called it a "checking & savings" account because they were well aware that technically it is neither a "checking" nor a "savings" account and that a "checking & savings" account does not really exist to protect themselves from accusations of false claims...
  - jkravitz61 8y ago
    They are still claiming it is SIPC insured- which is false, regardless of what you call it.
    - pitaj 8y ago
      It's not necessarily false - that's up for various attorneys to decide.
      - ucaetano 8y ago
        Technically true, but irrelevant. Everything might be up for attorneys and judges to decide.
jackconnor 8y ago
It's Bloomberg reporting so they probably got it completely backwards, or made it up, or misunderstood what was told to them. Not saying they're right or wrong, i'm saying Bloomberg is a very unreliable news source, especially in tech.
- detaro 8y ago
  Just because the company financial news is about has an app doesn't make it "tech". And here they're reporting direct, attributed statements, so it should be easy for you to explain what they "didn't understand".
  - jackconnor 8y ago
    I'm not going to waste my time reading anything from this garbage publication. After "The Big Hack" I realized that life was too short to read articles by sources that just make stuff up. If you want to waste your time, be my guest, but I'd rather not.
    - detaro 8y ago
      Then please don't waste your time commenting with sweeping general statements on all their submissions either. It's not like it's news for HN readers.
      - jackconnor 8y ago
        Why not? If someone posted something from the National Enquirer here I could point out that it's probably bullshit and should be ignored. Bloomberg is 100% exactly the same, they make up news as their source of business, and have been caught doing it many times, most recently in one of the biggest journalism scandals of 2018. So why could I call out National Enquirer here but not Bloomberg?
        ceejayoz 8y ago
        There's a big fuss over the SuperMicro story because it's notable that Bloomberg appears to have gotten it so badly wrong. It would not be similarly notable for the National Enquirer to be caught making something up.
Apocryphon 8y ago
Let's talk about conventional alternatives to this. I've heard good things about Ally bank's 2% saving account. Does anyone here use anything comparable? How about credit unions?
- _raoulcousins 8y ago
  For credit unions, Alliant and Lake Michigan Max Checking are both great. If you're outside of the Midwest, you can become eligible to join either with a donation.
- illumin8 8y ago
  Radius Bank offers 2.05% interest on a savings account as long as you have $25,000 balance, or 1.5% for balances over $2,500. It seems to be the best option I've found. (see note for fine print). They also offer a checking account that pays 1.2% with zero fees and even waives ATM fees worldwide. These are all FDIC insured. I've been banking with them for about 6 months now and they're pretty awesome, outside of having a rather janky web and mobile app. https://radiusbank.com/personal/high-yield-savings/ https://radiusbank.com/personal/high-yield-savings/ Radius High-Yield Savings is a free savings account with no monthly maintenance fee, no minimum balance requirement after $100.00 to open the account, and is FDIC-insured up to the maximum allowed. Annual Percentage Yield (APY) accurate as of 12/14/2018. Minimum amount to open account is $100.00. Rate tiers are as follows, 0.00% APY applies to balances of $0.01—$9.99, 0.05% APY applies to the entire balance on balances of $10.00—$2,499.99, 1.50% APY applies to the entire balance on balances of $2,500-$24,999.99, and 2.05% APY applies to the entire balance on balances of $25,000 or more. Rates may change after account is opened. Fees may reduce earnings.
  - thatswrong0 8y ago
    Marcus by Goldman Sachs has 2.05% interest with.. effectively no minimum? (https://www.marcus.com/us/en/savings/high-yield-savings https://www.marcus.com/us/en/savings/high-yield-savings)
- axaxs 8y ago
  Ally, Alliant CU, Amex, and Barclays always offer the safest hassle free savings rates. I think they're all at or above 2% now. If you're willing to put in some 'work', you can generally get 3% or more on balances up to an amount. For example, ETFCU will give you 3% up to 20k in balance IF you use their debit card x times a month.
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kgwgk 8y ago
Matt Levine comments on this today: https://www.bloomberg.com/opinion/articles/2018-12-14/nyse-needed-some-pretend-traders https://www.bloomberg.com/opinion/articles/2018-12-14/nyse-n... "There is a lot of confusion about what Robinhood’s thing is. Delightfully, it is called “Robinhood Checking & Savings,” apparently because calling it a “checking account” or a “savings account” would come too close to implying that it is a real bank account insured by the Federal Deposit Insurance Corp., while “checking & savings” is not a thing and so does not carry that implication. A magic ampersand!"
- MrMember 8y ago
  That's great. It's like the "chicken wyngz" you can buy at the grocery store that are probably chicken but can't legally be called wings.
  - conanbatt 8y ago
    I prefer the chikken wings, which are probably wings but cant be legally called chicken.
    - plopz 8y ago
      You should try the Frozen Dairy Dessert.
      - doctorOb 8y ago
        Or processed cheese food [1] [1] https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=133.173 https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFR...
        ceejayoz 8y ago
        Try "potted meat food product" on for size. Ingredients: Mechanically Separated Chicken, Beef Tripe, Partially Defatted Cooked Beef Fatty Tissue, Beef Hearts, Water, Partially Defatted Cooked Pork Fatty Tissue, Salt. Less than 2 percent: Mustard, Natural Flavorings, Dried Garlic, Dextrose, Sodium Erythorbate, Sodium Nitrite
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aakilfernandes 8y ago
I guess it depends on how you read the statue. we protect (money with a brokerage firm) that is used for the purchase of securities or we protect money with a (brokerage firm that is used for the purchase of securities) Unfortunately, due to the nature of law, there's no way to get an answer on this until it goes to the courts which will only happen if/when there's a problem.
rdlecler1 8y ago
HN's value has really declined with the appearance of all the paywalls the last couple of years where there's no simple workaround. I've stopped clicking on WSJ, NYT, Bloomberg articles. Would be nice to just be able to filter them out of the view.
- pascalxus 8y ago
  and those paywall's refusal to take any kind of micropayment option makes it even worse.
- sjroot 8y ago
  I've been using Outline.com when possible to get around this, but I agree. Posts behind paywalls should be removed, or tagged and filterable.
Rafuino 8y ago
"Move fast and break things" does not work in the heavily regulated worlds of healthcare (e.g. Theranos) and finance (now Robinhood). FB and GOOG have massive lobbying operations for this very reason, as they don't want advertising to become like finance and healthcare.
ajcodez 8y ago
I bet the idea is to use the deposits to fund margin lending to offer 3% interest rate. I remember the rate was like $10/m for $2000 margin which is 6% per year. If it’s funding margin lending would it count as empty brokerage account to get insured?
megaman8 8y ago
This is extremely concerning: >> “I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC As a result, I will not be signing up for Robinhood, that's for sure. I get the sense, It's not the place to park your money, if you're just trying to save up without investing.
warp_factor 8y ago
Robinhood strikes me as a complete financial amateur-ish company, trying to attract millennials that don't know better by branding themselves as a cool tech company. I have been using Ameritrade for a while and was curious about their no fee platform so gave it a quick go. The graphs have no legends associated in the app. The spreads seems not up-to-date with official quotes, etc. I went back to Ameritrade as fast as possible. They are the "go fast and break things" of finance. There is a good chance that this will not end well.
- whoisjuan 8y ago
  I have been using Robinhood for years, but I don't disagree at all with this statement. I have always been a little bit suspicious of their approaches. For me the strangest thing about their business is their zero-fee approach. Yes you can make money by getting interest from uninvested funds + premium subscriptions + trade arbitrage, but if it's such a good business why aren't the incumbents taking similar approaches? Contrarians would say that incumbents are just to engrained in their past approaches to actually adopt modern strategies, but I had that extremely hard to believe, especially when one of the incumbents, E-Trade, was the pioneer of online trading. Also, unlike other industries, financial firms are savage. They're not scared to make risky bets and spin-off new businesses and strategies. Their industry is naturally risky, so they have the experience and tenure to make risky bets, without souring stakeholders. I always give Robinhood the benefit of the doubt, because in my day to day I personally can say that it works great. They definitely nailed the Customer Experience. However that doesn't mean that they have an actual viable long-term business, so I prefer to stay reasonably cautious... Time will tell.
  - jkqwzsoo 8y ago
    > For me the strangest thing about their business is their zero-fee approach. Yes you can make money by getting interest from uninvested funds + premium subscriptions + trade arbitrage, but if it's such a good business why aren't the incumbents taking similar approaches? They do, they just charge you extra commissions on top of what they make selling order flow, etc, etc. Commissions make up a miniscule portion of income for brokerages. I think that fees a) keep out the "riffraff" and b) brokerages know that it's a zero-sum game to compete on them. Asking this question is like asking why Ally and Goldman Sachs can offer 2% APY savings accounts, but Bank of America and Chase can only offer 0.01% APY. There are similarly low-cost brokerages which offer dangerous products, like $500 intraday futures margin (about 250x leverage), 400:1 leverage on Forex products, or more traditional low-cost stock trades. The difference between $5/trade, $1/trade, and $0/trade isn't that significant in reality.
pascalxus 8y ago
For those of you looking for a great place to park your money, try this one: www.mysavingsdirect.com it's now up to 2.4% for a online savings account, that is FDIC insured. i've been using them for 2 years now, and it's been awesome. As far as i know, 2.4% is the highest there is for online accounts. i'm surprised they don't top the list on nerdwallet.com
- fpgaminer 8y ago
  As general word of caution: is that extra fraction of interest worth the hassle/risk of dealing with a less known bank? What I mean is, banks like Ally offer both near-highest interest rates, are well established, and provide a nice experience. Your savings account is bread and butter in your financial life. Using some "janky" bank just to squeeze few dollars probably isn't a good use of your time. I'm not saying mysavingsdirect.com is "janky"; I really have no idea about them. But I've seen a number of higher interest bank accounts and turned them down because they were from unknown vendors. As an example, I was pissed at Ally and needed a new vendor. I decided to try Discover Bank, figuring they'd be good with a well established reputation like Discover, and with the same interest rates as Ally. But the experience has been decidedly worse. Slower deposits and transfers, for example. Also worth noting that usually you shouldn't be carrying a lot in savings anyway. Excess cash should be sitting in investments and doing work. So savings accounts will only be carrying emergency funds et al. If you've got, say, $12k in your account, an extra 0.4% is only going to give you a few extra bucks a year. Is a few extra bucks worth working with a lesser bank? Or, to the focus of the original article, is a few extra bucks worth working with an uninsured bank? I advise extreme caution when it comes to savings accounts, which are explicitly for "safe" money in a health financial portfolio.
  - pascalxus 8y ago
    Well, if you're saving very aggressively to buy a house in the near future, it makes a lot of sense, especially in places where housing is extremely expensive. Slow deposits and transfers are not a problem at all. You only need to transfer in or out maybe a few times per year at the very most. i'm not sure what you mean with "janky"
onetimemanytime 8y ago
Initially the 3% can be paid by RobinHood investor money (they'll make it up on volume, like Pets.com did shipping 50lbs bags). But tomorrow? Maybe offer a x year guarantee
throughaway2018 8y ago
Financial innovation historically leads to financial ruin. Think about it. Looking at you fintech.
peter303 8y ago
I have had such an account at Fidelity for years. However they only pay lower money market rates which are based on bonds less than 30 days.
- whitepoplar 8y ago
  Fidelity CMA balances are swept into FDIC-insured bank accounts. One trick with this account is that you can purchase Fidelity Money Market funds, which are treated as cash, and which Fidelity will auto-liquidate as-needed to cover debits, without intervention on your part. You can select any Fidelity Money Market fund for this. SPRXX, for instance, currently pays 2.09%. Plus you get a debit card that refunds any ATM fee in the world, free wire transfers, bill pay, paper checks (if needed), and competent customer service that's available 24 hours per day.
hunter23 8y ago
Is the main issue that the product is marketing as a checking account? If robinhood marketed this as an investment bank account would they comply?
Animats 8y ago
Here's their very brief unaudited financial statement.[1] This makes no sense for a financial institution. How can their liabilities be so low? Anything on deposit with them is a liability for them. This seems to say "all your assets are belong to us." [1] https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal/RHS%20Statement%20of%20Financial%20Condition.pdf https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal...
rdxm 8y ago
Robinhood channels Uber/Kalanick model to "disrupt" banking....lol
ineedasername 8y ago
Their page [0] on the new product still mentions both SIPC and FDIC in numerous places. If I wasn't following this news, the clear implication I'd get is that my account was both FDIC and SIPC insured. This is really irresponsible of Robinhood. [0] https://blog.robinhood.com/news/2018/12/13/introducing-robinhood-checking-amp-savings https://blog.robinhood.com/news/2018/12/13/introducing-robin...
waterside81 8y ago
Makes this top comment from yesterday seem even more flippant and re-inforces the "trust us, we're smarter than you" mentality of certain regions of the country: https://news.ycombinator.com/item?id=18673426 https://news.ycombinator.com/item?id=18673426
ohiovr 8y ago
They’ll give you 3% on savings by investing it in treasuries and pocketing the difference. The 20 year is now 3.03% and interest rates are rising Its the Theranos of finance!
- freeone3000 8y ago
  Theranos's product didn't work. This product may be a bad deal or a good deal, but it's going to deliver what they promise. T-bills are illiquid if you want the gains. They're promising liquidity in exchange for a cut of the gains. Sounds reasonable, at least in theory.
  - ohiovr 8y ago
    You see, if Treasury interest rates rise, the value of existing treasuries from a lower interest rate fall. If you have to wait 20 years to get whole on the deal then it's effectively illiquid. But if you have to liquidate, then you must lose prinicple. Its a problem ongoing right now in the bond market.
stuart78 8y ago
They've posted a response, for what it is worth: https://blog.robinhood.com/news/2018/12/14/a-letter-from-our-founders https://blog.robinhood.com/news/2018/12/14/a-letter-from-our... Not exactly confidence-inspiring, but we will see.

480 points by jakarta 8y ago

Is this how it works?? consumer securities purchases protected by sipc robinhood bank checking format: deposit: money -> account -> robinhood backend securities purchased withdrawal: robinhood backend securities sold -> account -> money Is this the argument made by robinhood? Perhaps if that is laid out clearly in contract, i.e. robinhood is granted agent status to purchase and sale securities on behalf of consumer

alehul 8y ago
Receiving agent status to purchase and sell securities on behalf of the consumer would mean the consumer is consenting to possible losses from the performance of those securities.
- smileysteve 8y ago
  As is the case with any money market account...
  - alehul 8y ago
    Yes, point being that's not really the bank account Robinhood is trying to offer.

smaps 8y ago

I had a bit of interest on this when I first read about it, but was a bit skeptical then... I wouldn't touch this at all now with no guarantee that the deposits are insured.

caymanjim 8y ago

Another example of startup hubris. Much like Uber and AirBnB got started (and in many cases, continue to operate) by flouting regulations, Robinhood thinks they're being innovative, when they'll really just hoping they can get big enough that they can buy or bully their way past the rules. At least long enough to get acquired. It might work, but in this case, the people most likely to get screwed are the customers.

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wallawe 8y ago
AirBnB and Uber are both examples of companies that were huge wins for customers/consumers. Just because they flout regulations which are often times outdated and unnecessary (re: protecting inefficient incumbents) doesn't mean they aren't doing what's good for the consumer. I agree though that Robinhood is a different story with potentially harmful consequences for unsophisticated investors looking for a safe/easy investment.
- ocdtrekkie 8y ago
  The people sexually assaulted, discriminated against because of their skin color or sexuality, and those recorded in their beds without their consent would all presumably disagree that Uber and AirBnB flouting regulations made for huge wins for customers/consumers. EDIT: The fact that these crimes "have happened at hotels/in taxis as well" ignores the fact that they are far more likely in an environment where regulations meant to prevent or reduce them are wholesale ignored.
  - freehunter 8y ago
    The people sexually assaulted on the subway, discriminated against because of their skin color or sexuality in taxis, and those recorded in their beds without their consent in hotels would all presumably argue that crimes happen even without SV investment money.
  - wool_gather 8y ago
    I don't want to defend either of - Uber/AirBnB's regulatory abitrage - assault, harassment, or illegal discrimination but this is a complete non-sequitur. The laws that they're avoiding have nothing to do with individuals hurting other individuals. And assault, harassment, or illegal discrimination are perfectly possible in the context of a licensed hotel or taxi.
  - ceejayoz 8y ago

neom 8y ago

"“The statute that we administer says that we protect money with a brokerage firm that is used for the purchase of securities,” he added. “On Robinhood’s help page, it says that you don’t need to invest to use Robinhood checking and savings, that statement is wrong. If you deposit money for any other purpose, it is not protected.”" -- If they are using the deposit to then behind the scenes purchase a security directly, why wouldn't that be protected??

CydeWeys 8y ago
The SIPC insures and protects consumers, not the brokerage/investment bank itself. So if the funds are deposited by the customer in order to buy securities on behalf of the customer, then it's protected. If the funds are deposited by the customer in order to pay out interest, and the only one with the intention of investing that money into securities is the brokerage itself, then it's not protected.
- neom 8y ago
  Got it, thanks for that!
- metafedora 8y ago
  Isn't Robinhood's Checking & Savings service about the same as non-invested cash in an E*Trade account? That would mean there are a lot of consumers assuming the same risk if they invest with the many brokerages covered by SIPC, since its impossible to not have cash floating around after you fund your account or take profits.
  - freeone3000 8y ago
    The problem with this is that Robinhood claims you can have a Robinhood "Checking and Savings" account and not buy stocks with it - and the SIPC is saying no, you actually do need to intent to buy and sell stocks with it and to use this account as a source of funding in order for it to be insured.
Xixi 8y ago

IshKebab 8y ago

Irrespective of if it is protected or not, surely there is some other catch? Normally impossibly high interest rates are time-limited or balance-limited. I think somebody mentioned this is a variable rate so presumably this is a marketing ploy and they'll put it down to 1.5% in 6 months.

CydeWeys 8y ago
Is there a "catch" when Uber rides cost less than the equivalent taxi ride, and in fact cost less money than the ride itself actually costs to provide? It's just VC money being burnt to acquire more market share. The intent isn't to be profitable on the actual services provided, but to grow revenue and profit on an eventual IPO.
- GuiA 8y ago
  VC money being burnt, yes. The true cost is additionally being offloaded to the drivers - taxi fares factor in things like insurance, wear and tear, etc, which Uber fares do not.
- sokoloff 8y ago
  It's not at clear to me that Uber costs less than the ride takes to provide due to the differences between marginal and total cost accounting. As an example, if I'm going to own my car anyway, I'm going to pay the time-based depreciation whether or not I drive Uber. My marginal cost to drive a mile is around 10 cents for power, 2 cents for tires/brakes, and 2-3 cents for miles-based diminution of value. The fact that GSA/IRS allows $0.545/mile doesn't mean that's my actual marginal cost, just that that's a permissible financial rate for profit-seeking business usage. (As one example, the IRS only allows $0.14/mile for charitable deduction driving, which squares pretty well with my marginal cost estimate above.) Near as I can tell from a few minutes of Googling, Uber pays $1.35/mile and $0.21/minute in Boston, or roughly 10x the marginal cost of driving a mile. That leaves a lot of margin for driving to/from fares, positioning yourself to an in-demand area, disputed rides, Pool differences, etc.
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dmarlow 8y ago

When I saw the original announcement I thought to myself, that's a high interest rate, but it sounds to good to be true; I probably ought to stay away as I'd rather play things safe with my money.

mlthoughts2018 8y ago

“Had they called us...” ffs - they didn’t even do the most basic due diligence on this? This is not just an indicator that this particular product might be in trouble, this is another order of magnitude kind of incompetence that makes me wonder why anyone would trust this company at all. Wouldn’t you have to feel like the probability they end up with a major security issue, funding issue, executive behavior issue, etc., are all magnified by this knowledge? I mean really, this is a staggering thing to read. I don’t think there could be hyperbole in this, it’s just incredible hubris-based incompetence.

mrfredward 8y ago

Normally brokerage accounts fall under the SIPC and bank accounts under the FDIC. Robinhood thinks their checking account should fall under the SIPC...so is their bank account not a bank account? What am I missing?

ajross 8y ago
Presumably they structure it as an investment fund and not a bank account? I think "what am I missing?" is the whole point really: this thing doesn't fit within existing regulatory structures. It likely wouldn't qualify for FDIC insurance either. The question then becomes whether this is a good kind of move-fast-and-break-things a la early Uber breaking into an over-regulated market, or if it's defeating an important protection that consumers need.
- mrfredward 8y ago
  I did some quick research. Discover has a money market account for 1.9% APR that is FDIC insured and has a debit card. Money market accounts have been around a while. Is Robinhood's account different because they are subsidizing it to hit 3% APR?
  - stilky 8y ago
    Difference is the FDIC insurance, mainly. Being member FDIC means that you have to go through a ton of regulatory requirements to be sure that you're financially stable. A bank can offer whatever interest it wants on its account if it manages to stay in compliance. If Robinhood were to become member FDIC and offer 3% I imagine there'd be no qualms about it. SIPC on the other hand is more relaxed because it covers less. It only covers when a member broker becomes insolvent and is unable to return a security to you that you own. There are similar funds that invest in short term treasuries and often that you can write checks against, however they don't offer 3% and they're very transparent that you own these securities and are subject to the (very low) risk that comes with owning them. Robinhood's marketing sounds a lot more like a standard FDIC insured bank account but they're saying it's SIPC insured instead, and the SIPC is confused about what securities they would actually be insuring

DevX101 8y ago

> “I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC How the hell did this product get launched?

jfim 8y ago
Probably because someone took "ask for forgiveness, not permission" a bit too far.
- yawz 8y ago
  This works in certain industries (e.g. Uber), but not in others, especially heavily regulated ones.
  - bduerst 8y ago
    Didn't Uber's self-driving car hit and kill a jaywalker?
    - bdibs 8y ago
      I think he/she was talking about them avoiding taxi legislation, not the self driving branch.
    - nostrademons 8y ago
      Didn't seem to stop them for long: https://www.cnn.com/2018/11/02/tech/uber-self-driving-tests/index.html https://www.cnn.com/2018/11/02/tech/uber-self-driving-tests/... To be fair, they're proposing significantly improved safety procedures. To also be fair, there are not many people (as opposed to corporations) who would be out on good behavior 6 months after being convicted of vehicular manslaughter.
    - ineedasername 8y ago
      In Uber's defense, killing someone is pretty much always an "beg forgiveness" rather than "ask permission" situation

obeattie 8y ago

It's a bit jaw dropping that they've launched this without talking to the SIPC to check that they agree with the statement that they provide FDIC-like protection on these accounts. I wonder what happened here…

toomuchtodo 8y ago
Move fast towards to IPO exit, break users' personal finances. This is what happens when your growth team runs up against competent regulators.
- objektif 8y ago
  Growth team = MBAs is that right?
  - toomuchtodo 8y ago
    Could just as easily be amoral technologists. Lack of ethics doesn’t discriminate.
    - ryandrake 8y ago
      Also, as in all of these products, at the end of the day a developer (or developers) typed in the code. "Whelp, boss said to do it!"
Mtinie 8y ago
AFAIK they haven't yet launched, it's not going to be until "early 2019". Not a defense of Robinhood, but their lack of (apparent) SIPC protections today do not necessarily imply they will be missing when they formally launch with actual customer deposits.
- EpicEng 8y ago
  Yet it's being marketed as SIPC insured _today_.

hn_throwaway_99 8y ago

Through all of this I can't help but be reminded of the 2008 financial crisis and think "this is not going to end well." One part of that crisis was Icelandic Banks making a huge push for savings all over the UK and other parts of Europe ("IceSave") with the promise of better interest rates. When it all went belly up those savers realized these Icelandic banks were not quite the same thing as UK banks and Iceland refused to make depositors whole. If Robinhood had offered this as a normal bank with FDIC insurance I would have been impressed. For now it just seems they're just moving a little bit higher up the risk/reward curve and trying to pretend the risk is the same.

binarymax 8y ago
I remember (but cannot find a citation) in ~2005/6 AIG was offering 4% saving accounts. I'm having deja vu all over again.
- benmarten 8y ago
  In Germany 5% was common at that time for savings.
- elif 8y ago
  yeah i had a 4% account from HSBC around that time. This immediately brought up an uneasy feeling for me, like this is the "pump" side of a pump and dump or the books are so ugly they need cash deposits at any cost to make it look sane.
- toast0 8y ago
  That wasn't an unreasonable rate at that time[1], I don't recall the exact timing, but my credit union was at 4% on savings for a while, before fed set interest rates to near zero for many years. [1] https://www.depositaccounts.com/blog/archive/2005.html https://www.depositaccounts.com/blog/archive/2005.html
- syncsynchalt 8y ago
  CDs were in the 5.10% range in 2006-2008, I had a ladder of them. Many of the institutions I had CDs with were dissolved and I was refunded the principal (without interest) by the FDIC. Compared to the losses everyone else was seeing I was more than happy with my 0% "return".

aresant 8y ago

“I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC. Not sure that leaves a lot of room for speculation - don’t sign up to use Robinhood as a savings account unless you are comfortable doing so without an FDIC level of guaranteed protection.

MrRadar 8y ago
Without deposit insurance Robinhood would be extremely vulnerable to a bank run. In the event of even a slight market downturn I can't see why depositors wouldn't immediately withdraw their funds to an insured account (at the cost of only a slight reduction in interest) just to hedge their risk.

mizchief2 8y ago

Maybe the funds are still used for securities but done on the behalf of the account holder who makes no investments directly?

luckydata 8y ago

I don't understand the infatuation silicon valley has of Robinhood. Take almost every possible bad idea about personal finance and put them in an app, you get Robinhood. The business model is also suspect, I think there's a little more that hasn't been disclosed and I suspect the chase for cash started when the crypto currency fad started deflating in a hurry. I wonder if Robinhood is hiding something bigger under the covers.

pjc50 8y ago
> almost every possible bad idea about personal finance and put them in an app, you get Robinhood That sounds extremely profitable, so long as you stay ahead of the law - just like Robin Hood, in fact. But in this case it's not taking money from the rich ...
- crankylinuxuser 8y ago
  Now, do I have the tranch for you! It's 4* tranch, only spun from the best tranches of junk debt!
kinkrtyavimoodh 8y ago
> bad idea about personal finance Such as?
- matte_black 8y ago
  Crypto, options, and margin investing for the unwary masses.
  - liveoneggs 8y ago
    impulse/app-driven day trading? selling spread as "free"?
- Swquenzer 8y ago
  Idk why this was downvoted, but I would like to know as well. I feel like a know a decent amount about personal finance, and Robinhood is amazing. Primarily, I can trade stocks with zero fees. The app is easy to use. It's not outwardly pushing me to make bad decisions as far as I can tell. If there are issues on the business side, that's a separate concern(?)

kyleblarson 8y ago

Not to mention this: https://old.reddit.com/r/wallstreetbets/comments/a5iwgh/robinhood_options_fat_finger_glitchbug_thread/ https://old.reddit.com/r/wallstreetbets/comments/a5iwgh/robi...

jschmitz28 8y ago

Assuming patio11’s comment[1] from yesterday is correct that this is a loss leader intended to target millennials with low value accounts rather than whales, maybe this is Robinhood’s intended outcome to make it less attractive to the customers they don’t want? [1] https://news.ycombinator.com/item?id=18673426 https://news.ycombinator.com/item?id=18673426

gus_massa 8y ago
It may be true, but it's not relevant for the current article. The questions is if these accounts will be insured by the FDIC or the SIPC or neither?

adrr 8y ago

Behind the scenes, it is getting invested in a money market, tbills, or some other investment. So why wouldn't it be covered? Robinhood is only putting a checking account facade around this investment.

strict9 8y ago

The whole "this can't end well" seems to come at every Robin Hood product announcement. The somewhat recent addition of crypto is just depressing. They've integrated it with chat and live announcements of transactions, so you see people's names as they buy $1500 or $2500 worth of crypto as the whole market makes an inverted hockey stick nosedive to zero. But the most absurd thing was seeing the HN comments yesterday as people were saying they were living up to their name of taking from the rich and giving to the poor. They're doing something worse--tricking non-rich people into thinking they'll get rich, while making a ton of money in the process.

tomtimtall 8y ago
If they make a ton of money but give users an easy 3% account I wont complain. Why is everyone so mad at them for being successful when they are offering cheaper services then the rest of the market!? Do they need to hire a homeless CEO to actually qualify as doing something good for society overall?
- bbaumgar 8y ago
  They are exposing a vulnerable and naive class of investors to a higher-risk asset class in an arguably deceitful way. If their 3% account was SPIC protected (and therefore low-to-no risk), this would be a totally different conversation.
  - nodesocket 8y ago
    I have a money market account at Capital One that earns 2% and is FDIC. Staying there.
  - pitaj 8y ago
    How dare they give people more options for investment! Despicable.

forgottenpass 8y ago

"You see, Mr. Griffin, what makes us different from other banks is that we're not a bank."

panarky 8y ago

Robinhood's offering is indistinguishable from a cash management account at a brokerage. Short-term deposits, check writing, debit card, interest bearing, etc. Fidelity Investments pioneered this product, and now it's available from others like Schwab. But at Fidelity, the cash management account is distinct from the brokerage account. While the brokerage account is insured by the SIPC, cash management funds are swept into FDIC-insured balances at actual banks. Looks like Robinhood is gonna lose on this one. Source: https://www.fidelity.com/cash-management/faqs-cash-management-account https://www.fidelity.com/cash-management/faqs-cash-managemen...

acjohnson55 8y ago
It seems like RH is taking this to the next step (at least with respect to Fidelity) by building typical checking account features around it, with parameters that are best-in-class.
- SpaethCo 8y ago
  Fidelity already has best-in-class checking account features? The CMA account has mobile image deposit, free online bill pay, check writing (with free checks), free ACH transfers, free wire transfers, ATM/debit card (with ATM fee reimbursement at any ATM worldwide, no less), etc. The only “best-in-class” factor that Robinhood has presented is setting the interest at 3%.
  - acjohnson55 8y ago
    Good to know, I was reading briefly from their site and didn't see any of those things expressed upfront.

deadmik3 8y ago

“The statute that we administer says that we protect money with a brokerage firm that is used for the purchase of securities,” he added. “On Robinhood’s help page, it says that you don’t need to invest to use Robinhood checking and savings, that statement is wrong. If you deposit money for any other purpose, it is not protected.” So it is insured, unless they can prove it's not for investing?

gonational 8y ago
The burden of proof is not on the insurer, but the insured. Think through this like a court case, where the insured is suing the insurer. The insured doesn't simply go in front of a jury and state, "SIPC owes me $N. I rest my case."
- whitepoplar 8y ago
  "I deposited $250k with the intention to buy into securities when the market declines by a substantial amount determined by me. Just because I did not purchase stocks does not mean these funds aren't slated for future investment."
- deadmik3 8y ago
  What if I'm buying stocks with just some of the money? So I buy a couple shares of some penny stock but keep the rest of my 25k uninvested, am I only insured for the amount I have invested or is my entire account insured?

ucaetano 8y ago

Which leads to one of two scenarios: 1) They knew SIPC wouldn't cover it, but decided to lie about it anyway 2) They weren't competent enough to assess the risk that SIPC wouldn't cover it, but decided to launch anyway without contacting the SIPC Regardless of which is the truth, I wouldn't trust my money with someone who does either. Might as well jump into a tried-and-true pyramid scheme like bitcoin!

jkravitz61 8y ago
In an interview yesterday, the CEO said they were an "Engineering first company". While located in silicon valley, they have no right to subscribe to the "move fast and break things" mentality when they are playing with people's money. Any financial institution that holds external accounts should be a finance first company. Good technology is essential, but not as essential as following rules and regulations to protect your customers.
dawhizkid 8y ago
Apparently they purposely called it a "checking & savings" account because they were well aware that technically it is neither a "checking" nor a "savings" account and that a "checking & savings" account does not really exist to protect themselves from accusations of false claims...
- jkravitz61 8y ago
  They are still claiming it is SIPC insured- which is false, regardless of what you call it.
  - pitaj 8y ago
    It's not necessarily false - that's up for various attorneys to decide.
    - ucaetano 8y ago
      Technically true, but irrelevant. Everything might be up for attorneys and judges to decide.

jackconnor 8y ago

It's Bloomberg reporting so they probably got it completely backwards, or made it up, or misunderstood what was told to them. Not saying they're right or wrong, i'm saying Bloomberg is a very unreliable news source, especially in tech.

detaro 8y ago
Just because the company financial news is about has an app doesn't make it "tech". And here they're reporting direct, attributed statements, so it should be easy for you to explain what they "didn't understand".
- jackconnor 8y ago
  I'm not going to waste my time reading anything from this garbage publication. After "The Big Hack" I realized that life was too short to read articles by sources that just make stuff up. If you want to waste your time, be my guest, but I'd rather not.
  - detaro 8y ago
    Then please don't waste your time commenting with sweeping general statements on all their submissions either. It's not like it's news for HN readers.
    - jackconnor 8y ago
      Why not? If someone posted something from the National Enquirer here I could point out that it's probably bullshit and should be ignored. Bloomberg is 100% exactly the same, they make up news as their source of business, and have been caught doing it many times, most recently in one of the biggest journalism scandals of 2018. So why could I call out National Enquirer here but not Bloomberg?
      - ceejayoz 8y ago
        There's a big fuss over the SuperMicro story because it's notable that Bloomberg appears to have gotten it so badly wrong. It would not be similarly notable for the National Enquirer to be caught making something up.

Apocryphon 8y ago

Let's talk about conventional alternatives to this. I've heard good things about Ally bank's 2% saving account. Does anyone here use anything comparable? How about credit unions?

_raoulcousins 8y ago
For credit unions, Alliant and Lake Michigan Max Checking are both great. If you're outside of the Midwest, you can become eligible to join either with a donation.
illumin8 8y ago
Radius Bank offers 2.05% interest on a savings account as long as you have $25,000 balance, or 1.5% for balances over $2,500. It seems to be the best option I've found. (see note for fine print). They also offer a checking account that pays 1.2% with zero fees and even waives ATM fees worldwide. These are all FDIC insured. I've been banking with them for about 6 months now and they're pretty awesome, outside of having a rather janky web and mobile app. https://radiusbank.com/personal/high-yield-savings/ https://radiusbank.com/personal/high-yield-savings/ Radius High-Yield Savings is a free savings account with no monthly maintenance fee, no minimum balance requirement after $100.00 to open the account, and is FDIC-insured up to the maximum allowed. Annual Percentage Yield (APY) accurate as of 12/14/2018. Minimum amount to open account is $100.00. Rate tiers are as follows, 0.00% APY applies to balances of $0.01—$9.99, 0.05% APY applies to the entire balance on balances of $10.00—$2,499.99, 1.50% APY applies to the entire balance on balances of $2,500-$24,999.99, and 2.05% APY applies to the entire balance on balances of $25,000 or more. Rates may change after account is opened. Fees may reduce earnings.
- thatswrong0 8y ago
  Marcus by Goldman Sachs has 2.05% interest with.. effectively no minimum? (https://www.marcus.com/us/en/savings/high-yield-savings https://www.marcus.com/us/en/savings/high-yield-savings)
axaxs 8y ago
Ally, Alliant CU, Amex, and Barclays always offer the safest hassle free savings rates. I think they're all at or above 2% now. If you're willing to put in some 'work', you can generally get 3% or more on balances up to an amount. For example, ETFCU will give you 3% up to 20k in balance IF you use their debit card x times a month.

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kgwgk 8y ago

Matt Levine comments on this today: https://www.bloomberg.com/opinion/articles/2018-12-14/nyse-needed-some-pretend-traders https://www.bloomberg.com/opinion/articles/2018-12-14/nyse-n... "There is a lot of confusion about what Robinhood’s thing is. Delightfully, it is called “Robinhood Checking & Savings,” apparently because calling it a “checking account” or a “savings account” would come too close to implying that it is a real bank account insured by the Federal Deposit Insurance Corp., while “checking & savings” is not a thing and so does not carry that implication. A magic ampersand!"

MrMember 8y ago
That's great. It's like the "chicken wyngz" you can buy at the grocery store that are probably chicken but can't legally be called wings.
- conanbatt 8y ago
  I prefer the chikken wings, which are probably wings but cant be legally called chicken.
  - plopz 8y ago
    You should try the Frozen Dairy Dessert.
    - doctorOb 8y ago
      Or processed cheese food [1] [1] https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=133.173 https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFR...
      - ceejayoz 8y ago
        Try "potted meat food product" on for size. Ingredients: Mechanically Separated Chicken, Beef Tripe, Partially Defatted Cooked Beef Fatty Tissue, Beef Hearts, Water, Partially Defatted Cooked Pork Fatty Tissue, Salt. Less than 2 percent: Mustard, Natural Flavorings, Dried Garlic, Dextrose, Sodium Erythorbate, Sodium Nitrite

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aakilfernandes 8y ago

I guess it depends on how you read the statue. we protect (money with a brokerage firm) that is used for the purchase of securities or we protect money with a (brokerage firm that is used for the purchase of securities) Unfortunately, due to the nature of law, there's no way to get an answer on this until it goes to the courts which will only happen if/when there's a problem.

rdlecler1 8y ago

HN's value has really declined with the appearance of all the paywalls the last couple of years where there's no simple workaround. I've stopped clicking on WSJ, NYT, Bloomberg articles. Would be nice to just be able to filter them out of the view.

pascalxus 8y ago
and those paywall's refusal to take any kind of micropayment option makes it even worse.
sjroot 8y ago
I've been using Outline.com when possible to get around this, but I agree. Posts behind paywalls should be removed, or tagged and filterable.

Rafuino 8y ago

"Move fast and break things" does not work in the heavily regulated worlds of healthcare (e.g. Theranos) and finance (now Robinhood). FB and GOOG have massive lobbying operations for this very reason, as they don't want advertising to become like finance and healthcare.

ajcodez 8y ago

I bet the idea is to use the deposits to fund margin lending to offer 3% interest rate. I remember the rate was like $10/m for $2000 margin which is 6% per year. If it’s funding margin lending would it count as empty brokerage account to get insured?

megaman8 8y ago

This is extremely concerning: >> “I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC As a result, I will not be signing up for Robinhood, that's for sure. I get the sense, It's not the place to park your money, if you're just trying to save up without investing.

warp_factor 8y ago

Robinhood strikes me as a complete financial amateur-ish company, trying to attract millennials that don't know better by branding themselves as a cool tech company. I have been using Ameritrade for a while and was curious about their no fee platform so gave it a quick go. The graphs have no legends associated in the app. The spreads seems not up-to-date with official quotes, etc. I went back to Ameritrade as fast as possible. They are the "go fast and break things" of finance. There is a good chance that this will not end well.

whoisjuan 8y ago
I have been using Robinhood for years, but I don't disagree at all with this statement. I have always been a little bit suspicious of their approaches. For me the strangest thing about their business is their zero-fee approach. Yes you can make money by getting interest from uninvested funds + premium subscriptions + trade arbitrage, but if it's such a good business why aren't the incumbents taking similar approaches? Contrarians would say that incumbents are just to engrained in their past approaches to actually adopt modern strategies, but I had that extremely hard to believe, especially when one of the incumbents, E-Trade, was the pioneer of online trading. Also, unlike other industries, financial firms are savage. They're not scared to make risky bets and spin-off new businesses and strategies. Their industry is naturally risky, so they have the experience and tenure to make risky bets, without souring stakeholders. I always give Robinhood the benefit of the doubt, because in my day to day I personally can say that it works great. They definitely nailed the Customer Experience. However that doesn't mean that they have an actual viable long-term business, so I prefer to stay reasonably cautious... Time will tell.
- jkqwzsoo 8y ago
  > For me the strangest thing about their business is their zero-fee approach. Yes you can make money by getting interest from uninvested funds + premium subscriptions + trade arbitrage, but if it's such a good business why aren't the incumbents taking similar approaches? They do, they just charge you extra commissions on top of what they make selling order flow, etc, etc. Commissions make up a miniscule portion of income for brokerages. I think that fees a) keep out the "riffraff" and b) brokerages know that it's a zero-sum game to compete on them. Asking this question is like asking why Ally and Goldman Sachs can offer 2% APY savings accounts, but Bank of America and Chase can only offer 0.01% APY. There are similarly low-cost brokerages which offer dangerous products, like $500 intraday futures margin (about 250x leverage), 400:1 leverage on Forex products, or more traditional low-cost stock trades. The difference between $5/trade, $1/trade, and $0/trade isn't that significant in reality.

pascalxus 8y ago

For those of you looking for a great place to park your money, try this one: www.mysavingsdirect.com it's now up to 2.4% for a online savings account, that is FDIC insured. i've been using them for 2 years now, and it's been awesome. As far as i know, 2.4% is the highest there is for online accounts. i'm surprised they don't top the list on nerdwallet.com

fpgaminer 8y ago
As general word of caution: is that extra fraction of interest worth the hassle/risk of dealing with a less known bank? What I mean is, banks like Ally offer both near-highest interest rates, are well established, and provide a nice experience. Your savings account is bread and butter in your financial life. Using some "janky" bank just to squeeze few dollars probably isn't a good use of your time. I'm not saying mysavingsdirect.com is "janky"; I really have no idea about them. But I've seen a number of higher interest bank accounts and turned them down because they were from unknown vendors. As an example, I was pissed at Ally and needed a new vendor. I decided to try Discover Bank, figuring they'd be good with a well established reputation like Discover, and with the same interest rates as Ally. But the experience has been decidedly worse. Slower deposits and transfers, for example. Also worth noting that usually you shouldn't be carrying a lot in savings anyway. Excess cash should be sitting in investments and doing work. So savings accounts will only be carrying emergency funds et al. If you've got, say, $12k in your account, an extra 0.4% is only going to give you a few extra bucks a year. Is a few extra bucks worth working with a lesser bank? Or, to the focus of the original article, is a few extra bucks worth working with an uninsured bank? I advise extreme caution when it comes to savings accounts, which are explicitly for "safe" money in a health financial portfolio.
- pascalxus 8y ago
  Well, if you're saving very aggressively to buy a house in the near future, it makes a lot of sense, especially in places where housing is extremely expensive. Slow deposits and transfers are not a problem at all. You only need to transfer in or out maybe a few times per year at the very most. i'm not sure what you mean with "janky"

onetimemanytime 8y ago

Initially the 3% can be paid by RobinHood investor money (they'll make it up on volume, like Pets.com did shipping 50lbs bags). But tomorrow? Maybe offer a x year guarantee

throughaway2018 8y ago

Financial innovation historically leads to financial ruin. Think about it. Looking at you fintech.

peter303 8y ago

I have had such an account at Fidelity for years. However they only pay lower money market rates which are based on bonds less than 30 days.

whitepoplar 8y ago
Fidelity CMA balances are swept into FDIC-insured bank accounts. One trick with this account is that you can purchase Fidelity Money Market funds, which are treated as cash, and which Fidelity will auto-liquidate as-needed to cover debits, without intervention on your part. You can select any Fidelity Money Market fund for this. SPRXX, for instance, currently pays 2.09%. Plus you get a debit card that refunds any ATM fee in the world, free wire transfers, bill pay, paper checks (if needed), and competent customer service that's available 24 hours per day.

hunter23 8y ago

Is the main issue that the product is marketing as a checking account? If robinhood marketed this as an investment bank account would they comply?

Animats 8y ago

Here's their very brief unaudited financial statement.[1] This makes no sense for a financial institution. How can their liabilities be so low? Anything on deposit with them is a liability for them. This seems to say "all your assets are belong to us." [1] https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal/RHS%20Statement%20of%20Financial%20Condition.pdf https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal...

rdxm 8y ago

Robinhood channels Uber/Kalanick model to "disrupt" banking....lol

ineedasername 8y ago

Their page [0] on the new product still mentions both SIPC and FDIC in numerous places. If I wasn't following this news, the clear implication I'd get is that my account was both FDIC and SIPC insured. This is really irresponsible of Robinhood. [0] https://blog.robinhood.com/news/2018/12/13/introducing-robinhood-checking-amp-savings https://blog.robinhood.com/news/2018/12/13/introducing-robin...

waterside81 8y ago

Makes this top comment from yesterday seem even more flippant and re-inforces the "trust us, we're smarter than you" mentality of certain regions of the country: https://news.ycombinator.com/item?id=18673426 https://news.ycombinator.com/item?id=18673426

ohiovr 8y ago

They’ll give you 3% on savings by investing it in treasuries and pocketing the difference. The 20 year is now 3.03% and interest rates are rising Its the Theranos of finance!

freeone3000 8y ago
Theranos's product didn't work. This product may be a bad deal or a good deal, but it's going to deliver what they promise. T-bills are illiquid if you want the gains. They're promising liquidity in exchange for a cut of the gains. Sounds reasonable, at least in theory.
- ohiovr 8y ago
  You see, if Treasury interest rates rise, the value of existing treasuries from a lower interest rate fall. If you have to wait 20 years to get whole on the deal then it's effectively illiquid. But if you have to liquidate, then you must lose prinicple. Its a problem ongoing right now in the bond market.

stuart78 8y ago

They've posted a response, for what it is worth: https://blog.robinhood.com/news/2018/12/14/a-letter-from-our-founders https://blog.robinhood.com/news/2018/12/14/a-letter-from-our... Not exactly confidence-inspiring, but we will see.