Ok, I know we've got some personal finance nerds here.
Robinhood currently has an offer to give 3% on balance transfers of IRAs if you open a new Robinhood IRA and get the Robinhood credit card. You have to keep the money there for 5 years.
This is an attractive deal, for sure.
Is anyone else considering this? Are there more risks to having an IRA with Robinhood than with a more traditional broker like Schwab or Vanguard or Fidelity?
Banks are like casinos. They aren't gonna lose money, so they expect to make more than 3% on your deposit. The question is how? I'd be looking hard at things like what options do they have for you to invest in, how those perform compared to comparable options with other providers, are they good options for your needs, how do their expense ratios compare to other providers options?
edit: Forgot the big one - are they going to "actively manage" your account and charge more in fees than your rate of return and drain your account for you?
Woody Allen - Take the Money and Run...
Girl at party "What do you do for a living?"
Woody Allen "I'm a financial advisor."
Girl at party "Oh, how interesting, what exactly is that?"
Woody Allen "Well, basically, I help people with their money until there's none left."
As noted, I would check the overhead costs / fees associated with that IRA. It should be pretty easy to find, they have to report it. Compare it to what you have now.
They might be doing it to make money off the credit card you get(?)
They also might be, more innocently, doing this, knowing they won't make as much off of you for those 5 years as they might otherwise, but guessing you will leave it there longer (which is likely a good guess considering after 5 years, you are less likely to jump on moving it). A Loss Leader style promotion.
As far as I understand, Robinhood (like many brokers) doesn't charge a fee for the IRA, and you can invest your money in many different vehicles. If you choose actively managed mutual funds, you would pay the fees to those funds (but this is the same as if you had the IRA with fidelity, for example). Vanguard's passive, and very low fee, funds are available to choose from Robinhood.
Of course the credit card does have an annual fee, but it is small ($50) compared to the potential 3% IRA bonus, and the credit card appears to do 3% cash back so it would very quickly pay for itself there too if you use it and pay it off each month.
I read online that Robinhood is really making their money by selling the trading data their customers generate. Which is what it is, but I wouldn't plan to make many trades in my IRA anyway. And id assume that most providers are selling or at least leveraging this type of data as much as possible anyway, so Robinhood may not be special there.
Read the fine print with Robbinghood.
In reply to Robbie (Forum Supporter) :
read online that Robinhood is really making their money by selling the trading data their customers generate. Which is what it is, but I wouldn't plan to make many trades in my IRA anyway. And id assume that most providers are selling or at least leveraging this type of data as much as possible anyway, so Robinhood may not be special there.
I think you found it. They're a trading platform first and foremost, they're probably expecting people to treat the IRA they move there as extra trading funds, because let's face it, the general public couldn't remember to breath if it wasn't an automatic function.
I hadn't previously heard about it, and it does sound intriguing at first blush. Here are some key thing for me as I've looked into it further.
As I'm reading it, the credit card is 3% cash back, and a separate deal. The thing you have to have for the 3% (usually 1%) IRA transfer and contribution bonus is maintain a 'Gold' membership for at least 1 year from the funds hitting, which comes with a $7/mo cost and adds 5% return on uninvested cash. Which doesn't sound too bad so far.
The terms and conditions are laid out such that there are a few possible gotcha points that could cause you to not get, or lose, your bonus. Not a huge deal.
They only allow for the most basic primary beneficiary setup, with no primary/secondary or unequal distributions between beneficiaries. Not being able to make my wife primary and kids equal secondaries, is definitely a bummer but not a deal killer.
They only deal in equities and ETFs. I believe as long as you make sure all funds are in that format, then you can transfer the funds directly rather than dealing with the issues around selling everything off before transferring the money. Having some money in mutual funds that don't have ETF equivalents and that I'm not ready to part with would reduce the amount I could transfer, and thus bonus I could get. But something is better than nothing.
But now we get into the meat and potatoes of it...
It's pretty widely known by now that RobinHood makes most of their money by selling their customers trades via PFOF (payment for order flow). This is not a business model I particularly support.
They have also been heavily fined ($65M) for misleading (defrauding?) customers, and their entire business model is based on enticing people who generally have no business actively trading into riskier forms of active trading.
But if that's the case, why would they be trying to attract buy-and-hold type investors? One theory is that they're trying to entice people who have no business actively trading in their retirement funds to start doing so, and that may be part of it, but I see a bigger case for it. Hoping for that to happen enough to make back the overly-generous bonus money on additional PFOF from IRA customers seems like an extremely poor business case. On the other hand, one of their big things is margin lending to traders. They need funds to do that. A lot of funds. It's the same reason they borrow funds from customers in their 'stock lending' program... And it seems more likely to me that they're using this money to prop up a failing business model.
Robinhood SEC filing
2022 net loss $862M2023 net loss $572M
"We have incurred operating losses in the past and might not be profitable in the future.
We incurred operating losses each year from our inception in 2013 through 2019, including GAAP net losses of $6 million, $58 million, and $107 million for years 2017, 2018, and 2019, respectively. Although we generated positive GAAP net income for 2020, we returned to a net loss position for 2021 and 2022 as our operating expenses increased substantially. While we generated positive net income in the second quarter of 2023, we returned to a net loss position for the third quarter of 2023, and we might not be able to increase our revenue and/or further reduce our operating expenses by sufficient amounts to generate positive net income again in the future."
Random Person's Analysis
They have $62 billion in assets and 25 million accounts for an average balance of around 2,500 bucks. These aren't big time investors.
For comparison, Vanguard has about $7.7 trillion in assets and 50 million accounts, about $150,000 per account.
Assets included $46 billion in equities, $8.4 billion in crypto, and $10 billion in customer cash.
Revenue was a total of $1.3 billion. Two-thirds of that is Payment For Order Flow (PFOF) and the other third is interest from cash accounts and interest on margin. Given their dependence on PFOF for most of their revenue, you will have to judge for yourself your confidence in quality of order execution.
Average revenue per customer was $60.
Locking into 5 years with one of the majors for an IRA is one thing. But this unprecedented transfer bonus on buy-and-hold IRA money in a PFOF scheme makes my spidey sense tingle, and reeks of desperation.
Yes, as long as you keep each fund type (traditional and/or roth) under the $500k SPIC limit, you should technically be 'safe' from losing your retirement account(s) even if Robin Hood were to collapse... But personally, that's a situation I'd still rather not put myself in, even for a bit of 'free money'.
In reply to Driven5 :
Thank you! Your research style appears to be different than mine so the findings are extra-helpful.
I would not be considering this if the "free money" was only a little. But we're talking thousands of dollars here, and I'm well before retirement age so all said and done this could easily be a 50k move in 30 years.
I similarly am very skeptical of this, because I really wonder how Robinhood plans to actually pay out the bonuses. Where does the money come from? And also I agree asking "why does this make sense from their perspective" is prudent.
In reply to Robbie (Forum Supporter) :
In today's dollars, $50k 30yrs from now would be more equivalent to roughly $20k. Think about your retirement target in today's dollars. How much difference would $20k make if you were at that point now? Enough to move the needle, or caught in the noise?
Don't get me wrong. It's certainly designed to be financially enticing, and plenty intelligent people appear to be jumping on it within SPIC limits.
If you do proceed, note that they also appear to similarly offer 3% matching for ongoing IRA contributions kept there for 5 years from contribution with Gold membership maintained for a year from contribution.
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