By Echo Wang and Krystal Hu
(Reuters) – Robinhood Markets Inc is considering launching retirement accounts in the United States, CEO and co-founder Vlad Tenev said on Saturday in a webcast with users of its trading app looking to participate in its initial public offering, which is priced at the next week.
The online brokerage has around 18 million investment accounts funded on its platform, most of which are held by retail traders.
Offering individual retirement accounts (IRAs) and Roth IRAs, which offer tax advantages to those saving for retirement, would allow Robinhood to access a vast market. Americans had $ 12.6 trillion in IRA accounts at the end of March, 2.8% more than at the end of December, according to the Investment Company Institute.
“We are interested in creating more types of accounts, including IRA and Roth IRA, we have heard a lot from our clients. We want to turn new investors into long-term investors,” Tenev said in response to an investor. question.
Due to the penalties involved in withdrawing money, IRAs tend to attract long-term investments, rather than the rapid turnaround in stocks, options, and cryptocurrencies that some investors look to Robinhood for.
In his webcast, however, Tenev said: “We see evidence that the majority of our customers are primarily buy and hold.”
Robinhood, which is targeting a valuation of up to $ 35 billion in its IPO, has 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 enjoy a first day trading explosion is because the retail investors Robinhood has invited are foreclosed and must buy shares on the open market.
Robinhood launched its IPO Access platform earlier this year to allow users to buy into the IPOs of other companies if they can negotiate deals with the investment banks that handle them.
Some individual investors are calling for a boycott of Robinhood’s IPO on Reddit and other social media for its handling of the ‘meme’ stock trading frenzy in January. Robinhood imposed purchase restrictions GameStop Corp. (NYSE 🙂 and other actions against which hedge funds had wagered, arguing that they were necessary for the financial and operational stability of their platform.
Tenev said in Saturday’s webcast that Robinhood had invested in the stability of its platform to prevent another such incident.
PAYMENT BY ORDER FLOW
Robinhood’s popularity has skyrocketed over the past 18 months due to coronavirus-induced social restrictions that have kept many retail investors at home. It has said its mission is to “democratize finance for everyone” by allowing users to transact unlimited and commission-free in stocks, exchange-traded funds, options, and cryptocurrencies.
The brokerage has been criticized for relying on “pay per order flow” for most of its revenue, under which it receives fees from market makers for routing trades and does not charge users for individual trades, however.
Critics argue that the practice, which is used by many other brokers, creates a conflict of interest, on the grounds that it incentivizes brokers to send orders to whoever pays the highest fees. Robinhood argues that it routes trades based on what is cheapest for its users and that charging a commission would be more expensive.
Robinhood CFO Jason Warnick left the door open for the company to change practice if necessary.
“If a ban or other limitations were imposed, we believe Robinhood and the industry would adapt and explore other sources of revenue,” Warnick said.
Robinhood was founded in 2013 by Stanford University roommates Tenev and Baiju Bhatt, who will have nearly two-thirds of the voting power after the offering, a document on the stock exchange showed.
Robinhood customer Minjie Xu, who works as a software engineer in Missouri, was unimpressed after the presentation about concerns that the offer was too expensive.
“This is not exclusive to them as I think most IPOs are overpriced,” Xu told Reuters.