By MyPerfectFinancialAdvisor
Robinhood, the relatively new and very popular brokerage app that allows investors to buy stocks and fractional shares for no commission has been embattled with bad news in 2020. The most recent news of the past weeks is that client accounts were hacked, money stolen and customers literally had no one to call because the firm does not provide any phone numbers in case of emergency.
This most recent case, originally reported by Bloomberg News and chronicled in Financial Advisor Magazine here lays out a rather remarkable policy for a heavily regulated firm, a retail brokerage company. One investor, Soraya Bahgeri, learned after 24 hours that her stock was sold and cash was being transferred out of her account. Robinhood emailed her stating they hoped to get resolution in two weeks. This is not the first time Robinhood has been under scrutiny, most notably a very young investor committed suicide after believing he owed the brokerage firm over $700,000, which turned out to be incorrect.
It is not uncommon for a young company, founded by young entrepreneurs, funded by Venture Capital firms to have grown so fast that corners were cut and obvious mistakes made. However, this firm is not some game app or social tool used for mild amusement. This is a highly regulated brokerage, and allows investors to put their hard-earned money into all variety of securities.
We think Robinhood would be well served to do the following and these are also good things for investors to look for when weighing use of such services:
Provide Phone Numbers to Call
While this may seem obvious to some, especially those over a certain age, it has been common for young tech companies to not allow customers to call. This is a huge mistake, and simply horrible customer service. In times of stress such as your account being pilfered, people want to speak with a human. Schwab, Fidelity, Vanguard and nearly all other brokerage firms have always understood this. Tech companies like Word Press have live chat with a human being with less than a minute wait. Large tech companies can certainly figure out how to provide a phone number, without inundating the firm with needless calls.
Really Use Artificial Intelligence, Not Just Lip Service
In the Bloomberg article, another Robinhood customer stated his entire life savings is gone because of the hack, but he shares his entire savings was “a bet on Netflix” While Robinhood is essentially a discount broker and as such takes orders from customers, there is decades-long precedence requiring such firms to attempt to stop investors from harming themselves. With the availability of highly sophisticated AI, consumer data, and investor education, investors that try to make oversized or imprudent bets should be minimized as studies show that completely self-directed investors underperform.
Connect with Unaffiliated Financial Advisors
In one of Robinhood responses to the young trader suicide scandal, they stated they would hire hundreds of financial services representatives to help with education and support. We support this move, but it is not enough. We think that making unaffiliated financial advisors available to their customers would add much more opportunity for the users to get second opinions and advice from someone that has absolutely no financial connection to the firm. Firms like Schwab and Fidelity and others have networks of independent advisors that they connect with their direct users. Given that Robinhood has exerted an extreme amount of pressure on itself to grow its user base and activity of its base, the inherent conflict of internal financial representatives will certainly exist. While no firm or person can be conflict-free, unrelated advisors can offer additional views and education.
We hope that Robinhood and any other firms that might be like them take a step back to implement some common sense and customer service back into their model. We believe it’s the right thing to do for the customer.
www.MyPerfectFinancialAdvisor.com is the premier matchmaker between investors and advisors using personalized data, proprietary algorithms, and deep industry experience.
