- Scandals have blitzed Robinhood's reputation since early 2020.
- The Robinhood app is my go-to brokerage account for stock investing.
- It offers a great interface, handy reports and stock reviews, and easy access to margin investing.
Beneath the acne scars lies a growing company with one-of-a-kind perks.
Meme stock mania. The gamification of stock trading. A complicated business model. Scandals, one and all. Its roots can all be traced back to Robinhood: a brokerage company made famous for zero trading fees. It carries a lot of baggage for a company less than 10 years old.
Scrutiny has come from everywhere: In 2020, regulators including the SEC and Financial Industry Regulatory Authority charged the company $70 million for misleading customers. More recently, regulatory filings have shown that the SEC is also investigating Robinhood’s compliance with short selling rules. And in yet another blow, the New York State Department of Financial Services found that Robinhood’s anti-money laundering and cybersecurity program was insufficiently staffed and failed to address security risks.
As a customer of Robinhood, these are not things I am happy to hear. However, it's also the only platform on which I'm willing to invest my precious savings into the stock market, and there are several reasons for that.
Maybe the strangest defense of Robinhood came from my cousin Nick as I sputtered to defend my choice of brokerage one fine spring morning, deep in the suburbia of Orange County, California. He told me that he used Robinhood not despite its scandals but because of them.
His reasoning? Now that U.S. regulators have locked eyes with Robinhood, the company has a powerful financial incentive to be one of the safest, most reliable brokers in the country…or be crushed beneath the heel of Uncle Sam. Considering the company's stock plunged over 50% this year alone, it's reasonable to assume Robinhood is under considerable pressure from shareholders to run a tight ship.
It's a thoughtful, somewhat pessimistic take on Robinhood. I prefer to think in terms of the positives. Robinhood is doing many things right; it's one of the best brokers for beginner-level investors.
Here are three reasons I use Robinhood, despite its scandals.
1. Beautiful user interface
Users can access Robinhood through the app or the webpage. The app is my go-to, but it's nice to have the option. The red and green palette is eye-catching and pleasing.
While it's certainly no fun to stare at a wall of bright red stock tickers, I appreciate the effort to equate beauty with pain visually. Yeah, my stocks are down…but at least they look pretty?
2. Morningstar reports
Subscribers to Robinhood Gold, Robinhood's monthly $5 subscription service, get access to hundreds of reports and reviews by Morningstar. Morningstar is known for its in-depth coverage of public companies. The service covers many of my investments, and it updates quarterly.
Reports are long but readable for someone like me, an intermediate-level investor. It's disappointing that it doesn't cover many smaller-cap stocks, but I think the affordable $5 subscription fee is still worth it.
3. Easy access to margin
Robinhood Gold subscribers can borrow from Robinhood to invest in stocks. Investing on margin is risky. I tried it, and I fumbled the ball big time, but the experience taught me some valuable lessons on money management. If you're going to invest on margin, Robinhood offers a streamlined way to do it.
Note the interest rates are reasonable for the industry (and Robinhood Gold subscribers get access to lower rates), but the Fed has been lifting interest rates across the board. It was much cheaper to borrow money earlier this year.
Robinhood has its flaws. For example, getting my Cash Card delivered has been a drag. For whatever reason, the location service won't let me input my exact street address, so I've spent half an hour floating in customer-service limbo and another half an hour waiting for a text message, only to forget what I was doing and have to start all over again.
While Robinhood is one of the friendliest apps out there, it may not be the best brokerage for seasoned investors who want access to more research than what is offered by limited Morningstar reports. And some investors might dislike having easy access to risky loans.
My cousin and I each have our reasons for choosing Robinhood as our go-to brokerage. What matters most is that investors pick the best stock brokers for their needs. Don't be afraid to shop around for the lowest fees in the biz -- your wallet will thank you.
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