Illustrated by Ray Cook/Axios
When the market goes south, how do retail brokerage firms stop customers from leaving? By giving them retirement products designed to last for decades.
News promotion: This is the latest move from Robinhood, which launched a new retirement account this morning.
Important reasons: Robinhood’s core business has been in decline since going public in July 2021. Active users remained at his 12 million in Q3.
Line spacing: Robinhood’s biggest sources of revenue have historically been options and cryptocurrencies.
- Options trading surges during periods of speculation. As it is now, when investors are more concerned with preserving capital than getting rich quick, it falters.
- Crypto, on the other hand, is even more moribund.
Usage: Robinhood retirement accounts are primarily aimed at gig economy workers who do not have employers offering 401(k) plans.
- carrot: Robinhood promises to add an additional 1% to all donations. For every $100 he deposits into his retirement account, up to $6,500, which is the 2023 high, Robinhood will put in an extra fee.
- In theory, any game, even if it’s small, would generally encourage people to start saving for retirement, according to Robinhood chief brokerage officer Steve Quark. Enough. When employers offer matches on 401(k) plans, larger matches typically don’t lead to more participation than smaller matches.
What’s next: Quirk says Robinhood will soon allow people to send money over their 401(k) balances.
Big picture: If the product becomes popular, it should help lock in fickle customers and significantly increase the amount Robinhood users invest in the platform.
Our Thought Bubble: The Robinhood IRA is likely to be less active than a regular account and looks more like a loss center than a profit center, especially given the 1% match.
- The product may be good at building loyalty, but don’t expect it to make a significant contribution to Robinhood’s bottom line any time soon.
