> “I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC
How the hell did this product get launched?
How the hell did this product get launched?
A: Are our customers accounts insured?
B: Yes, through SIPC, which is like FDIC for brokerages.
A: Great! Let's create this product.
No more questions were asked.
You just don't launch a financial product of this nature, out of your ass like that. If that was the case then Robinhood customers have legitimate reasons to be concerned about the safety of their funds and securities. (For the record, I'm on of those Robinhood customers).
… not without prominently mentioning the block chain, at least.
Unless they worked with the SIPC up-front to ensure that these funds would be covered, and that the SIPC actually, you know, has the means to cover them, then the only way account holders are going to find out if their are protected or not is in the aftermath of a crisis, after a long and drawn out lawsuit.
When I saw the headline, I thought about signing up but hadn't gotten around to reading the fine print.
Glad I didn't waste my time.
https://www.cnn.com/2018/11/02/tech/uber-self-driving-tests/...
To be fair, they're proposing significantly improved safety procedures. To also be fair, there are not many people (as opposed to corporations) who would be out on good behavior 6 months after being convicted of vehicular manslaughter.
Of course, maybe that didn't happen, but between the idea that RH would build and announce a new product without running past the proper regulatory authorities, and the idea that the president of SIPC might just be wrong ... well, the latter seems more plausible to me.
Simply put, Robinhood has far more at risk than the SIPC by launching without SIPC insurance. The banking industry is heavily regulated and Robinhood has been in the brokerage game for enough now to know that a major product launch like this in a tightly regulated area requires massive amounts of paperwork and approval. A mistake like this could collapse not only this new product but also their brokerage. It's far more likely that they have done their due diligence before announcing and launching a product that has that big of a risk.
Edit: We don't even have to wait! SMH...
https://www.google.com/amp/s/techcrunch.com/2018/12/14/robin...
Their website says "Robinhood Checking & Savings is launching early 2019."
Which may be the whole point of the offering.
Even if they don't actually achieve the 3% APR checking accounts available ("sorry, it's actually 2% like the rest"), they still got people to sign up and they won't not register because they'll convince themselves "oh I got a debit card, and brokerage account, etc etc...who cares this is still great")
#growthhacking
Though hanlon's razor makes me think this was more them not thinking things all the way through than a devious plan to get a bunch of signups without ever launching anything.
Second, the SIPC boss probably is not in the best position to understand how RH is setting it up. Harbeck seemed unaware that the "cash" in RH accounts was actually going to reside in investments like Treasuries and thus be covered.
These accounts remind me a lot of the accounts offered by Washington Mutual right before there was no longer a Washington Mutual. Except back then, their bold rate offering was only something like 1.5%. A lot of young dumb people are going to lose their shirts on this one.
The only thing that has changed here is Robinhood is explicitly marketing their brokerage account as being able to be used as a savings account without any need to invest in securities.
It’s not black and white on either side. If there ever was a default event, it would surely go to court and it’s not 100% clear who would win. For that reason, I wouldn’t make use of the account.
The new thing here I think is the ATM card and them covering the difference between the money market rate and 3%, which right now is less than 1%. They'll probably make up that difference via interchange fees when you use the debit card.
That SIPC thing though ... that's a bit of a wrench in the gears.
(ok, unless you count the US crap list such as BoA, etc)
Downvoters: you are confused. When you move cash to a brokerage account, it's protected by SIPC. It's a loophole, because this protection was not intended to be for permanent cash parking in an account - but there is nothing that can stop that protection from taking effect. SIPC statute is clear, cash in account is protected. You don't have to invest it, you just have to move it there with the intent of at some point maybe investing it, which is impossible to verify.
"“The statute that we administer says that we protect money with a brokerage firm that is used for the purchase of securities,” he added. “On Robinhood’s help page, it says that you don’t need to invest to use Robinhood checking and savings, that statement is wrong. If you deposit money for any other purpose, it is not protected.”
If they disagree it's a brokerage account, and it's certainly not being sold as such, then it seems to me there's alot he can do.
But that aside, here's the point you're missing: Robinhood is marketing this as a product that can be used independently of brokerage purposes. SIPC covers brokerage firms and, yes, cash in such accounts. But the SIPC president is arguing that it's not a brokerage account if it's marketed as an independent product for people with no intention of using it as such.