Dec 6, 2022 - Economy

Robinhood goes after retirement funds

Illustration of a piggybank wearing a Robin Hood hat.

Illustration: Rae Cook/Axios

How does a retail brokerage stop its customers from leaving when the markets turn south? By giving them a retirement product designed to last for decades.

Driving the news: That's the latest move from Robinhood, which launched a new retirement account this morning.

Why it matters: Robinhood's core business has been declining ever since it went public in July 2021. It had only 12 million active users in the third quarter — an all-time low in its history as a public company.

Between the lines: Robinhood's big profit engines have historically been options and crypto.

  • Options trading surges during periods of speculative fervor; it slumps at times like the present, when investors are more interested in preserving capital than getting rich quick.
  • Crypto, meanwhile, is looking even more moribund.

How it works: Robinhood's retirement account is aimed primarily at workers in the gig economy, who don't have an employer offering a 401(k) plan.

  • The carrot: Robinhood is promising to add an extra 1% to all contributions. For every $100 deposited into a retirement account, up to the 2023 maximum of $6,500, Robinhood will throw in an extra buck.
  • The theory, says Steve Quirk, Robinhood's chief brokerage officer, is that any match at all — even if it's small — is generally enough to nudge people to start saving for retirement. When employers offer matching on 401(k) plans, bigger matches don't generally result in greater participation than smaller ones.

What's next: Soon, says Quirk, Robinhood will start allowing people to transfer over their 401(k) balances — but it won't offer a match on those.

The big picture: If this product proves popular, it will help to lock in flighty customers — and should also significantly increase the amount of money that Robinhood's users have invested on the platform.

Our thought bubble: Robinhood's IRAs, where trading is likely to be much less active than in regular accounts, look more like a loss center than a profit center — especially given the 1% match.

  • The product might be good in terms of building loyalty, but don't expect it to contribute meaningfully to Robinhood's bottom line any time soon.
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