FORTUNE DECEMBER 2020 /JANUARY 2021 105is one reason the average daily volume of shares traded soared from
7 billion in 2019 to 11 billion this year.
Tenev and Bhatt’s company has undeniably contributed to that
increase, so much so that “Robinhood traders” has become dispar-
aging shorthand for investors who pile into stocks without regard
for business fundamentals. And indeed, Robinhood users helped
fuel recent bubbles in shares of bankrupt brand names like Hertz
and J.C. Penney. Still, Robinhood insists that caricatures of its
customers are unfair, and that most aim to buy and hold stocks—
behaving like investors, rather than traders.
Robinhood customers are younger than the industry norm, with
a median age of 31; 70% are millennials or Gen Z. They’re also more
ethnically diverse. According to a survey Robinhood commissioned,
60% of their customers are white, compared with 78% at other bro-
kerages. Nineteen percent of Robinhood users are Hispanic, 10%
are Asian, and 9% are Black—figures close to the makeup of the U.S.
as a whole. (Women remain underrepresented at Robinhood and its
rivals, accounting for about a third of customers.)
This young clientele may be buying stocks, but they’re not build-
ing much wealth yet—at least not at Robinhood. Investment bank
JMP Securities estimates that the average Robinhood account
balance is less than $5,000. Robinhood declines to comment on
this estimate, but if accurate it’s a far cry from its competitors: The
average balance at Schwab, for instance, is $255,000. Still, Robin-
hood executives say that their young customers have a different ap-
proach to investing than earlier generations—and that Robinhood’s
tools could suit their needs well as they acquire more assets.
Inexpensive, low-maintenance index funds and ETFs were the
democratizing force in investing in the 2000s and 2010s. But
Howard Lindzon, an early Robinhood backer and founder of in-
vesting site Stocktwits, says that many young investors avoid index
funds—which may own controversial assets like oil or tobacco
stocks—and instead buy shares of brands they trust, like Netflix
and Disney. Tenev, meanwhile, notes that buying fractional shares
of pricey stocks like Google and Amazon is particularly appealing
to this generation. Through Robinhood, they can arrange to auto-
matically purchase partial shares of such blue chips every payday.
These à la carte tactics don’t offer the diversification and protec-
tion against risk that index funds do. But with zero-commission
trading, building a portfolio by buying dozens or hundreds of
individual stocks is no longer cost-prohibitive. And customers who
prefer funds and ETFs can still buy them on Robinhood. Whatever
approach they employ, Tenev says he anticipates more custom-
ers will direct automatic paycheck deductions into Robinhoodserve as the duo’s informal brain trust.
Robinhood also employed customer-acqui-
sition tactics that other brokerages had seldom
tried. Commission-free trading has attracted
the most attention but equally important was
requiring no minimum investment, which
meant customers with very little cash could im-
mediately assemble stock market stakes.
Its strategy is reminiscent of San Francisco–
based Charles Schwab, the former upstart
that made stock trading accessible to smaller
investors in the 1970s with lower commissions
and everyman marketing campaigns. Incum-
bents took a dismissive view of Schwab, says
Chip Roame of Tiburon Strategic Advisors;
heavyweights like Merrill Lynch let Schwab
hoover up small investors while they catered
to “priority households” with far more assets.
“Now, Schwab has four times as many clients
because they grabbed them while they could,”
says Roame. “That’s what Robinhood is doing.”
Five decades later, the pattern could be
repeating itself—dismissiveness included. In
interviews, executives from older brokerages
praise Robinhood’s app but express doubt
that the company can provide the guidance
customers will demand. “Gamification and
confetti might get new traders in the door,
but investors need a lot more from a firm they
trust with their money,” says Barry Metzger,
SVP of trading and education at Charles
Schwab. “The app is just one part of it."I
N A YEAR of unprecedented financial
shocks, few were more surprising than
the wave of retail investors—investors
trading from personal accounts—that
sloshed into stocks in 2020. Piper
Sandler’s Rich Repetto, a veteran
brokerage-stock analyst, estimates that retail
investors’ share of trading has jumped from a
longtime baseline of 10%–15% up to 20%–
25%, as amateurs homebound by the pandem-
ic ride the ups and downs in stocks. That leapCHIP ROAME • TIBURON STRATEGIC ADVISORSSchwab has four times as many clients [as older
competitors] because they grabbed them while
they could. That’s what Robinhood is doing.”