As promised, today we are announcing the 2022 winner of the Robert Wayne Pearce Investor Fraud Awareness Scholarship. Over the course of the year, we received applications from over 75 students from 44 schools around the country who all wrote quality essays about the Robinhood App and whether it was a good tool for novice investors or just a game to take advantage of them.
The winner of the $2,500 scholarship is Alecia Ann Des Lauries, a student at Alexandria Technical & Community College located in Alexandria, Minnesota, who wrote:
The Robinhood Investment app is a darling amongst Millennials and Generation Z. The dashboard is sleek and easy to understand. It’s a “simple” and “easy” platform that “democratizes investing for all.” Anyone can buy stocks, EFTs, and cryptocurrency with just a press of the button. There are no commission fees, and you can start investing with just $1! What’s not to like?
Turns out, a lot.
Its slick marketing and user-friendliness disguise an ugly truth: the app is one of the worst ways to begin investing. The whole platform is a thinly veiled game that exploits first-time investors, which makes up more than half of its userbase (Segal, 2021).
Robinhood promotes freebies aggressively. New customers get free stock. You can earn more free stock if you refer friends to the app. There are frequent “giveaway sweepstakes” for cryptocurrencies and stocks. Social media influencers entice new users through unique free stock offers. Once you sign up, the app will even help you pick your first stock. Then, you can sign up for their debit card, the “Cash Card”, where you can earn bonuses, but for reinvesting in stock and crypto only on their platform.
Once you’re in, you’re pushed hard to invest. There are “Popular” and “Trending” stock lists. Widgets recommend what individual stocks and crypto to buy or sell. Celebratory messages and animations trigger when you buy, sell, or hit certain milestones. The bright, cartoonish art design is fun, but disarming. It’s easy to forget that you’re trading with real money and you’re undertaking real risks.
That’s intentional. It’s how Robinhood generates revenue.
About 70% (Curry, 2022) of its revenue comes from payment for order flow, which means it receives payments upon routing trades to market makers. The more trades that occur, the more revenue Robinhood receives. That’s how the company collected $331 million in Q1 2021 (Geron, 2021).
Most tellingly, the platform itself is simplistic. There are no mutual funds or fixed income for more conservative investors. There are no IRAs or 401(k)s—a huge disservice to the 55% of Millennials (Loudenback, 2019) and 90% of Generation Z (Koterbski, 2022) who don’t have retirement accounts. Robinhood doesn’t offer forex or futures for more experienced investors, let alone stock or ETF screeners for research-intensive investing. The most rudimentary research tools are behind a paywall, and even then, it’s insufficient compared to competing brokers. More seasoned investors quickly flock to other brokers that offer more robust tools.
That’s because those investors aren’t Robinhood’s target market.
And the platform wants to remain that way. The educational resources, while improving, are still laughably shallow. There is almost nothing on risk management; most of the “risk” you’ll see is on their disclaimers. Robinhood pays lip service to help build “wealth for a new generation”, while equipping its users with inferior tools and subpar education. It’s no wonder many columnists criticized Robinhood for being too much like a casino.
And like the saying goes, the house always wins!
We thank all the other applicants for their efforts and announce that the next scholarship to be awarded December 15, 2023, will be given to the student who writes the most thoughtful essay about the Risks of Investing in the Cryptocurrency Market.