In what appears to be a remarkable nod to the company’s mission statement, Robinhood Markets Inc has recently unveiled a new platform that’s been designed to give retail investors the opportunity to buy shares in its upcoming IPO - an offer that’s usually out of reach for non-institutional investors.
Despite drawing criticism from established Wall Street stalwarts like Warren Buffett and Charlie Munger, Robinhood’s actions come as a clear attempt to deliver on its mission statement, “to democratize finance for all.”
The popular online brokerage startup, which is set to launch an initial public offering in the coming weeks, states that its goals are firmly set on making finance more accessible. “We believe that everyone should have access to the financial markets, so we've built Robinhood from the ground up to make investing friendly, approachable, and understandable for newcomers and experts alike,” states Robinhood’s mission.
The new platform, called IPO Access, has been developed to allow investors to access some of the brokerage’s own shares ahead of what promises to be one of 2021’s most significant flotations.
In a blog post, Robinhood said: "Most IPO shares typically go to institutions or wealthier investors. With IPO Access, everyday investors at Robinhood will have the chance to get in at the IPO price."
Interestingly, Robinhood claimed that the new platform will be available to all customers, without account limits in place or other restrictions. It also plans to list more IPOs for customers to buy into in the future.
Inspiring New Investors During COVID-19
There’s little doubt that the COVID-19 pandemic has helped to put Robinhood in the position where the trading platform can launch a potentially huge IPO for investors to sink their teeth into.
(Image: CNBC)
As we can see from the table above, 2020 and 2021 have shown significant growth in the number of Robinhood downloads, with the trading app leading rivals in the worlds of traditional stocks and crypto alike.
The pandemic meant that individuals had more free time than usual, and lockdowns meant that some people were left with more of a disposable income than they typically find themselves with. As the stock market tumbled due to widespread uncertainty, it inspired more new investors to buy dips and attempt to build a strong portfolio for the first time.
Platforms like Robinhood paved the way for millennial investors to try their hand at investing. The fact that the median user age of the app is 31 - an age group that grew up during the post-2008 crash recovery period of the 2010s - shows that apps are giving more freedom to young and confident investors than ever before.
According to Maxim Manturov, Head of Investment Research at Freedom Finance Europe, the pandemic created an environment that removed many barriers to entry into the world of stocks and shares.
“What we have analyzed above actually looks like the consequence of the pandemic and the stimulation packages that followed,” Manturov explained. “This created a pool of funds retail investors could start investing into stocks. As per Fidelity report, there were 26M retail accounts in 2020, i.e. up 17% compared to 2019, while the daily trading volume doubled.”
More Than a ‘Casino’?
In the wake of the GameStop saga, when a group of retail investors mobilised on platforms like Reddit to use Robinhood to buy into meme-based stocks, world renowned Wall Street investors Warren Buffett and Charlie Munger heaped criticism on how Robinhood operates.
In May, as speculation surrounding Robinhood’s IPO began to heat up, Buffett claimed that the app had “become a very significant part of the casino aspect, the casino group, that has joined into the stock market in the last year or year and a half.”
“If you cater to those gambling chips when people have money in their pocket for the first time and you tell them they can make 30 or 40 or 50 trades a day and you’re not charging them any commission but you’re selling their order flow or whatever. I hope we don’t have more of it,” Buffett explained.
Buffett’s comments, however, drew a strong response from Robinhood. Jacqueline Oritz Ramsay, head of policy communications at Robinhood, responded in a company blog post explaining that "If the last year has taught us anything, it is that people are tired of the Warren Buffetts and Charlie Mungers of the world acting like they are the only oracles of investing. And at Robinhood, we’re not going to sit back while they disparage everyday people for taking control of their financial lives.”
Robinhood went on to claim that the likes of Buffett and Munger have “insulted a new generation” of investors in their comments.
While the upcoming flotation of Robinhood is likely to tell us much more about whether traders agree with the ethics of the platform, making its IPO available to retail investors rather than institutions is certainly a step in the right direction - and a clear sign that the platform is at least working towards making all forms of investment more accessible to all.