Small Brokers Saw Massive Windfall From Robinhood's GameStop SNAFU

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by Tyler Durden
Thursday, Feb 18, 2021 - 11:31 AM

The lockdown in trading in volatile names over at Robinhood - i.e. the big reason for the outrage that spurred today's House hearing - has also had another effect: it has been a massive windfall for small brokerages.

Frustrated Robinhood customers wound up seeking out offerings from some of the smaller firms in the brokerage industry, steering away from the top 25 largest broker dealers in the U.S. by customers and/or assets, following the chaos. 

In the 3 days after Robinhood limited trading of heavily shorted stocks, Acorns Advisers gained 100,000 new customers and M1 Finance LLC was adding 20,000 customers a day at one point, Bloomberg reported Thursday. The Acorns numbers dwarf its previous rate of accounts added, which stood at 258,000 for the entire month of January. M1's rate of adding new customers was triple that of its average.

M1 said it saw about $150 million in assets transferred from other exchanges. This was due to "people fleeing Robinhood," the company's CEO said. “But we’re still small relative to
the other places.”

M1 now has over 500,000 accounts. Similarly, Public Holdings Inc.'s app clients were up 20x over the same period of time, the report notes. Public's app focuses more on financial literacy, while the M1 app focuses on long-term investing. 

One customer who left Robinhood for Public's app was 51 year old Navy veteran Chris Beaty, who said he left because Robinhood was "really, really corporate" and that it was a "morality issue". He was trying to buy stock in AMC in late January when Robinhood restricted trade, and had previously used the app to "to trade stocks like Fulgent Genetics Inc., Coty Inc. and the digital cryptocurrency Dogecoin," according to Bloomberg. 

“Next to Robinhood, they seemed to have the next best app and platform,” he said of his move to Public. 

Gabriel Maldonado, a 30 year old warehouse worker in Kansas, also left Robinhood: “I wanted to transfer it to another broker." He has yet to find a replacement, and calls Robinhood a "great app when they’re not purposely crashing it”.

Executives from the smaller brokerages advocate for trading without the gamification and "firework animations" of Robinhood.  Acorn’s Chief Executive Officer Noah Kerner told Bloomberg: "I’m excited when the conversation around investing grows the way it did, I just want it to be focused on the right aspects of it. I understand the allure of ‘get rich quick’ because we’ve all experienced it, but I like ‘get rich slow’ as a better and more realistic philosophy.”

And while these small names saw a windfall, Robinhood's staying power still appears to be untouched. The company remains among the top 100 apps downloaded in the U.S., according to Bloomberg.