In applying Hanlon's Razor[0], I think the conversation went:

A: Are our customers accounts insured?

B: Yes, through SIPC, which is like FDIC for brokerages.

A: Great! Let's create this product.

No more questions were asked.

[0] http://catb.org/jargon/html/H/Hanlons-Razor.html

I would hope that wasn't the case and that they actually consulted all this with specialized lawyers.

You just don't launch a financial product of this nature, out of your ass like that. If that was the case then Robinhood customers have legitimate reasons to be concerned about the safety of their funds and securities. (For the record, I'm on of those Robinhood customers).

> You just don't launch a financial product of this nature, out of your ass like that.

… not without prominently mentioning the block chain, at least.

Even if they did consult specialized lawyers, you don't really know if it works until there's an adjudication.

Unless they worked with the SIPC up-front to ensure that these funds would be covered, and that the SIPC actually, you know, has the means to cover them, then the only way account holders are going to find out if their are protected or not is in the aftermath of a crisis, after a long and drawn out lawsuit.

When I saw the headline, I thought about signing up but hadn't gotten around to reading the fine print.

Glad I didn't waste my time.

Probably because someone took "ask for forgiveness, not permission" a bit too far.

This works in certain industries (e.g. Uber), but not in others, especially heavily regulated ones.

Didn't Uber's self-driving car hit and kill a jaywalker?

In Uber's defense, killing someone is pretty much always an "beg forgiveness" rather than "ask permission" situation

no, killing someone is what happens when you absolutely should have asked for permission. you don't get forgiveness for that.

Didn't seem to stop them for long:

https://www.cnn.com/2018/11/02/tech/uber-self-driving-tests/...

To be fair, they're proposing significantly improved safety procedures. To also be fair, there are not many people (as opposed to corporations) who would be out on good behavior 6 months after being convicted of vehicular manslaughter.

I think he/she was talking about them avoiding taxi legislation, not the self driving branch.

Or the president of SIPC is not speaking authoritatively for the organization and doesn't realize the RH lawyers have already been talking with SIPC about this.

Of course, maybe that didn't happen, but between the idea that RH would build and announce a new product without running past the proper regulatory authorities, and the idea that the president of SIPC might just be wrong ... well, the latter seems more plausible to me.

"It's plausible" is not the answer anyone wants to hear to the question "Is my money safe?"

You really think the president and CEO of the SIPC is a... freaking clown?? Sorry if that tone is harsh, but that statement appears completely ludicrous on its face to me. Can you provide a little context on why you would trust startup lawyers over the chief executive of a major government organization?

Nobody said a "freaking clown" or anywhere near that. The higher up you are at a company or organization, the less visibility you have into the day to day operations. What OP is saying is simply that the CEO of SIPC may not be informed in the discussions that already happened with Robinhood.

Simply put, Robinhood has far more at risk than the SIPC by launching without SIPC insurance. The banking industry is heavily regulated and Robinhood has been in the brokerage game for enough now to know that a major product launch like this in a tightly regulated area requires massive amounts of paperwork and approval. A mistake like this could collapse not only this new product but also their brokerage. It's far more likely that they have done their due diligence before announcing and launching a product that has that big of a risk.

It's more likely than the CEO of this organization making an uninformed public statement. Doing so is indeed the behavior of a clown. But I guess we'll see.

Edit: We don't even have to wait! SMH...

https://www.google.com/amp/s/techcrunch.com/2018/12/14/robin...

It hasn't launched.

Their website says "Robinhood Checking & Savings is launching early 2019."

But they are accepting signups for the waitlist (which require signing up for RH) and moving positions on the wait list based on referring other people to RH.

Which may be the whole point of the offering.

Ding ding.

Even if they don't actually achieve the 3% APR checking accounts available ("sorry, it's actually 2% like the rest"), they still got people to sign up and they won't not register because they'll convince themselves "oh I got a debit card, and brokerage account, etc etc...who cares this is still great")

#growthhacking

Ya, could be.

Though hanlon's razor makes me think this was more them not thinking things all the way through than a devious plan to get a bunch of signups without ever launching anything.

I mean that the major point of offering the checking and savings feature was to get people to sign up (both directly and by referral) for RH and make it easier for them to market trading services—and that it was serving that feature without being launched—not to argue that they planned never to actually launch the feature.

Move fast and break nest eggs.

I laughed out loud when I read this..kind of bad I know

First, it hasn't.

Second, the SIPC boss probably is not in the best position to understand how RH is setting it up. Harbeck seemed unaware that the "cash" in RH accounts was actually going to reside in investments like Treasuries and thus be covered.

So what happens when the value of those treasuries fluctuates? Does the value of these "checking accounts" fall according to changes in the underlying asset? They aren't really cash accounts then. Treasures may be the safest investments, but are not perfectly safe and value still fluctuates based on changes in interest rates. That's a pretty key part of if they should be treated like a retail checking account or a money market account. Also, do these account provide some kind of certainty that they only invest in treasuries? What happens when "Robinhood Home Loans, get yours in 60 seconds or less!" opens up a year from now?

These accounts remind me a lot of the accounts offered by Washington Mutual right before there was no longer a Washington Mutual. Except back then, their bold rate offering was only something like 1.5%. A lot of young dumb people are going to lose their shirts on this one.

You can open an Ameritrade or any other brokerage account and deposit money into the account with no intention of purchasing securities. There is no dispute that the SIPC would cover your account in that instance.

The only thing that has changed here is Robinhood is explicitly marketing their brokerage account as being able to be used as a savings account without any need to invest in securities.

It’s not black and white on either side. If there ever was a default event, it would surely go to court and it’s not 100% clear who would win. For that reason, I wouldn’t make use of the account.

I'm not sure how Ameritrade works, but the other brokers I've used (Fidelity, Schwab, and Vanguard) you either have an 'uninvested' position where your cash is parked (generally a federal money market fund) or bank sweep that is FDIC insured. They never actually hold cash for you it is either in a money market or a bank sweep.

It's highly likely that Robinhood will do the same. It'll be parked in a money market, with the option of writing checks, etc. all of which you can do already with the other brokerages.

The new thing here I think is the ATM card and them covering the difference between the money market rate and 3%, which right now is less than 1%. They'll probably make up that difference via interchange fees when you use the debit card.

That SIPC thing though ... that's a bit of a wrench in the gears.

Then why are those organizations saying they won't be insured?

What other reason would you have an Ameritrade account?

Zero fees on their international debit card (one of the best )

almost every bank has that. mine even reimburse the ATM fee.

(ok, unless you count the US crap list such as BoA, etc)

It's still in alpha. The beta version will include better protection for the customers. /s

there is little he can do, as cash in brokerage account is obviously protected by SIPC.

Downvoters: you are confused. When you move cash to a brokerage account, it's protected by SIPC. It's a loophole, because this protection was not intended to be for permanent cash parking in an account - but there is nothing that can stop that protection from taking effect. SIPC statute is clear, cash in account is protected. You don't have to invest it, you just have to move it there with the intent of at some point maybe investing it, which is impossible to verify.

You don't seem to have read the article:

"“The statute that we administer says that we protect money with a brokerage firm that is used for the purchase of securities,” he added. “On Robinhood’s help page, it says that you don’t need to invest to use Robinhood checking and savings, that statement is wrong. If you deposit money for any other purpose, it is not protected.”

If they disagree it's a brokerage account, and it's certainly not being sold as such, then it seems to me there's alot he can do.

I think there's a lot the SIPC president can do if they believe a product doesn't fall under their jurisdiction. Specifically, he can decide SIPC won't act when the firm goes belly up. Disagree with that interpretation? Well the firm doesn't exist any more, they can't fight it. Feel free to mount your own legal offensive against SIPC. If you can get to your money.

But that aside, here's the point you're missing: Robinhood is marketing this as a product that can be used independently of brokerage purposes. SIPC covers brokerage firms and, yes, cash in such accounts. But the SIPC president is arguing that it's not a brokerage account if it's marketed as an independent product for people with no intention of using it as such.

ok, so if they changed the marketing and not the substance of their offering, then voila, it is covered by insurance and pays 3%? in that case, he can't do much, correct?