Personal Finance. Money. Investing.

Here’s a representative quote from Mr Tenev’s piece:

“One wonders whether the push to ban payment for order flow and overregulate modern design is about investor protection or really about control.”

Actually, that’s one of the milder quotes. Elsewhere he calls his critics “market gadflies, academics and out-of-touch investors.” 

The OpEd continues Tenev’s long tradition of using obfuscation and deflection to avoid discussing any difficult questions posed by Robinhood’s “free” brokerage model. Indeed, the very title of the piece “Robinhood’s Users Come Under Attack” tells you right out of the gate that Mr Tenev isn’t here to dialogue with critics but rather to belittle them and deflect their criticisms.

This should come as no surprise to those who have followed Robinhood for any length of time. They have been hiding behind their users for years now, including recently paying a $65 million fine to settle charges with the SEC for “Misleading Customers About Revenue Sources and Failing to Satisfy Duty of Best Execution.”

Robinhood is the Facebook of eBrokers today. Like Facebook, they have built a user-as-product revenue model where they provide “free” services to their users while leveraging user data to get paid by their actual customers. In the case of Facebook, the real customers of Facebook are the advertisers. In the case of Robinhood, the real customers are the wholesale market makers that pay Robinhood for the privilege of executing user trades. This practice is known as payment-for-order-flow (PFOF). Like Facebook, Robinhood has a built-in conflict of interest with its users when it comes to its business model.

We’ve all gotten a look behind the curtain at Facebook recently thanks to whistleblower Frances Haugen. We know that Facebook prioritises “engagement” and “stickiness” even at the expense of mental health. Facebook is rewarded when its advertisers make more money selling stuff to Facebook’s users. Facebook does not make more money for improving the mental health of teenage girls. We’ve seen what happens when push comes to shove, and we’ve seen that Facebook knows what is happening and has been unwilling to make needed changes that would impair Facebook’s present and future profits.

Robinhood makes money when its users buy and sell more frequently because it gets paid PFOF by wholesale market makers when its users make a trade. No trades, no pay. Robinhood won’t disclose exactly the terms of how it is paid by wholesale market makers, but they do acknowledge that they earn a “percentage of the bid-ask spread.” So, what exactly does this tell us? It tells us two things:

  1. Robinhood makes more money when buying and selling happens more frequently; and
  2. It makes more money when the bid-ask spread is bigger, which means that they make more money when the trading happens in illiquid securities.

These are the indisputable financial incentives of Robinhood as a business. These are its profit motives. These are the incentives that drove massive revenues for Robinhood during, for example, the GameStop (1Q21) and Dogecoin (2Q21) trading frenzies. Mr Tenev has attempted to portray Robinhood as a victim in the GameStop frenzy (as he has again done in his WSJ OpEd) but no single event in 2021 did more for Robinhood’s market value than the GameStop trade.

The data strongly suggests that Robinhood is getting paid more per trade than any other broker.

Mr Tenev regularly argues that “brokerage firms have used this practice for decades” and that this is nothing new. That is true as far as it goes, but no brokerage firm has ever used it at the scale and efficiency of Robinhood. Moreover, what Robinhood has not told us is what percentage of the bid-ask spread Robinhood takes. The data strongly suggests that Robinhood is getting paid more per trade than any other broker. Here is how Piper-Sandler Managing Director Richard Repetto, CFA put it in a recent industry note on 2Q 2021 retail PFOF.

“HOOD earned the highest average rate among the large eBrokers on both equities and options in 2Q21. Innovation in charging for PFOF enabled HOOD to earn the highest average rate per share on both equities ($0.0023) and options ($0.0060) in 2Q21. We suspect that the elevated average rate earned is driven by (1) more profitable order flow, (2) execution quality and (3) payment methodology (charging a fixed rate per spread on equities rather than fixed rate per share). HOOD is the only eBroker to charge a fixed rate per spread on equities.”

A cursory glance at Robinhood’s most recent quarterly report (2Q 2021) informs us that 80% of Robinhood’s 2Q21 revenues came from “transaction-based revenues.” Cryptocurrency transactions accounted for 51.6% of these transaction revenues, options made up 36.6%, and equities only 11.5%.

In Mr Tenev’s WSJ OpEd, he decries his critics who “insist that our platform is gamified.” With classic rhetorical deflection, he never answers the question as to whether or not the platform is actually gamified but instead asks: “Investing isn’t a game, but must it be grim and difficult to understand?”

If Mr Tenev truly wants to address the concerns of Robinhood’s critics, then there is a very simple way that he can do so. Show us the data.

Show us how Robinhood chooses which “lists of stocks and exchange-traded funds that help people discover investments and notifications about stock movements that help them to stay informed.” Show us how Robinhood decides what cryptos and options they put in front of users. Show us what percentage of the bid-ask spread Robinhood gets paid for its payment for order flow (PFOF) on equities, options, and crypto.

If Mr Tenev truly wants to address the concerns of Robinhood’s critics, then there is a very simple way that he can do so. Show us the data.

Given what we know about Robinhood’s profit incentives, should we trust Robinhood to decide what “lists” and “notifications” to put in front of us? Should we trust Facebook to decide what content to put in front of our teenage daughters?

The answer is clearly no – and no amount of smooth PR deflection should suffice to keep us from seeking answers to such important questions. Robinhood’s own statements and filings show beyond a shadow of a doubt that Robinhood is driving its users into the most speculative areas of the markets. All we know for a fact is that this is extremely profitable for Robinhood.

It’s often said today that “data is the new oil.” It is true. Companies like Facebook and Robinhood that pursue the user-as-product business model are not what they appear to be. They are, in truth, digital resource extraction businesses. They extract data, refine it, and sell the “digital oil” to their actual paying customers (advertisers and market makers). They use user data to nudge their users towards the behaviours that benefit their paying customers.

In exchange for trusting such companies with massive amounts of our data, we should demand that they be transparent about how they are using this data to nudge customer behaviour.

If they won’t be more transparent, then there is only one other option: stop using their platforms.

These are just three innovative examples of accessible designing that led to wider adoption, beyond the intended user subgroup. This very theme underpinned the keynote speech during this year’s Diversity Project’s Accessibility webinar on Global Accessibility Day and comes up, recurringly, in research, about improved experiences for diverse groups when we get the design process right for people with a disability.

Change and Transformation

Digital transformation in the investment and savings sector is recognised as being behind; attributed to a culture of traditionalism and inertia, due to a lack of industry diversity.  However, asset and wealth management firms have historically serviced very traditional investor and adviser communities – with their own inertia and habitual behaviours. Technology and regulation also play their part; legacy operating systems lack interoperability and agility, while mandatory post-MIFID changes have hindered more creative-led initiatives. Looking ahead, is change on the horizon as we navigate through a global pandemic and uncertain future?

In 2020, two significant changes brought with them new ways of thinking; mounting pressure on firms to commit to ESG policies and an acceleration of online investors. According to a US study, companies committing to accessible inclusion under their ESG frameworks achieved a 28% higher return, while investment platforms reported significant growth, particularly from home-based working millennials, during the pandemic and periods of market price swing – bringing down the average investor age. Either side of this demographic is a next-generation cohort entering the workforce under auto-enrolment pension schemes, within an ageing population. By 2037, 1 in 4 of us, in the UK, are expected to be aged 65 and over.

Intergenerational needs

This intergenerational spread is transforming and reshaping our population. Future digital engagement requires a coexistent, yet differentiated, model. With more conditions, including Autism Spectrum Disorder (ASD) and Dyslexia, being correctly identified, and diagnosed, demand for accessibility in younger generations is increasing.  Nearly 1 in 5 people live with a disability, with a household spending and saving power of £274 billion.

As our population’s median age shifts towards later years, inclusive design practice must address the contextual and everchanging needs of vulnerable savers and those experiencing ageing functional limitations. As older investors live longer and move through their later-life stages, many will be affected by undiagnosed conditions: visual and hearing impairment, deterioration of fine motor skills and cognitive decline. By 2050, visual impairment in the UK is estimated to affect 4.1 million people, currently 2.1 million. Those aged 55 to 64-years old today, will move into the older age category over the next ten years; many already digitally connected and engaged across social media platforms.  This will shift much of our future focus towards digital experience and retention of older investors.

Practical approaches

Despite legislation and guidelines designed to support protected characteristics, many users remain affected by accessibility challenges. Digital inclusion goes beyond a checklist and disclosure statement. Primarily, it’s about user interaction. Four core experiences that firms should empathetically build into their designs are:

Accessible designing involves hours of work and effort to adapt formats and channels, across language jurisdictions. Integrating universal design principles from the beginning of a project is less costly and complicated than attempting to adapt post-live products, with a blend of human and artificial intelligence, optimising the investor experience. Prototypes across all media – chatbots, websites, apps, video, print and email – should contain inclusive functionality; while wider test groups will help to capture real-life user experiences, without biased or pre-determined outcomes.

Design concepts should be as much about connecting customer journeys, as they are about making individual touchpoints accessible. A single Customer Communication Management (CCM) platform, integrating multiple data sources, offers greater personalised experiences and, therefore, a higher opportunity for inclusion - from incoming-to-outgoing messages, for both digital and traditional media. While documents should be adaptable to the screen size of any device, the FCA’s newly proposed Consumer Duty principles question how digestible lengthy T&Cs are via digital devices.

The most effective design solutions can still fail to address non-physical barriers. Online mistrust and investment complexity can lead to financial exclusion. Of 3.8 million cases of UK fraud, 15% were committed via digital channels, as opposed to 1%  through postal correspondence.  Developing secure and easy-to-use authentication, email encryption and signposting safety techniques can improve security for retail investors. Language remediation and localised translation can powerfully enhance an investor’s understanding and increase the digestion of information through a simplified or converted format.  This includes the use of plain language, avoiding jargon and reducing heavily formatted content - across interactive, visual and auditory channels for communications including, Key Investor Documents (KIDs) and bereavement instructions.


Inclusive marketing and communications are about creating the right interactions at the optimal time, under an investor-centric approach. Overcoming industry barriers built around institutional practices and regulatory restrictions can lead to adaptive cultural change and harness innovation, as wider technology evolves and improves accessible functionality. Ultimately, this combination will create stronger outcomes across the diverse needs of everyday savers.

John Dovey, Paragon Customer Communications

John Dovey is Client Relationship Director – Asset Wealth & Pensions at Paragon Customer Communications, a leading provider of end-to-end omnichannel services for regulatory and transactional communication solutions for some of the world’s foremost financial services companies.

He has worked closely in the financial services industry for almost two decades, driving customer engagement and outcomes in communication and digital strategy. During that time he has worked with, and supported, various organisations and stakeholders across the industry to deliver outstanding experiences.

With a range of experience and an extensive knowledge in both client and vendor roles within financial services, John is equipped with a deep understanding of industry challenges and regulatory requirements, including changing consumer trends in the market.


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