Robinhood’s Robo Advisor Has a Major Leg Up: 25 Million Users

They say it takes a lot to stand out from the crowd. 

Robinhood Asset Management recently filed with the Securities and Exchange Commission to offer an automated investing service, which would allow clients to start investing on its platform with as little as $50 with an annual advisory fee of just .25%. It’s not wildly different from Vanguard, which requires $100 to start and charges up to .25% in management fees; or Fidelity, which requires just $10 to start and offers no advisory fee for balances under $25,000. Robinhood may have captured the online discount trading space, but can it compete with robo-advisors from incumbents like Vanguard, Charles Schwab, and Betterment? 

“Serving up just another, plain vanilla robo-advisory platform risks cannibalizing the Robinhood self-directed business and diminishing the overall firm brand,” said William Trout, Datos Insights director of securities and investments. 

I’m Not a Robot

Draft documents filed with the SEC reveal details on Robinhood’s plan to offer a low-cost product that relies on algorithms and strategists to adjust portfolios using ETFs and potentially individual public stock. The new product could significantly differentiate itself if it were to integrate its trading platform and robo-advisor to offer a wide range of products like futures, options, and active ETFs, Trout told The Daily Upside. Robinhood’s acquisition of Pluto Capital last July raised hopes of advanced AI-driven advice.

But for now, Robinhood does have a significant competitive advantage. A portion of its 25 million funded users will likely integrate the robo-advisor into their portfolios for convenience, helping further “entangle them” in the Robinhood ecosystem, said former Forrester industry analyst Vijay Raghavan. Additionally, Robinhood’s November acquisition of TradePMR, an RIA custodial platform with $40 billion in assets under administration, gives it a foothold in the advisory space.

Robo Racket. The robo-advisor market is tough, operating on thin margins and typically attracting few wealthy clients. Goldman Sachs sold its Marcus Invest accounts to Betterment last April, JPMorgan shut down its robo-advisor in the second quarter of 2024, and Schwab plans to close its Institutional Intelligent Portfolios platform this year. And if it wasn’t obvious already, robo-advisors lack the human point of contact most wealthy investors are looking for, said Scott Smith, Cerulli director of advice relationships.

“There are some investors who would prefer no human interaction — but they are at the far end of the bell curve distribution,” Smith told The Daily Upside.