Robinhood’s New AI Trader Is Raising Red Flags for Advisors

Move over. I’m driving.

Advisors have outsourced a lot of investment management responsibilities over the past two decades, but whether they’re model portfolios, TAMPs or separately managed accounts, they’re all still run by humans. Robinhood’s latest feature allows AI agents to automatically make trades on users’ behalf. The discount brokerage behemoth is essentially handing the car keys to artificial intelligence, and advisors say it’s going to be a bumpy ride.

“It’s built to make someone feel like they’ve done a great job of researching and understanding their investments, and thus creates a gap between how the investor feels about the world and how the world operates,” said Robert Persichitte, founder of Delagify Financial.

And (a)I Helped

Advisors’ biggest concern is that investors may not fully understand what they’re asking these agents to do, creating a false sense of confidence. AI models can be prone to sycophancy, telling users what they want to hear rather than what they need to hear. With Robinhood’s new feature, users can connect programs like ChatGPT, Claude, Codex and more to a separate account where the agent performs trades automatically based on parameters provided by the investor. The new features allow:

• Users to have their AI agent analyze their portfolio, identify where they’re over- or underweight and execute a rebalance.
• If a user wants to target a certain market segment, the AI can rebalance the portfolio based on new entrants and analyst upgrades in the space.
• The AI trading is currently in beta and restricted to equities, but Robinhood plans to expand it to crypto, event contracts, futures and more. 

Interactive Brokers launched a similar tool this week that connects accounts to Claude to generate trade instructions for stock and ETFs, but every order has to be reviewed by the user first.

Tough Racket. Individual stock picking is one of the toughest things to do in investing. You need an edge or unique approach, said Alex Caswell, founder of Wealth Script Advisor. “If everyone has access to the same tool and is asking it the same broad-based questions, that alpha will quickly decay if it’s even there in the first place,” he told Advisor Upside.

Robinhood’s new tool also looks to be very self-serving, said Matt Chancey, founder of Tax Alpha Companies. Robinhood makes money when it executes trades, and if it can do that automatically without users’ input each time, theoretically it can make more trades and more money. “The investor doesn’t get smarter,” he told Advisor Upside. “The platform gets stickier.” Would advisors utilize a tool like Robinhood’s in their own client portfolios? Not likely, Chancey said. “The constraint on professional portfolio management has never been execution speed,” he said. “The work happens before the trade, not at it.”