Robinhood's CEO On Dumb Money, Day Trading, and Retirement — With Vlad Tenev

0:00The CEO and co-founder of Robinhood joins us to talk about what happened to the meme stock investors after the memes and how his company is positioned against traditional financial institutions. All that and more coming up right after this.

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0:45Welcome to Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. We have an amazing guest for you today. Vlad Teneviz here. He's the CEO and co-founder of Robinhood, obviously a company that has a lot of intrigue and plenty of brand new products that you may or may not know about. So we're going to talk about that. We're going to also talk about the state of the market and, of course, how Robinhood's customers have evolved. Vlad, welcome to the show. Great to see you. Thanks for having me. Thanks for being here. So Robinhood, you know, sort of became this global sensation during the GameStop era.

1:19And it's been very interesting because a lot of people, they bought GameStop. They were trying to crush the financial institutions. And then we never really heard what happened after that. So I'm kind of curious, like you've had a lot of the investors that were investing in GameStop, part of that meme stock craze. How did they evolve as investors? Because I imagine they stayed on the platform afterwards. So what can you tell us about that? Yeah. I mean, even before GameStop, and I should say there were so many things about, you know, COVID era that was extraordinary. One of them being just everything came together to make it really attractive for people to invest in stocks and cryptocurrencies all at the same time, right?

2:08Interest rates going down to zero, stimulus hitting the market, and sort of like lack of other means for people to spend their disposable income. So you saw savings growing through the roof. And, you know, in the years after COVID, when sort of the economy and society digested all of that, you saw a sharp correction. So interest rates instead started seeing the highest ramp in several decades. You're seeing savings being depleted and you're seeing sort of like movement away from more speculative investments and cryptocurrencies. And I think our focus has always been on making sure we serve the customers and give them the best tools, no matter what market conditions are.

3:06I mean, we've been known for our trading products and the way we serve active traders. But if you look at what Robinhood's really been investing in over the past few years, even from pre-COVID, we've rolled out retirement products where we offer the first and only built -in match on the market. And you're seeing that continuing to resonate. We have our gold offering with high yield on uninvested cash, where you can actually benefit as a customer from rates going up. I mean, historically, rates going up was considered a prime opportunity for banks to pad their bottom lines. Because if you have a traditional checking account or a savings account at a large bank or other financial institution, you're used to getting under 1 % low single digit basis points.

4:01And we've kind of turned that model on its head where if you're a Robinhood Gold customer, you're getting a very competitive rate on your cash. And so I think you've seen Robinhood evolve with our customers in the same way that our customers have been interested in a broader variety of things, earning more interest on their cash, investing for retirement, increasing their time horizon. And I think the company has evolved and has sort of like transformed our business model, our service model, the way we serve our customers to make sure that we're even more relevant and even more important to our customers' holistic financial lives and the way they think about building their wealth.

4:44Yeah. And we're going to talk about all that as we go through this conversation. But one of the things that happened in this, in the meme stock craze was a lot of investors who never bought a stock. They entered and they entered through Robinhood. Right. And so like, that's what my question is gearing at. Like, of course, the market has incentivized different behaviors, but you've seen it happen. Like you've seen these people come in and become traders for the first time in their lives. By the way, probably at a younger age than most people do. So get exposure to the market. Have they now moved beyond doing some of the day trading that they were doing in the beginning?

5:18And maybe this like YOLOing the money. And of course, like you've built the products that have incentivized making what I would say are smarter decisions financially. Have you seen customers who got in and said, I'm going to buy a share of GameStop and are now investing in ETFs and retirement, things like that? Like what has the behavior path been for them? Yeah, absolutely. I mean, we've seen in many cases customers coming in through buying an individual stock or even buying a cryptocurrency. and they kind of see the potential of building their wealth. And then they see all the things that we're offering, particularly, you know, with the gold offer, what we see and what we've kind of been trying to build for.

6:05It's like your premium service that you pay about$6.99 a month and you can get some added benefits. Yeah. So it's a premium service. It's like a membership. And the way I kind of think about gold is, you know, if you can get some of these benefits that we offer, like high yield on cash, low commission on trades. Of course, for us, it's no commission. But if you're a high net worth individual at a bank, you can get a lot of these similar types of benefits. For example, if you're a Chase private client customer or private wealth management customer, and they select for this group of customers based on their wealth, right?

6:54You have to hit a threshold of several million dollars of net worth, in some cases even more. And then you can actually earn some interest on your cash and you get a dedicated person to talk to. You can get access to like premium products, institutional grade money market funds and a higher level of service. And the way I kind of think about Robinhood Gold is we can offer that to everyone. We can democratize it. And it's not free, but it'll just cost a very small monthly subscription fee to be part of that membership experience. Right. Right. And I mean, like you guys are building retirement products.

7:36I see you can even buy like, you know, fractional shares of broad range ETFs on the platform. By the way, like I am one of Robinhood's newest customers or users. I just signed in last night and began option trading today. So it's my first option trades that I've made. So, but I've also bought ETFs and started with the retirement products. So I feel like that was like a pretty interesting experience that can help ground this conversation. And I'll definitely give you some product feedback if you want. But I guess like it sounds like from everything that you're saying that people came into Robinhood in this meme stock moment, but started to, you know, end up doing more traditional investing, you know, smarter investing as it would be would be called.

8:22Does that sound right to you? Well, I would say, you know, Robinhood has 23 plus million customers, right? So it's hard to say that, you know, each of them behave the same way. We have lots of different customers that come in for various reasons. I mean, you look at that number, 23 million. Yeah, it didn't all come in through that. But like, here's, here's like why I'm bringing it up is because in that moment, you had so many young people that were starting to trade for the first time. And there was a lot of scorning, I think, from, you know, the traditional financial establishment, A, because of course, they were going after a hedge fund, but B, because they call them the dumb money, right?

9:03I mean, name of the movie, right? Dumb money. But it's also just like these people got exposure to the financial system so much earlier than a lot of people. And it was great to like even make some mistakes early on. And then you start to learn and you start to have strategies where you can then start to build your wealth. And it seems like that's what happened to a lot of them. And that's what you're providing. I agree with that. And that's really the thing that bothers me most about that movie is this idea that retail investors are dumb money. I find that condescending and inoffensive. So, you know, a lot of people ask me what I think about that movie.

9:43It's like the title itself just perpetuates this type of stereotype that I think is very, very harmful. And I think that's a big part of why not a lot of people saw it because, you know, who wants to see a movie that's sort of like making fun of, even if it is ironic in some way, making fun of you as a retail investor. It's interesting because I would say that having watched it, it seems like it actually has a much more flattering portrayal of the quote unquote dumb money than I think was largely had in the popular conversation. Showing that they're smarter than they are. So many people are just going to look at the title and make their decision.

10:25I think you're right. If you actually sit down and parse it and look at it, it is sort of like a glorifying take on the retail investor. And I think that part is good, but, you know, it's sort of under this veneer of condescension that I think just pervades the financial industry. Well, I think a lot of that condescension comes from, and it just kind of goes to like the core of the way that Robinhood initially built momentum was with active traders, right? Like it's popular to say that day traders tend to like 95 % of day traders tend to lose money. Or if you like park your money in passive ETFs, you're going to do well over time.

11:09I'm kind of curious what you think about that. Well, I think there's two things. First of all, if you think about a Robinhood product, and this goes to our active trading products, but really it's consistent with Robinhood gold and our high yield product. and retirement as well. There's really two things that I think distinguish us and make the products interesting in the marketplace. One is the cost. Like any Robinhood product, we look into how we can use technology and good engineering to dramatically increase the automation and put more money back in customers' pockets. And of course, that originated with zero commission trading with no account minimums.

11:52It used to cost$7 to$10 every time you place a transaction. And so we were able to do that. But that's not enough for a Robinhood product. The other thing is the user experience. It has to be extremely simple and easy to use. And we became the first financial services company to win design awards for our work. You don't really think about good user-centered design and experience when you think about a financial product. And I think Robinhood really changed that. And so when you think about our trading products, really the idea initially was by introducing these two things, low cost and exceptional quality and craftsmanship and design, we would actually make it more approachable to people that had historically been left behind.

12:43And that's younger folks who don't have a family wealth manager that can just sort of like take their account. These people were largely being pushed away by the traditional financial system until they were in a position where they had much more assets and a nest egg, and they were getting closer to retirement. So we just got them much earlier, like in their early 20s as opposed to early 40s. And that was in large part due to the low cost, low barrier to entry and user experience. And what we ended up seeing was that it actually not only appealed to people doing it for the first time, but let's say you're an active trader, you're trading equities and options at a discount legacy broker, and you're being charged$7 every trade.

13:33Now, all of a sudden, And you're like, wait a minute, you know, these guys here are letting their customers trade essentially commission free. The value prop there is so strong. Why can't I get that? And of course, we saw all of these more experienced investors coming into the platform and using it. And I think that's what ultimately led to sort of our model becoming the dominant industry model and everyone else having to replicate it. a huge wave of consolidation like you're seeing now with Schwab and TD Ameritrade and Morgan Stanley and E-Trade, where, you know, a lot of these big competitors that were under the legacy brick and mortar models and they couldn't compete in the new world, couldn't survive as standalone entities.

14:24So I wouldn't say our focus... Let me go back then to the question, right? If 95 % of people who day trade lose, like, why would someone do it? Well, I think these statistics are always a little bit tough, and I'll tell you why. I mean, people cite these studies that day traders lose money and all these things, but those studies, a lot of them are from the 90s or earlier, and you see the dominant factor being commissions. It's like, oh, they're trading a lot. And so the commissions are eating up nearly all of the returns. And now we remove commissions. The entire study basically needs to be sort of revalidated.

15:11But I think that the broader point is, since we're a self-directed platform, like I would think about Robinhood as a tool builder, like we're providing these tools. And it may be in the same way as a major national securities exchange, like if you're the NASDAQ or the NYSE, you know, you're providing an interface, you're providing market access. We happen to do that for retail, but the industry has strict separation between people that provide these tools as brokers and then investment advisors that are actually trying to influence and determine what their customers invest in. And so as an impartial tool builder, our goal is to provide a reliable service, make sure that uptime, reliability, user experience is good, lower the costs of transacting.

16:05And in doing so, we enable lots of different activities. Of course, there's activities that are active trading and more speculative. And then there's the retirement and wealth building stuff, all on that platform and infrastructure. And since we're not a registered investment advisor, we actually have to stay away from like recommending particular stocks or investment strategies. And, you know, I have my own personal opinions for what the best way to invest in and what stocks to buy. But I can't really influence platform decisions at all based on those. I will tell you, though, that one of the things that's been really interesting over the past year is if you look at all these forums that sort of celebrate passive investing, like r slash bogleheads, for example, or r slash investing, you're seeing Robinhood mentioned more and more in these forums in a way where maybe two or three years ago it would be dismissed.

17:12And it's because people are looking at the value props of these retirement matches. And they're kind of seeing, they're saying that Robinhood is the best place to have, quote unquote, lazy portfolio. So even if you're just putting money there and you're going to set and forget it, it's actually a great place for portfolio building. And I think you're seeing the brand perception change as we're adding all of these tools. And, you know, I'd love nothing more than to be the company that did for long term retirement savings and investments what we did for, you know, meme stocks and more active trading.

17:53I think we've got some headwinds there because, I mean, as a media person yourself, the stories about people investing in boring sort of like long term retirement don't tend to be the most compelling stories to tell. Right. Everyone wants to, you know, everyone's talking about the relatively small number of people that are trading actively and, you know, doing more speculative activity. And I don't think too many of the stories about, you know, the folks that are stashing money away slowly over long periods of time and doing sensible things get told as much, even though you actually see that being a much larger group of people and a much higher percentage of the overall activity.

18:41Well, I don't know, Vlad. I mean, you're here and we're going to talk about those boring, stash it away type of funds. So, you know, I definitely think it's worth giving airtime to. And it was interesting for me opening up a retirement account on Robinhood last night, just going through it and sort of you, you pick the different type of strategy that you want based off of like your risk tolerance. And I love how it was like, you have a high tolerance risk or highest tolerance for risk or low tolerance risk or lowest tolerance for risk. And it does enable you to like even put, I think I put$20 to work at a like pretty diversified group, maybe six different groups of stocks, like fractional ownership of them.

19:21It was pretty interesting. So I'd love to hear your perspective. I mean, you know, why are these companies or these forums starting to talk about Robinhood as a place for retirement? And how have how have your users started to gravitate towards towards this type of buying? I mean, I think these folks are smart. First of all, they're savvy investors that, you know, read the fine print of everything and they're making calculations. They're like, OK, if I'm investing at a discount brokerage or I have an advisor and I'm paying a 25 to 100 basis point annual fee, they run spreadsheets and see how that affects their returns.

20:09Right. And they see what these advisors are doing in large part. You know, they're they're kind of handholding. They're providing a sounding board. They're calming customers down when the markets are exceptionally volatile and telling and they're kind of a steady hand at the ship. The asset allocation is pretty commoditized. I mean, we know we know the algorithms there. And, you know, some advisors and brokers are still out there charging commissions because, you know, maybe their clients prefer to talk to them on the phone. They have higher costs of servicing. They like to go into a brick and mortar location to make their investments.

20:49But for our customers, they're younger. They tend to be much more digitally savvy. They're early adopters of technology. They want the service to just work. And they can have technology sort of solve a lot of these more transactional problems that, you know, you've had to go into a branch office or make a phone call to do in the past. And then you look at the costs, you look at the ease of use, and then you take these matches, for example, the 1 % in non-gold and then the 3 % for gold accounts. You carry that over a long time period, say, multiple decades, which is what these customers have for retirement.

21:34And that adds up to like a pretty strong economically rational argument for for investing with us. And now I'd also add that, you know, there's I was going to make another point, but. uh, well, while you think of that, let me ask you about the match. How are you able to do the match? I mean, the money comes into Robin hood, it goes right into stocks. So you're passing it along into the equity and you match like, I mean, I think I put, you know,$20 in yesterday and free money from Robin hood and like a free 20 cents came in from Robin hood. Um, where are you getting that money? Like, how is that, how is that even feasible for your business?

22:20I mean, the way we think about it is retirement relationships, particularly our long term relationships, those accounts. Like we believe that if we serve those customers well over time, they're going to continue to contribute to their accounts. They'll grow and also they'll do more things with us. You know, and there is this thing where the more assets you have with one platform, the more services you use, the more likely you are for the next service that we offer for you to be a customer there. And, you know, we have been seeing it. The more customers use our services, the more assets they put on Robinhood, generally the happier they become and they become product evangelists.

23:10And we think all of these things are going to coalesce into these being profitable relationships over the long run. And why do you think people are not getting these services from like the traditional financial system? Is it if they have like less money that just doesn't care about them? Or like why would people open up a retirement account with Robinhood versus like a JPMorgan Chase? Well, I think it's, again, those two things that make Robinhood products differentiated in the market. It's the economics, which for retirement, it's not just the lack of commissions and minimums on trades, but it's also the compelling matches.

23:52And then the second thing is the user experience. You don't want to fill out a PDF and fax things when you create an account. You don't necessarily want to have to go to a branch office. I can see the value of a branch office being there for exceptional scenarios, but for your typical day-to-day work, you just want to take out your phone and do the action and have that completed seamlessly. And that's what we do better, I believe, than anyone else. And you've probably seen the onboarding experience yourself. The team has spent a lot of time crafting, particularly the retirement onboarding and how we construct those recommended portfolios.

24:35We've won design awards for that product. And I don't think that you can say that about other retirement products on the marketplace. I mean, when. No, I thought it was excellent. A retirement product winning a design award. Yeah. Going through the flow, I thought it was excellent. So, you know, for a lot of companies in the economy, everything sort of flipped when we hit, you know, 5 % interest rates going from zero, like within a year, year and a half. I can't imagine a company who would change life for more than yours, right? Where people like in the zero interest rate environment are going to be more active trading equities.

25:10And now like you might be more interested in putting your money in a money market that will give you that five, you know, 6%. So what have you seen there and how has that changed like your mentality for the way that you do business? Yeah, I mean, what we've seen is a lot of the casual first time investors have sort of retreated from the market and they're interested in other things like earning yield on their cash. And if you think about it again from the economics perspective, it's an economically rational change because if you're earning 5 plus percent risk-free rate on your cash and you look historically at what the market's been able to do, getting that 5 percent risk-free is a compelling value proposition.

26:00In a zero rate environment, you basically get nothing risk free. And so you've seen kind of these macro flows away from equities into things like money market funds, high yield accounts, and more and more of sort of like the excess cash is going into these vehicles. In terms of active trading, I'd say active traders tend to be more resilient because they engage in more sophisticated strategies. They have strategies that they deploy to take advantage of falling markets or markets that tend to be up and down. And so we have been continuing our focus on active traders. And in fact, we're much closer to active traders than we were in the early Robin Hood days.

26:55Active traders have always used our products. But, you know, before recent years, we kind of built for the first time mass market consumer, and we didn't really get deep into the needs of active traders and solving their problems. And we've been able to do a ton of work starting in the year 2020 that, you know, builds towards us being the best platform for for active traders and we've got some more wood to chop but active traders are much happier on our platform now than they were at the beginning of 2022 yeah they must love the volatility i mean with the fix as high as it's been over the past few years well also just like the user experience you know it's like basic things like um making sure that customers who are trading options actively can continue to trade them if they're marked pattern day traders and having a good cash account experience where you can continue to trade options in cash accounts, not just margin accounts, giving customers more data and more advanced charting.

28:05I think if you look at the needs of these active customers, we've got a full roadmap, many, many years of work to craft the best experience for them. And I think it's an exciting challenge for our teams because, you know, it pushes us to make our systems faster, make our experience even better while making that simplicity, while keeping the simplicity that, you know, Robinhood is known for. And I think these are the types of problems that attract really great engineers and designers and kind of keep us at the forefront of innovation in our space. Right. And you've mentioned design and like ease of use a handful of times in our conversation already, which like is it's important, right?

28:48Because it does make this stuff more accessible to people who might otherwise be turned off by platforms that don't let them in without a minimum balance, for instance, or, you know, just start design so dauntingly that it wouldn't it's not worth taking the hours to go and open a retirement account if you have twenty dollars. And so you've solved that. But you did get some flack in the earlier years about making it so easy on the downside, like, for instance, making it easy to open margin accounts and trade on margin. People trading with money they didn't have or losing more money than they had, which is always a possibility when you do margin trading.

29:26Have you taken any of that feedback to heart and changed the product at all after that early criticism? I think some of that criticism is fair. Other parts of it are kind of in the vein of, well, commissions are good because people shouldn't be trading that much. And so, you know, if you charge people more, they'll do it less. But in reality, that's kind of self-serving criticism in a way because, you know, none of these brokers that were charging commissions were doing it because of like. Yeah. Yeah. I'm not going to stand here and argue that commission's good. I am not going to do that. But the broader criticism.