Inside the Robinhood Revolution With Vlad Tenev

19:54Yeah, right before that huge spike up in 2020, I remember very vividly that end of 2019, we saw something happening on the platform. There was like a surge in activity that couldn't really be explained by macro. And what we noticed was people were just like reawakened by Tesla. And remember, this was the institutional community and the media was quite negative at that point on the company. Super bearish on Tesla. Super bearish. And I don't think people realized broadly that it was going to be such a massive thing until at least one year later. But I think retail was early to that. And when I think about Robinhood's growth and the impact on the bottom 50 % and kind of reawakening the retail investor, the millennials who had basically been disillusioned since 2008, I also very much tie that with a reawakening of American innovation.

21:05Because you look from the period of 2008 to, you know, the end of the last decade, 2019, it was almost like the doldrums of innovation. Like there were companies that were building, but it wasn't front and center. Now you have AI. You've got SpaceX launching rockets once a day, if not more. So like the space industry is headquartered here. You've got prediction markets in crypto. So it's very much -

21:38Downtown Josh Brown:GLP ones, flying cars. Yes. Waymo. You've got online, are we using the word gambling? Predicting, online predicting. Sports betting. Like you've got all these things that did not really exist. New industries. Yeah, new industries and a very, I think a very engaged audience of investors at every level of the income scale. Absolutely. People are trying to find opportunities no matter who they are. And that's very different. There's a chicken and an egg question here. Like, did the retail investors make these companies successful, give them the resources and the attention that they needed to thrive?

22:18Or is the success of these companies driving retail investing activity? And I think there's a little bit of a reinforcing cycle.

22:28Michael Batnick:Retail investors, how many offerings did Tesla do that gave them money that they really needed to survive like a lot. So Vlad, I don't know if you've ever seen this chart, but I've shared this multiple times and I think you're going to like this one quite a bit. We're looking at the market cap of Schwab divided by the market cap of you guys. And not too long ago, like literally in 20, in 2023, Schwab was almost 23 times the size of Robinhood. And now you are on its heels. It's only one and a half times bigger than you. And I want to ask you, do you think, do you think that daily active users are driving the metrics?

23:09Michael Batnick:Like, is that the metric? Because if somebody were to look at your financials and just compare it to Schwab, like, this is a joke. They have like one 30th of revenue. I'm making that number up, but just on traditional metrics, it looks like in so insane, but John, throw this next chart up. So I don't know if you saw this week from bank of America, Robinhood is the biggest online platform and it's showing the split of daily active users comparing you to Fidelity and Schwab and everybody else. And you are almost, not the entire part, but my God, 50 % of the daily active users of online platforms are at Robinhood.

23:44So I think if you break down, and by the way, we're immensely proud of the progress we've made here. I think there's a lot more to do. There's a lot of people that still don't know about Robinhood, surprisingly, that I think we have yet to get to in the US. We have to get into the retirement communities. I have been saying this. Dude, you know what? We are. We're spending a lot of time, actually. We have a great retirement product.

24:09Downtown Josh Brown:They would enjoy this more than they think they will.

24:10Michael Batnick:Vlad, my wife knows who you guys are. I said, I'm interviewing the CEO of Robinhood today. She's like, oh, like the crypto company? I was like, sort of. And if my wife knows, you're close. So I think your question about daily active users So ultimately, I think, at least over the long run, stock price is driven by financial performance. And I think one interesting stat to look at, of course, people look at revenue and they look at EPS and all of these. But do you guys ever look at rule of 40?

24:42Downtown Josh Brown:Yeah, of course. So rule of 40, I think, is an interesting number because… Profitability and revenue growth. Yeah, yeah. Yeah, and you add those two. And that's what you're getting credit for. in your multiple that some of the incumbents aren't. Yeah. And Rule of 40, Robinhood, I think, is a huge outlier. There was a chart floating around on social media that had this graph and every other company in the S &P 500 is kind of in this cluster. And it's like Palantir and Robinhood all the way out here. So I think we've been unique in that we've been able to grow margins while simultaneously growing revenue.

25:21And then you ask, OK, what are the things that drive that upstream in the business. It's the ability to attract assets at an accelerating rate. We announced that earnings that we had over a third of a trillion of assets, which was a doubling year over year at large scale. But also us really utilizing technology to keep the costs low so that as we scale, as we launch new products and get more assets and get more customers, we keep our costs growing much more slowly than our revenues. And certainly, daily active users, to some degree, drive some elements of this. But we've got products that actually are very, very valuable products that aren't daily active usage products.

26:08I mean, for example, we have an amazing credit card, our retirement offering, increasingly, you know, a new business that we think we're going to do very well. And I'd like to be the leader in that business and not too long. RIA custody. It's not a daily active usage product, but. Oh, it will be.

26:29Downtown Josh Brown:Let's put a pin in that though, because. Perhaps, perhaps for the. Yeah, I want to ask you about that later. There's a CAC advantage here, though. That's a big part of the story. You guys went viral, I guess still viral. You are one of the most downloaded financial apps in the app store. And you have the kind of app that people, once they learn how to use it, which doesn't take long, they can't wait to show their friends. That is something that your competitors still don't have, at least that I'm aware of. And that, I think, gives you an advantage on acquiring your next million customers, your next million customers.

27:05Downtown Josh Brown:How important has that been to the story? I think that having ARPU and LTV, sorry to be jargony, making sure that the revenue that we generate from each customer that has a relationship with us being greater than the cost of acquisition is a big advantage. At the end of the day, I think if we look at business and app metrics, the one I like to look at is retention. So if you look at, and this is publicly available data, if you compare Robinhood apps retention curves, meaning of the people that download Robinhood today, what percentage will be using it 30 days from now, 90 days from now, 364 days from now, we plateau at a much higher point than any of our competitors.

27:54And Robinhood's a huge outlier. And what that allows us to do is we're much more efficient with our customer acquisition and the money we spend. Because if double our customers stick around to our competitors, then we can pay theoretically a much higher amount. But we don't. We actually pay less. But that just gives us more margin with which we can operate our business. It's so funny.

28:19Downtown Josh Brown:We have a similar client acquisition philosophy. philosophy, when people come to any financial advisor to potentially do business, it could take six months, 12 months before they either even say yes or no, let alone how long it takes them to actually move money over. When people come to us, in many cases, they've already decided they want to become a client. As a result, we have a pretty good idea that most people that come to us, we can invest a lot of time upfront because we know ultimately they're going to become clients. A lot of firms are like, we can't do four meetings with somebody before they're paying us.

28:57Downtown Josh Brown:We can because of that CAC and that efficiency. So I think it's a really underrated part of why you guys have been so successful. Not to dwell on the past, but Michael and I wanted to ask you about the GameStop mania moment. And I was thinking like it must have been bittersweet. It all worked out great in the end. and it was your coming out party, not just in finance, but like as a pop cultural phenomenon. And I know that has like good and bad aspects to it. In the heat of the moment, what was it like responding to regulators, battling misinformation on the internet? Raising money. Raising money, trying to keep like your employees from losing their minds, trying to make sure clients were being taken care of.

29:45Downtown Josh Brown:People on the internet, very mad at you. Yeah, so from the outside in, it looked like you were in a maelstrom and somehow you held it all together until the storm passed and then you were a stronger company on the other side of that. I'd love to just hear like the personal aspect of being the person in the center of it all. Yeah, I think that the acute issue of GameStop was almost less stressful for me than just like the long burn of the three years or so after that. So GameStop was basically one day of like extreme stress, you know, waking up to a collateral call of a net cap issue that you had to resolve immediately.

30:30Or not exactly net cap. I think net cap was fine, but it was some other clearinghouse NSCC deposit thing. But yeah, it was like waking up to the collateral call. And by the way, by the time I woke up, my phone was unusable from all of the phone calls from angry customers who thought I was colluding with Citadel for whatever reason. Yeah, learned a lot. Obviously, up until that point, I wasn't really that out there in the media. I mean, my co-founder and I both were really like, we're builders. We're going to build. We're going to quietly launch our products. So even 2020 kind of surprised us, you know, when we started appearing on the covers of magazines and like, well, these folks put us on the cover and they never even talked to us.

31:26You know, that was kind of a strange feeling. And I think I just didn't have enough reps to be prepared for what the public relations stuff.

31:38Downtown Josh Brown:Nobody could be prepared for that. You were probably like, I should have just been a math teacher. Like you have like famous people on Twitter screaming at you. You have the op-ed pages of every newspaper in America yelling at you. You were like a villain for a minute. I was sort of like a villain. Definitely. Not anymore. It's come full circle. Now you're a hero. And I wanted to, I wanted to just say though, we don't hear about any of the shit that people were saying then. Like Michael Lewis has left the building. The Flash Boys, the HFT, the payment for order flow. When I say you've bent the universe, now everyone's like, yeah, big deal.

32:17Downtown Josh Brown:I pay a penny in a trading transaction I don't see. And as a result, I could do hundreds of trades a day. I don't care. I like it this way better. So now everyone has come around and said, you know what, actually, all that stuff we were mad about, it turns out this is better than the way it used to be. And you've come all the way full circle. We've come all the way full circle, I think, as an industry. Do you see it that way? I think that we've definitely gone through our share of controversies. And I think I've learned how to handle things better. I mean, we've also evolved a lot. To be honest, I think that at first, I didn't really see myself as a spokesperson for the industry.

33:01And so, you know, then I was in the mode of, all right, responding to criticism about Robinhood or me personally. And I don't think that was the right path. I mean, at the end of the day, it's really Robinhood's model has become the standard model. Right. They're all doing it now. Kind of like an attack on Robinhood is basically an attack on retail investing in America. And I think when we started thinking about it that way, it became much easier to communicate about what we were trying to do in our business. Because really, yeah, I mean, the model has become the default model. There's certain things that we want that I think are not just good for us.

33:43They're good for the industry. I don't know. I don't see many other people trying to do them. But yeah, we believe in free markets. We think as many people as possible should be owning equity at as an early age as possible. IPOs should be better. Public companies should have a better brand. And it shouldn't be like being public. The perception out there is nobody should ever go public. It sucks. It's a chore. I think we have to reverse that. The thing I worry about most right now is we're in the midst of this AI revolution. Very few people have access to the interesting AI companies. I mean, you have Google, which is public, thankfully, and NVIDIA.

34:26But those are at$4 trillion. And everything else is basically inaccessible.

34:31Downtown Josh Brown:How much more upside could there be relative to the smaller private companies that might revolutionize things? You'd have to believe a lot. Yeah, and that's one thing I'm very passionate about, making it so that anyone can have access to private opportunities. It's not just the wealthy.

34:48Michael Batnick:Vlad, your business is extraordinarily pro-cyclical. People are more likely to trade when they're making money. They make money in a bull market. The options contracts. By the way, your deck, I listen to your earnings call every quarter. Whoever does your deck is the best in the world that you get a raise. I'm a huge fan of your deck. Oh, thank you. Very well done. Pass that along to Chris Cagle, who's head of IR at Robinhood. So your options contracts up 38 % year over year. the crypto crypto notional volumes and there's a there's a transaction here but through the roof and these are your two most lucrative businesses you've been through the shitter like 2022 was not fun especially for a lot of your customers it was a really nasty bear market for crypto for equities for the things that were popular what did you learn then to prepare you guys for the next bear market whenever it should arrive and by the way i should give a shout out to i know chris chris cagle's been getting his flowers but there is really a big team uh around earnings as you guys can imagine.

35:47And I hope you enjoy the live video aspect of it and the Q &A. You didn't mention that part, but that's the part that's near and dear to my heart. I use quarter. I'm after the fact.

35:57Michael Batnick:I know you guys are work with them, but. Yeah. So you don't watch the videos. I'm a listener. Oh, you're a listener. Oh, but what you got to watch. What are you doing on these videos? You're sitting at a table. It's like an Alex Carp. Like it's more like I like to think of it as Anthony Edwards or LeBron James after a good NBA finals game. All right, I'm in for that. But so what do you guys do the next time we get a bear? I'm wearing a shirt, by the way. It's not just me with the towel on my head. Okay, great. I'm sorry.

36:32So 2022 was actually a dark time when a lot of the tailwinds behind the business that drove us during COVID reversed. So we went from zero interest rates and helicopter money landing in people's bank accounts to the highest interest rates in 30 years. And, you know, when interest rates are high, people trade less and they actually invest less and there's less first timers. And it makes sense, right? If you can get 5 % risk-free sitting in cash, the sort of like 7 % post-inflation net returns look less attractive.

37:10Downtown Josh Brown:You have to rethink all the risk that you're taking. And so I think we could have taken one of two paths. One was just like batten down the hatches and wait for the bull market to return. And I think a lot of the mortgage brokers, for example, took that path. They're like, well, nobody wants mortgages. We just have to wait for the market to recover and rates eventually will go to zero. We didn't want to do that. We asked ourselves, how can we actually help customers with the products that they really need and they want to use in this environment. So we introduced Robinhood Gold and the value, the main value prop during that time period with Robinhood Gold was the absolute highest interest rate you can get on your cash among all major platforms, coupled with a really very high level of FDIC protection.

38:02And we did that through a cash.

38:04Downtown Josh Brown:Robinhood Gold is like the premium subscriber tier. Yeah. Was it like five or 10 bucks a month? Five bucks a month. Okay. Yeah, 50 a year. And then, yeah, at one point, I think the interest rates got quite high. You would get 5 % on Robinhood gold with two and a half million of FDIC insurance. So it's actually better than leaving money at a bank. At a bank, you get typically a low rate. Nothing. And then you only get$250 ,000. At a bank, you get bronze. You get a basis point. Yeah. So I think that really was the first big product that made us sort of like a company that would thrive in a high interest rate environment.

38:42We added retirement to that, which has been very successful. I think it's the best retirement offering in the industry.

38:49Michael Batnick:What's your match? Is it 3 %? 3 % on contributions for Robinhood Gold members. And we have over 1.5 million retirement accounts. So I think it's… It's working. Among the fastest growing, if not the fastest growing retirement. These are IRAs? IRAs and Roths. Okay.

39:05Downtown Josh Brown:You're not working with sponsors in the 401k channel yet, are you? Not yet. Okay. Although that's been. I'm sure it's coming. Well, we work with companies to help people roll over their 401ks, but we don't have a direct B2B 401k offering yet. Although it's definitely something that we're looking into. I'm sure it's on the map somewhere. Okay. And then it's funny, on the active trader side, we really weren't focused on active traders very much up until 2022. We kind of built an active trader business, incidentally. What we were really focused on was first-time investors and making it as easy as possible for them to get onboarded.

39:41But by offering rock-bottom fees on equities and options trading, we got active traders who were like, okay, maybe I'll do my research and my charting on a different platform, but no commissions, no contract fees per options contract are too irresistible. The pricing is too good to pass up. So they sort of like would use Robinhood, even though it wasn't really built for them. So we reversed that. And now I think we have the best active trader offering. And the mandate was really, if you're an active trader, how do we make it so that you're at a disadvantage using any other platform. And so you saw innovations like 24 hour market, um, Robin hood legend,

40:20Downtown Josh Brown:which you guys played. So you guys played offense as a platform in the bear market big time. And the people who played offense with you, here we are, I don't know, a hundred percent later in the S and P or however, uh, 80 % higher, like the people that played offense in that time look really good right now. I think that's right. Yeah. And, uh, now we are in a position as a company, we're much more diversified and resilient. We have 11 business lines at the end of Q3 that generate a hundred million in annual revenue or more. I like to, I call them cylinders. So at one point we were like a V6 engine and then it was very, I was very excited when we got to V8.

41:02Now you're a V11. We'll get to V12 and then W16. And then I'll have to change my analogy.

41:08Downtown Josh Brown:So I want to, John, can you fire this picture for me? so this is i i mean i look at this as a victory lap and a signal that you are this this is you on the i guess it's the cover of the wall street journal i don't know if this is such thing as a cover but it's a big feature and you're surrounded by some of your biggest fans and this is an annual event that you do and this is vegas yeah that was that was hood summit this year i mean if you could have seen this picture in 2020 you would have told yourself all right if i just hang on. This is where things are going. So now you're a hero. And the gist of the piece is that you're not apologizing anymore for the Robinhood ethos, and you're not trying to be somebody else in the industry.

41:53Downtown Josh Brown:And you've doubled down on what you guys call power users. And that seems to be the new rallying cry. And I want to share this with the audience and then have you react to it. This from the article. At one point, Robinhood temporarily restricted trading of such meme stocks, infuriating users who said they lost money. That February, Tenev told Congress that pattern day traders at the center of that market chaos represented just 2 % of Robinhood's customer base, and most were long-term investors buying plain vanilla products. Since then, Tenev has come to realize that plugged in aggressive traders are actually key to his company's success.

42:35Downtown Josh Brown:It sounds like you guys have realized, this is actually your quote, these are our most engaged customers that generate the lion's share of our revenue. We put our best people on active traders. So whether you meant to build the best active trading platform or not, it sounds like now you guys are embracing that. And the users who love you the most are the most engaged. Those are the people that you're most focused on, which I would argue that's what every great business in America does. I think we're on a path. I think we've got a lot of work to do because active traders are a very demanding clientele.

43:10But I think the point of that quote that you read, which maybe is slightly out of context, is there was a time period where we were kind of apologizing for having active traders. And I don't think that was fair to them because these are, I mean, I've gotten to spend a lot of time with active traders and the media can tend to portray them as degenerate gamblers and there are some degenerate gamblers no it was worse they're called dumb money yeah they call

43:38Downtown Josh Brown:them dumb money yeah but you talk to these people and they're not all dumb money and they're not all

43:42Michael Batnick:degenerates is the point i mean they're normal not all of them just like just michael some of them are incredibly sophisticated about uh everything they're doing and this is like a skill that people can get better at. And, you know, I think one thing that it did for us is we really started thinking about, you know, how we can make the tools better and better. Like we weren't investing a ton in tools other than making them easier to use. But now you look at Robinhood Legend, it's getting better every single day. And I think we'll get to the point where Robinhood Legend is competitive with like institutional products.

44:19Michael Batnick:What is Robinhood Legend? I'm not familiar with that. Robinhood Legend is our active trader web offering. So it's a more prosumer offering where, you know, if you think like I think or swim, but

44:29Downtown Josh Brown:like more more like intuitive for every user. Yeah, but it has it's like Robinhood on desktop, best charting, best tools and access to all things you get on mobile, but with with great real estate. There are two markets that you guys, as Michael has pointed out, make a lot of your money from crypto and options. A lot of people would look at that and say, this is scratching the itch for the gamblers, or it's too much volatility here, or whatever critique that people have. And some of the critiques of that kind of activity are, of course, grounded in reality. Not everybody's going to be an options trading superstar.

45:14Downtown Josh Brown:I think we all agree. Um, when you hear people talk about financial nihilism or the zillennial generation doing zero days till expiration before they even make a contribution to a retirement account, what's your reaction to that? Do you think it's unfair or do you think it's overemphasized and that's not really representative of what most people are doing? Like, how do you, how do you think about that? I mean, I think we definitely intend to win the active trading market. And there's a real market there that it's not just us. All of our competitors are in it as well. You look at the big guys and lots of upstarts.

45:57Zero-day options have legitimate use cases. I mean, if you think about it, let's say you want to place a trade on a company and you want to play earnings. things. You don't want to deal with the time decay of that trade of getting a long dated option. So zero days can be the most direct and capital efficient way to sort of like trade your point of view.

46:21Downtown Josh Brown:Just to capture that small window of time. Yeah, because you don't want to deal with time decay. And I think that's part of the reason why they become so popular. But not all of our customers trade options. If you do trade options, though, we want to give you all of the other tools in the arsenal that you need to be successful. And actually, some of our biggest adopters of retirement accounts are our options traders. The options traders who are most engaged tend to also be the folks that have money in retirement and are taking advantage of the matches. Oh, that's interesting. So they will put money away into one bucket that they don't trade that way.

46:57Downtown Josh Brown:Yeah, a lot of people talk about this as a graduation. It's like, oh, well, hopefully you're taking these active traders and you're graduating them to these products. But it's not really what happens. I think what happens is they just tend to add more buckets, which we're making it easier to do with multiple accounts now. So you can have your discretionary options trading portfolio. You can have your retirement portfolio. Maybe you have like buy and hold dividend portfolio. And as we've started to like spend more time, I think what we've seen is as someone's relationship with Robinhood grows and deepens, they tend to get to a point where they have multiple money buckets and they're putting, you know, the lion's share of their income into Robinhood.

47:41They're diversifying on your platform

47:43Downtown Josh Brown:the activities that they're involved with. But the act of trading actually usually still remains. Like they still have a component that they just like to manage directly.

47:52Michael Batnick:But you are seeing people do that. We'll get to this in one sec. One of my favorite charts that you guys have been producing for the last couple of quarters is you showed the average, like the net deposit by cohort, this one. The average cumulative net deposits have grown over time across our funded customer cohorts. So people that are starting with you, why don't you explain what this chart is showing? Yeah, so basically this shows people that start on a given month, right? Each line is a cohort, which is a group of customers that started in a given month. And then I guess where it hits the y-axis is their initial deposit.

48:30So how much money they put in as the first deposit. And then where they end up. The point is your customers are growing with you. The customers are growing each cohort. And over time, they're starting with more money in their accounts. And the rate of asset growth in the accounts is increasing. So the oldest cohorts, the people that started the longest ago, are in the bottom.

48:53Downtown Josh Brown:Like they put$100 into the app. Yeah, or it looks like about$1 ,000. Yeah. And now, you know, the shortest ones are in the multiple thousands.

49:02Michael Batnick:So your customers are growing up and you're growing alongside them. And you now sit on top of a company that is worth a hundred, as of 12th, we're recording this, 122 billion freaking dollars. Is this, I know you were ambitious and optimistic, but you have to like pinch yourself and just, holy shit.

49:24Downtown Josh Brown:And for the listener, there are only three in the capital markets industry larger than Robinhood, Morgan Stanley, Goldman, and Schwab.

49:32Michael Batnick:And they had a bit of a head start.

49:34Downtown Josh Brown:And they might have had a few decades of a head start. This is where you are relative to everyone else. And they're almost – the other names in this group almost can't be seen.

49:44Michael Batnick:Like Interactive Brokers is not a small company.

49:45Downtown Josh Brown:Yeah.

49:46Michael Batnick:And your market cap is four times the size. It's really incredible. I didn't realize they were that small. But I mean, it's humbling to see this.

49:55Downtown Josh Brown:Humbling for them, not for you. For me too. You must be proud of your team and proud of what you guys have accomplished. Vlad, let me ask you a direct question.

50:04Michael Batnick:Is your stock overvalued? How would you react to somebody that thinks that it is? Well, you got to look at the rule of 40. Yeah, I tend to not look at the stock price so much. Oh, come on. Once in a while. Surprisingly.

50:17Downtown Josh Brown:John, fire chart seven. Let's make him look at his stock price. This is your market cap. I want to point out to people that the Robinhood market cap in 2022, that period we just referenced, was$6 billion. So today at$122 billion, the people who are willing to bet on you as a company have also done very well. Next one. This is you versus the S &P 500 in total return on a year-to-date basis. um robin hood has been annualizing at 37 a year versus the s &p 12 let's put up his revenue chart uh i know we're barraging you with all these great superlatives but we made the charts we made the charts you're gonna look at that last one operating income which i think this is the one so this point about the profitability not just the revenue growth because any anybody can get revenue growth.

51:12Downtown Josh Brown:You could open a store and say, I sell a hundred dollar bills for$80. Your stock-based comp you fixed.

51:17Michael Batnick:Like that was an issue for a lot of companies, not just you, but this is, well, I relinquished all of my, uh, my, uh, equity, uh, my equity grants back in 2022, which helped. Okay.

51:29Downtown Josh Brown:Um, when you see these, uh, we have one more, John operating income growth. So like, uh, obviously that there are, there are aberrant things happening, but the direction is pretty impressive on operating income growth. You've averaged 400 % since 2023. These numbers are weird. Well, it's not off a low base is the issue, but it's pretty remarkable. I want to talk to you about a couple of things, and then we'll let you get out of here. A couple of things that you're planning for the future. RAA custody is near and dear to our hearts. We're in RAA. Mine too. Okay. You're a very wealthy man now. and you must have financial advisors.

52:10Downtown Josh Brown:I'm sure it's a family office. I'm sure you're knee-deep in people pitching you wealth management and all sorts of solutions. How do you think about the advice industry and Robinhood's future role in it? Yeah, I mean, surprisingly, I'm relatively new to having wealth. We have an account form after the taping. Yeah, maybe I can be your customer. and maybe I can convince you guys to custody your assets. We're all ears. We love Rob. We're all ears. Yeah, Rob's great. So I've been, I'm relatively new to this, but yeah, my perspective is Robinhood's built a lot of great things from retail. We're self-clearing.

52:56We're a custodian of assets. And a lot of the things that when we talk to advisors, we hear they want, like exposure to crypto and traditional assets in one place, rock bottom fees, nice access to margin, are things that we offer. A great user interface and a mobile app that, you know, frankly, their expectations are quite low. It's like, if I could get my balances to update, you know, in real time, that would just be... So we do that stuff. And there's obviously a lot of other things that are part of a comprehensive offering that we don't yet do, but we intend to do. For example, some people are surprised to hear we don't have trust accounts on Robinhood yet, which is a big thing.

53:39Of course, TradePMR does. That'll be sort of important. It'll be important.

53:43Downtown Josh Brown:As you come into RIA class today, you're going to want to do that. Yeah. So, you know, we're aware of all the things. And so we're thinking about it. How can we give the best of Robinhood to RIAs? and our customers, I think I have a deep appreciation for RIAs because a lot of our customers are entrepreneurs. I'm an entrepreneur. RIAs think of themselves as entrepreneurs. You're running a small business or a big business in your case. How can we make it as easy as possible to give you the best tools to succeed and align ourselves with our RIAs? I think the first thing that we can do very, very easily that we've done is make an economic impact.

54:24How can we take our lower cost of servicing and pass that along to lower fees to the advisors. And at the end of the day, lower fees and better economics to clients. And we actually like this because we feel like over time, since you guys are fiduciaries, if we can demonstrably show that you get better economics custodying at Robinhood, you'll sort of like be more and more incented to move activity to us. So we introduced the first of its kind RIA match for assets custody. I saw that.

54:56Downtown Josh Brown:How did that go? I don't know if you're sharing any actual data, but just directionally, was that positive? Well, I think it's certainly positive. The sales cycle for RIAs changing their custodian is certainly a little bit longer than a retail customer, which we're getting used to. But I think you should think of that as the beginning of our new approach. We're going to cut fees. We have a giant retail customer base, many of which are hungry for personal advice that we're going to plug in through the referral program. Referral program for advisors on your platform. You can send the investors who are asking for actual planning help to those advisors.

55:36Yeah. So we are cooking a lot and we are investing a lot in the space. And I think that if I think about the RIA business for us, just from a business perspective, I think that all things being equal, it should grow faster in terms of assets than our retail business. Because for the retail business, you kind of have two layers of compounding. Like we get more customers and those customers get wealthier over time, right? But in the advisory business, there's an additional one. We can serve more advisors. We get more advisors. Those advisors get more customers. Those customers increase their assets over time.

56:16So all things being equal, a mature, innovative RA custody business should grow assets and be a more effective asset capture vehicle than retail brokerage. And, you know, we know and I've talked you've probably talked to Rob about this. One thing that we really aligned on is that the opportunity and multi-generational financial services is a big one. There's going to be 120 trillion changing hands from older generations to younger. and I don't think any of our competitors are really thinking about this as an opportunity. But what we're doing is we're designing all of our products, including the future of RIA custody around the family experience.

57:00We want Robinhood to be better for you. The more of your family members and the more of your trusts and entities are on the platform. And that way, I think that the best way to have Robinhood as a business benefit from this is for everyone to already be on Robinhood. And actually, our oldest customers, the folks in the 70s and 80s that are using Robinhood are some of our happiest. Like, they love Robinhood. So I think that over time, you'll be surprised at how well we serve the customers that maybe you wouldn't think they would be serving.

57:34Downtown Josh Brown:Somebody said no RIA is going to move their whole customer base over to Robinhood. And my response was, well, wait two years. Nobody's got to move anyone anywhere because the customers are already going to be there. And that's a really big part of your strategy. You're going to have millions and millions of people who are already Robinhood native. They love the app. So if somebody can come on that platform and advise them there, they're thrilled. They don't want to leave. I don't think people appreciate this yet, but I think the smart RIAs are trying to figure this out. there's going to be a huge advantage to those that are first on the RA custody platform when we launch our referral platform.

58:14Because the one thing we're really good at is taking advantage of all the tools we have on user interface and experience to actually get people to engage with good content. So, you know, if you're among the first advisors that's willing to trust the platform when we launch referrals, I think, you know, the opportunity and the reward is going to be much bigger than people realize. And I think people are getting really excited about their referral program. And the advisor-facing offerings are going to get better at a much faster rate here than at any of our competitors. Because we've got so many advantages in terms of technology that we're going to increasingly bring to bear in the space.

58:58Downtown Josh Brown:I want to show you a funny graphic. Michael, explain what this is.

59:02Michael Batnick:So our friend, Michael Kitsis, made a financial advisor tech solutions map probably like, I don't know, 10 years ago or so. And there was like 70 companies, maybe. Now there is what, like 400? There is 15 categories. It is - Every one of these logos -

59:17Downtown Josh Brown:Unbelievable. Is a company, not a feature. An individual business that's selling technology to a wealth management firm like ours or to a Morgan Stanley or both. And there are hundreds of companies in different categories. We're not even on this chart, huh? No, no, no. I was going to say, this is your list of potential acquisitions. There might be five or 10 gems on here where it should not be a company. It should be a feature of a bigger platform. You've got Dropbox on this chart. I didn't make this chart, but I think Dropbox, I think you'll see like gigantic - Advisors store their files. But look at the investment data analytics.

59:56Downtown Josh Brown:There's, what is there, 30 logos under that? I mean - So, right, everything from Morningstar all the way down to like... Vlad, you have a lot of homework to do. 20 companies you've never heard of. Anyway, this is your roadmap. But if you want to acquire RIAs or at least start working with RIAs, they're all customers of these companies. And it might be a Trojan horse method to get them more accustomed to working with you. Well, I think this just shows me how big the space is. It's gigantic. How much opportunity and how much opportunity there is for us to simplify and cut costs because it must be annoying to have to deal with how many vendors you have.

1:00:35Downtown Josh Brown:Globally, wealth management's a trillion dollar, a hundred trillion dollar business. So it's a lot. That's a market I'd like to serve well. This is the last thing I promise, prediction markets. So I think this is a really cool thing. I think everybody's drunk. Hold on. I want to do the pro and the con. For me, the pro is I know everything and I know what's going to happen. And I'm really good. Can you believe this guy? I have bets that Jacob Elordi is going to win a nomination for best supporting actor in Frankenstein. This is what I'm busy with. No, I just think it's fun. I don't know that I'm going to launch a fund for other people to invest in my predictions.

1:01:16Downtown Josh Brown:I just think it's a lot of fun. But you've thought about it. Oh, I've thought about it. But you're super bullish. Michael thinks it's like, you think it's a fad? No, no, no. I'm super bull on the category, yes.

1:01:27Michael Batnick:So I'll give you the mic in a second. I think it's very cool. and I think it's fun. But I think the size, I don't think it's going to be nearly as big a market as did Tarek say from Calash say it's gonna be bigger than the equity market? Or am I making that up?

1:01:40Downtown Josh Brown:Well, I don't agree with that.

1:01:42Michael Batnick:I don't think it's gonna be close. I think it could be a big opportunity, but nowhere near the attention

1:01:46Downtown Josh Brown:that it's getting. The thing is they're not investments because they end. The thing happens or doesn't happen. Yeah, I think people will get bored. People will get bored with it. So assets is not the right way to look at it. Assets is wrong. I think in terms of number of markets and diversity of markets, it's already exceeded the number of stocks listed. So? So I think that the reason that matters is because I think stocks, trading of stocks, if you're an active trader, has some complexities to it. One, you don't exactly know how the inputs—let's say you understand a company really well like Tesla.

1:02:27You have a pretty good idea how many deliveries they're going to make, what their net income is going to be. It's not always straightforward to translate those inputs into what the stock price is going to move.

1:02:38Downtown Josh Brown:100%. It's not binary. And you don't know, even if you have the information, you don't know what the impact will be on the stock price. Also, exit criteria becomes complicated. When do I sell my position? You know, prediction markets kind of deal with that for you. And the other thing is you can specialize in lots more things. So, you know, there's prediction market traders that are experts in Fed funds rate, economic contracts, Oscars. Personally, I keep track of AI models and capabilities. So I'm a fan of those. And I feel like I kind of understand things. everyone can probably find at least one area that they understand things better than conventional wisdom.

1:03:27And I think that's an interesting opportunity. There's a data.

1:03:30Downtown Josh Brown:There's a data benefit to this, though, that I think trumps every positive aspect, which is I trust these more than I trust surveys and polls. 100 percent. Because people lie in surveys, people lie in polls, but they tell the truth when there's money on the line. And I think we've already seen a pretty remarkable situation with the presidential election. The prediction markets knew Trump was going to win, even when most of the polls said it was 50-50 coin toss up until a few days before the election. That was a ground zero that started it all. I think that was a presidential election. That was a massive moment.

1:04:05That was the first prediction market we listed.

1:04:07Michael Batnick:So I have two takes. Number one, I think the binary outcome of this is going to make the average retail participant a little bit bored. Wait a minute. I lost all my money, eventually they're going to get tired of losing all their money, even though someone won. Granted, I think for real pools of money, for institutional investors, for hedge funds, if there is enough liquidity, to Josh's point, you might be like, yeah, I think Nvidia is going to smash, but I don't know how the stocks can react because I don't know what's priced in. If you are a macro hedge fund and you want to bet on interest rates or currencies or whatever, and there is like, or a Fed funds rate or whatever, and there is a binary outcome of, I don't need to predict the derivative.

1:04:42Michael Batnick:I just, I want to make the prediction of yes or no. and there's enough pool and liquidity to do that, that's where I think - So it sounds like you agree with me. That's where I think the huge opportunity is, but I don't think it's going to be with like the average audience, the retail participant. Well, what we're seeing with the average retail participant is that prediction markets are the fastest growing business we've had. It's new. People love trading it. It's fun. Yeah, but usually things, I mean, we've launched a lot of new businesses. It went from zero to, we just announced 3 billion contracts in November.

1:05:16Michael Batnick:That is a lot of contracts. Which is$30 million in revenue. So that's over$300 million run rate in less than a year of operating. So I agree with all these things, but I think that it's much bigger than we thought. And we're still at the very beginning.

1:05:33Downtown Josh Brown:You're going to run into two things, and you don't have to have an answer for these today. Obviously, the gaming commissions at the various states that have actual casinos are probably looking at the prediction markets getting into sports or having already gotten into sports, seeing that as head-to-head competition. They're not happy about politics either. No. Oh, I bet. So that's one. You're going to have all these agencies and departments come out of the woodwork, which I'm sure you expect. That'll keep the public affairs people busy for a while and the lawyers. But then the other thing, insider trading.

1:06:09so if i know for sure that a company is going to get acquired or there's going to be an approval

1:06:18Downtown Josh Brown:of a drug or a certain shipment amount for teslas let's say and i'm not supposed to know this but i do yeah why would i bother with options and stocks i go right to a contract that lets me make that bet and we don't even have legislation for this on the books like what is insider trading in the prediction markets and is it even illegal uh it's it's like too early i think i think basically all the major platforms uh ban it um and yeah they've not i'm sure they do but what do you mean uh oh it's not permissible and in fact uh can you enforce it the same way that they have a mechanism to enforce it in the stock market absolutely yeah okay and actually one of the criticisms that the traditional gaming industry has is, well, you know, we know the right thing to do.

1:07:10We have all these controls. The financial industry has been dealing with market integrity for a long period of time. We have trade surveillance. Yeah, because this isn't a unique problem to sports. You could have some inside information about a company's earnings. And, you know, I think we've we've basically figured out mechanisms to surveil for that.

1:07:34Downtown Josh Brown:Well, they watch the options market. They see somebody that's never placed an options trade before buying out of the money calls the day before a stock goes up 20%. They're going to put the person in jail within a year. Right. They know where to look for it and what it looks like. So, I mean, there's all kinds of like offshore prediction markets, platforms that aren't regulated. But because these trades go into CFTC regulated entities, There's all kinds of like market surveillance infrastructure that goes into play. So I think it's an evolving space for sure. But yeah, the financial industry has dealt with exactly these types of challenges.

1:08:14So the idea that somehow we're at a disadvantage relative to literal casinos in doing market integrity seems kind of a silly argument.

1:08:24Michael Batnick:Because these prediction markets are so small, the volume. I went yesterday to look, will Giannis be traded before the deadline? And there was like$220 in there. Like literally, I would have moved the market if I bet a hundred bucks. So if you're going to bet a lot of money on an outcome, it's going to get flagged in two seconds.

1:08:38Downtown Josh Brown:Yeah. They'll find you relatively quickly because there are so few people trading some of these things. All right. We don't have to dwell on that. I want to say thank you so much for joining us today. I know we kept you a little bit longer than we promised, but our audience definitely appreciates hearing from you. And we love chatting with you. So I want to let people know that they should be following Robinhood.com for new developments and new things that you guys are launching. Anything big that we should be on the lookout for? Any big events coming up? There's a big event that we have on December 16th called Robinhood Presents Yes, No.

1:09:14It's going to focus on prediction markets and AI and what that means for the future of trading. and then we're going to do a bunch next year, including Synergy, which maybe you're familiar with. So look out for all the great things we're doing to serve RIAs. Should we come to that?

1:09:32Downtown Josh Brown:Should Michael and I come to that? I think you should. Where is it? Next year, I think it might be in Washington, D.C. Oh, it's easy for us. Yeah, but I'm not sure. I don't think it's been finalized. Vladtan, you are obviously iconic and you are taking a victory lap all over Wall Street. And we're happy for you. We're proud of you. Shout out to the whole Robin Hood community. Thank you so much for joining us. And guys, thank you for listening. Thank you for watching. And by all means, follow Robin Hood and get yourself up to speed on what's going on in the markets. All right, that's it from us this week.

1:10:08Downtown Josh Brown:We appreciate you. We'll talk to you soon. Bye.

1:10:14Bye. And so that is the intermission. We're going to take a quick break. Bye.

1:10:49Downtown Josh Brown:We'll see you next time. your summer at Columbia.com to spend more time outside and less time slathering on aloe lotion. You're welcome. Columbia. Engineered for whatever.