Last month, Robinhood Markets announced its entrance into the wealth management space with its plan to acquire TradePMR, the Florida-based technology and custodial services provider for registered investment advisors with over $40 billion in assets under administration across 350 firms.
TradePMR CEO Robb Baldwin and Robinhood Chief Brokerage Officer Steve Quirk discussed the deal in more detail at the MarketCounsel Summit in Las Vegas. The deal came together because Robinhood had self-directed clients who were asking if the company had someone who could advise them on their investments. TradePMR was looking for a way to reach next-generation investors, and Robinhood, with an average age of early 30s for its customer base, had them.
“What we’ve learned over time is in order to be able to be able to accommodate all their needs as they grow, start having kids and families, etc., aspirational targets are, most of them don’t want to be just self-directed,” Quirk said. “They also want the ability to be able to ask for help in some portion of their assets, or in some cases a larger portion of their assets. We really hadn’t had a solution to provide them when they ask for that.”
Baldwin said the two companies will create a referral program, giving TradePMR’s RIA clients access to Robinhood customers through a joint tech platform. That referral program will be different from those currently existing at the big custodians.
“Lots of RIAs that are large are large because of the referral programs, and those referral programs have been diminished over time,” he said. “We really feel like it’s time to kick this into high gear because here’s the next generation that we’re all trying to reach. They’re all here in one spot.”
The existing referral program model “was built with personal relationship with mind, meeting in a conference room face-to-face, etc. COVID changed everything about how we all work already,” Baldwin said.
They will build a referral program that’s more innovative than competitors’ and more digitally focused, as the next-gen investor operates digitally, he said.
Quirk, who spent 13 years at TD Ameritrade, said they hope to replicate what TD did with its referral program, with advisors clamoring to get in. It’s estimated that $124 trillion in assets will transfer to the next generation.
“The recipients of that are the customers of Robinhood,” he said. “It’s really powerful to think about where this goes over the course of the next decade or two and how powerful this can become for any advisors that are part of it.”
The technology is another key element of the deal, Baldwin said. Most custodian and brokerage back-office systems are built on legacy technology.
“When you deep dive into those systems, you realize they’re all on mainframe computers; they’re all built in the '70s and '80s,” he said.
Many firms have been cobblestoning things on top of these legacy platforms to try to make them more efficient. “This is what we’ve been doing for decades,” he said.
By contrast, Robinhood built its own back-office system on Amazon Web Services.
“To me that’s a huge lightbulb because when you’re in the technology business at all, you realize it’s really tough to do integrations with old systems,” Baldwin said. “It’s really tough to grow your business and scale with old systems.”
Baldwin believes this will be a game-changer going forward, and that will be a big differentiator for firms that are not on legacy systems. Just recently, we have started to see more wealthtech startups creating products within six months.
“We’re starting to see a revolution take place again in our industry from a technology standpoint that I think, again, is going to take us to a whole different level,” Baldwin said. “And if we’re going to have those kinds of technologies and work with them efficiently, we have to have great back offices. And they have it.”
