Robinhood’s Lessons For ETF Issuers

Ignoring retail investors opens the door to disruptors.

Reviewed by: Drew Voros
Edited by: Drew Voros

[ETF Pulse appears Mondays and Thursdays. Drew Voros is Editor-in-Chief of]

“At the end of the day, I fight for those who cannot fight for themselves. If that makes me an outlaw, so be it. I’ve been called worse.” — Robin Hood, circa 1400 England lore


Robinhood, the merry ole Nottingham-named brokerage firm that just went public is now worth $48 billion of Wall Street lunch money. There was no theft, just chump change left on the sidewalk, because Wall Street didn’t want to bother to stoop down to pick up the nickels and dimes.

Vladimir Tenev and Baiju Bhatt founded Robinhood in 2013, thinking they might be able to scoop up those nickels and dimes left by retail investors by offering free commissions and no minimum deposits.

So the very non-Wall Street Dynamic Duo easily walked right through the open castle gates, bringing neglected and dismissed retail traders and do-it-yourself investors who don’t consider a financial advisor … until they need tax and family estate planning from their well-researched trades and portfolio management you can learn at home.

Ignore Retail At Your Peril

The little startup from Menlo Park, 3,000 miles away from Wall Street, slowly kicked and crawled its way onto the radar of retail investors. It was a slow move onto those radars in the early years, but suddenly, eight years later, the firm has gone from a Silicon Valley pipedream to a $48 billion brokerage that’s disrupting the Old Guard gravy train, much like ETFs have done to mutual funds.

Robinhood’s success simply lay in providing easy and free access to the financial markets to retail investors with no trading dollar minimums or costs, and all the ETFs you would like—even cryptocurrencies, because that’s what the people want.

That’s something the Old Guard had seemingly no interest in doing, until recently, or until when Robinhood sprang into action in 2013. The idea of free commissions across the board for retail investors seemed fantastical back then, but hardly so today.

The dismantling of the fixed trading commissions of the pre-1975 era unleashed the beginning of the “race to zero” for trading commissions. But there was no race to zero by the Old Guard on Wall Street. It was more like a slow shuffle, pushed mostly by Charles Schwab, which went public as a brokerage 44 years ago, followed by E-Trade and TD Ameritrade.

E-Trade and the likes of TD Ameritrade, which now owns Scottrade, were haplessly labeled at the time as the new threat to the Wall Street Gravy Train. In reality, these disruptors were bringing a knife to a gunfight. Pre-2000, the commoner couldn’t access trading without paying something, no matter your online savvy or access. The Lords of Wall Street were still collecting a tidy sum.

A $50 commission to trade online back in the day was a steal. Today it’s highway robbery.

Old Wall Street Invented Order Flow Payments

Robinhood customers’ trade order flow is the main source of revenue for the firm. Market makers arbitrage your trade. Scary? It shouldn't be. Wall Street invented that—with worse intentions than free commissions. But that’s been acceptable, and for the most part, an understood trade-off for Robinhood clients for zero commissions and tight trading spreads.

And unlike most of Wall Street brokerages, Robinhood has been clear as day that it is paid for its trading order flow. The Old Guard invented payment flow to enhance the revenue stream from high commissions and fees for transferring your money to the brokerage and back. It just kept that revenue stream buried among the other brokerage skeletons.

Overlooking The Trees

One of the oddest wrinkles of the ETF industry—and particularly on the issuer side—is a steady beat of aversion away from retail investors. While marketing and focusing on the advisors and wealth managers, the ETF issuers are ignoring the trees in the forest.

We hear it on our side of the ETF media business: “We don’t want any retail, just advisors” for online events, which sometimes make sense, but is always underestimation of the biggest leg of growth currently carrying the ETF industry.

Today you can’t paint “retail investors” with any kind of broad brushstroke. They range in size from the kids on Robinhood to the Apple software engineers who are do-it-yourself multimillionaire investors from their company stocks and 401(k)s that they don’t touch.

“I think that the heavily indexed or benchmark approach to investing is ripe for change and I think that the retail investor, the individual investor, is actually leading the charge,” said Cathie Wood, Founder and CEO of Ark Invest, during the Cboe Exchanging Perspectives webinar back in March and reported on by CNBC.

Compliance Jitters Blur Adaptation

We don’t outlaw guns because people shoot themselves accidentally or not. The long lines for lottery tickets never put anybody upon a wall of worry that Americans dump some $100 billion a year in U.S. lottery sales. Maybe that’s because the state governments sell those tickets.

The fear of compliance and ignorant investors wandering into big losses is what I think is at the heart of why ETF issuers and much of Wall Street restrict marketing, advertising—and more importantly, product education to blue collar investors.

Unintended consequences of the “retail not welcome at our products” is that these investors simply find somewhere to invest, like Bitcoin, NBA Top Shot, NFT artwork, etc. More alternative, non-Wall Street investment products are being created every day.

When fools—big or small—and their money part ways, there is the assumption that something is wrong with the ETF product. That’s rarely the case. The products functioned properly. The investor didn’t know how to use the financial tool properly and got hurt—advisor, broker or DIY operator error, more likely.

Waking The Old Guard

Robinhood reached way back in history for its startup name. The disruptors of Nottingham Forest in circa 14th century are waking the Old Guard from its nap.

For ETF issuers, the retail crowd seems to be a love-them-or-leave-them affair. Many issuers like ARK do acknowledge and seek the retail investors.

And there are plenty of others such as ETF Managers Group, with its marijuana ETFMG Alternative Harvest ETF (MJ), topping $1.2 billion in assets under management; Roundhill Investments with its Roundhill Sports Betting & iGaming ETF (BETZ) with nearly $400 million in AUM in a little more than a year; and sleeper ETF hit of 2020, the U.S. Global Jets ETF (JETS) from U.S. Global Investors, which saw its AUM jump from $40 million in February 2020 to $3.2 billion, fueled by social media platforms like TikTok and YouTube.

If nothing else, ETF issuers with an aversion to the retail crowd need to study that class of investors more closely. They’re smarter than you may think.

Drew Voros can be reached at [email protected]

Drew Voros has nearly 30 years' experience in financial journalism. He was a longtime business editor for the Oakland Tribune and sister papers of the Bay Area News Group, and finance writer for the Hollywood trade publication Variety. Voros' past roles have also included editor-in-chief at and ETF Report.