By Andrew Welsch

Robinhood Markets has long been known for its free trading app. Now, it would like to manage customers' investments on their behalf. The company unveiled its new robo-advisor Wednesday night at a San Francisco event called "Robinhood Presents: The Lost City of Gold." The company hopes that low fees and the allure of actively managed portfolios that include individual stocks will help it attract more customers and their investing dollars. Most robo-advisors have met with limited commercial success and there has been rapid consolidation among them in recent years.

Robinhood Strategies, as the new robo is called, has an annual management fee of 0.25% of assets, which compares to roughly 1% for traditional full-service wealth management. For Robinhood Gold subscribers, the company will cap that fee at $250 annually. Robinhood charges a $50 annual subscription fee for Gold membership, which grants customers additional perks and discounts.

The company also announced a new banking service Wednesday evening that will be available this fall. Because both services have tie-ins with Robinhood's Gold subscription service, it may boost the appeal of becoming a paid subscriber.

The company's robo portfolios will be actively managed and can include exchange-traded funds and single stock positions, which Robinhood executives hope will make the offering stand out compared with other robo-advisors.

"We think we have an edge with that," says Steph Guild, president of Robinhood Asset Management and senior director of investment strategy at Robinhood. She says the company has developed a proprietary approach toward managing single stocks in portfolios. Combining ETFs with individual stocks that Robinhood's investment team thinks will do well can help it achieve the right risk/return profile for customers, she says.

Robo stocks. Single stocks can't comprise more than 50% of a customer's equity allocation, Guild says. There are also additional limits and criteria for single stocks, she adds. Customers will have the ability to omit a select number of stocks to help keep their portfolio aligned with their preferences.

For now, the company is only using U.S.-listed stocks. Robinhood isn't including crypto in Robinhood Strategies portfolios. Guild says it may do so in the future.

In addition to portfolio benefits, behavioral finance is another reason for including individual stocks, she says. "When you include single names, the client is more engaged in what they are invested in. They know the companies, they ask more questions, and they relate it to their overall life. That's a positive thing."

The company is adding features within its app that show performance, overall asset allocation, and other details. It will also offer audio explanations of market and portfolio dynamics.

Robinhood Strategies is immediately available to all Gold customers and will be made available to non-Gold customers beginning in April.

In launching a robo-advisor, Robinhood is more firmly entering the wealth management sector. It recently acquired TradePMR, a custodian for registered investment advisors. The new robo also means Robinhood competes more directly with large financial institutions such as Charles Schwab and Fidelity as well as independent robo-advisors such as Betterment and Wealthfront.

Robinhood executives say they chose to build their own robo rather than acquire one because they want to better control the user experience and technology. Even with its low fee and discount for Gold subscribers, Robinhood's robo can be profitable once it achieves sufficient scale, Guild says. "It creates an economy of scale that leaves a yield for us."

To help jump-start its robo's growth, the company is pulling a page out of its matching bonuses playbook. For instance, Robinhood is offering Gold members a 1% transfer bonus of up to $500 and a 1% deposit boost for non-Gold members up to $250.

Although some robo start-ups have closed or sold to larger competitors in recent years, a few have achieved significant scale. Betterment, one of the original robos, has more than $50 billion in assets. The company charges an annual 0.25% fee for its basic service and 0.65% for its premium service. Vanguard and Schwab operate two of the largest robo-advisors.

Banking on the way. A year ago Robinhood unveiled its Gold credit card. Now it's hoping to build on that by launching a new banking service this fall. The company says Robinhood Banking will offer clients a private banking experience that would otherwise be reserved for the ultra wealthy.

"This isn't for a niche. This is for the mass market," says Deepak Rao, general manager and vice president of Robinhood Money. Rao is also a co-founder of credit card start-up X1, which Robinhood bought in 2023.

The bank offering, which is exclusive to Robinhood Gold members, includes a 4% annual percentage yield on savings, which Rao says is variable, but "it will always be industry leading."

Robinhood Banking also provides access to private banking services such as estate planning and tax advice; up to $2.5 million in FDIC insurance; as well as perks and discounts on sporting events and members-only vacation clubs. "It's about the feeling," Rao says. "We don't want someone to think, 'oh this isn't for me.' No, it's for everyone."

Robinhood Banking also includes the ability to have cash delivered because Robinhood, as an online brokerage firm, has no bricks-and-mortar bank branches. "It isn't like food delivery," Rao says. "It's a courier service. They typically deliver much more valuable things, like legal documents, house keys, and so on."

The new product launches bring the company a step closer to CEO Vlad Tenev's goal of transforming Robinhood from a simple brokerage app into a one-stop shop for every customer's financial need. The company now offers cryptocurrency, brokerage, wealth management, and, soon, banking. It has yet to dip its toes into the massive mortgage marketplace.

Rao says Robinhood wants to offer more kinds of lending, such as portfolio lines of credit and possibly home-equity loans.

New AI tool. The Menlo Park, Calif.-based company also previewed a coming new feature: an artificial intelligence investment tool called Robinhood Cortex. The company says Cortex will provide real-time analysis and insights to help investors better identify investment opportunities and keep abreast of the latest market moving news.

"The goal is to put an AI powered research assistant in your pocket to help you with your self-directed portfolio," says Abhishek Fatehpuria, senior director of brokerage product at Robinhood.

Fatehpuria says Cortex will help investors understand why a stock is rising or falling on a given day. It can offer insights about price signals, technicals, market news, analyst reports, and more, he says. Cortex can also simplify trading processes and help investors learn new trading strategies.

Write to Andrew Welsch at andrew.welsch@barrons.com

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March 26, 2025 21:30 ET (01:30 GMT)

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