Shares of Robinhood Markets have surged this year as investors back the company’s evolution and capitalize on a post-election surge in crypto enthusiasm. While its recently announced acquisition of TradePMR hasn’t significantly moved the stock price, wealth advisors and RIAs should take note of its long-term implications.
Robinhood’s planned $300 million acquisition of TradePMR signals its entry into the wealth management space, positioning it to provide more comprehensive services to existing clients while entering one of finance’s fastest-growing sectors: registered investment advisors.
“This acquisition bolsters Robinhood’s offerings, aligning them more closely with what legacy brokerages provide,” says Piper Sandler analyst Patrick Moley. It also sets the stage for Robinhood to compete with industry giants like Charles Schwab and Fidelity Investments, both dominant players in RIA custody.
TradePMR, a Gainesville, Florida-based custodian, delivers custody, technology, and portfolio management services to 350 financial advisory firms managing $40 billion in assets. While this is a fraction of the trillions managed by Schwab and Fidelity, TradePMR provides Robinhood with a foothold to challenge these incumbents.
However, Robinhood’s entry into the RIA sector won’t disrupt the industry overnight. Scaling TradePMR’s foundation will take time as Robinhood integrates the acquisition and addresses any gaps in its service offerings.
Robinhood’s strategy to compete in the RIA space will differ from its path to building a 24-million-strong base of retail investors. Known for its no-fee, user-friendly trading app, Robinhood rode the pandemic-era wave of first-time investors but faced criticism for gamification features and compliance lapses, which resulted in fines in 2021.
The Custody Challenge
Custodians like TradePMR and Schwab serve RIAs by holding client assets and providing a range of back-office services. For RIAs, switching custodians is a complex process involving extensive paperwork and the movement of multiple accounts, making custody a “sticky” business.
Robinhood faces the challenge of expanding its range of supported investment products and account types to fully integrate TradePMR into its platform. “The RIA business is all or nothing,” explains Jason Wenk, founder of startup custodian Altruist. “If you don’t support every account type a client has, you can’t win their assets.”
Altruist learned this lesson by initially offering 15 account types, which covered 85% of the market but failed to capture an equivalent share of assets. Today, Altruist supports about 50 account types and numerous securities to meet RIA demands.
Robinhood has started addressing gaps on the retail side but still lacks support for traditional mutual funds, a limitation that prevents customers from transferring legacy retirement assets. CEO Vlad Tenev acknowledged in October that adding mutual funds is a priority.
Clearing Operations
TradePMR currently partners with Wells Fargo Clearing Services for clearing, execution, and lending. While Robinhood and TradePMR intend to maintain this partnership initially, industry observers expect Robinhood, which has been self-clearing since 2018, to eventually integrate TradePMR RIAs into its system.
“Self-clearing is critical for controlling economics and user experience,” says Wenk. “The real value of acquiring TradePMR lies in understanding precisely what advisors need and building solutions for them.”
A Dual Opportunity
Expanding into the RIA market could generate two significant revenue streams for Robinhood. First, it could adopt a referral model similar to other custodians, charging RIAs a fee to connect their brokerage clients with professional advice. For instance, Schwab charges 25 basis points on the first $2 million of client assets referred to advisors.
RIAs see value in referral programs as a way to accelerate growth. TradePMR’s advisors could benefit from Robinhood’s 24 million retail clients, many of whom are in early wealth accumulation stages. According to Wolfe Research analyst Steven Chubak, this younger demographic—primarily millennials and Gen Z—represents a unique growth opportunity.
Vijay Raghavan, a senior analyst at Forrester, highlights Robinhood’s appeal to tech-savvy young investors. “Every advisor I talk to wants to know how to attract younger generations,” Raghavan says. Forrester’s research shows many Robinhood users are “validators,” who prefer making investment decisions independently but seek occasional guidance—an ideal profile for RIA services.
TradePMR founder Robb Baldwin echoes this sentiment. “Advisors constantly ask how to engage younger clients. The answer is to meet them where they are—on platforms like Robinhood,” Baldwin says.
Retention Benefits
TradePMR’s RIAs could also help Robinhood retain clients who might otherwise leave in search of financial advice. Many wealth management clients maintain separate self-directed brokerage accounts. “Having an offering like this allows Robinhood to keep those clients under its umbrella,” says Moley.
Robinhood’s November stock rally of 59% to $37.34 reflects growing investor confidence. With a market cap of $33 billion, compared to Schwab’s $151 billion, Robinhood’s valuation leaves room for growth. The TradePMR acquisition points to the next potential catalyst as Robinhood broadens its reach into the RIA space.
