Acorns vs Robinhood Could be the End of PFOF

Robinhood (HOOD) was overvalued when it went public last year at $38. Share prices hit their peak in August and they’ve been dropping like a stone since then. The Hood was at $14.90 pre-market this morning and it’s going down again today. Have you sold it yet? If not, you might want to do that today and invest in Acorns Grow (PACX). They’re poised for a breakout in 2022.

For those of you who still think “free” trading at Robinhood will win the day, think again. First off, it’s not free. Robinhood’s payment for order flow (PFOF) business model inflates share prices. Do you really believe that the market makers buying those orders are giving Robinhood the best price? Investors are getting a haircut on every share they buy.

PFOF Has Been Under Fire for Three Decades

Thirty years ago, Bernie Madoff, who developed PFOF, had a heated argument at the SEC with Doug Atkin, CEO of the trading platform Instinet. Doug asked, “If PFOF is so good for investors, why are brokers keeping it a secret?” Good question. No one asked it when TD Ameritrade launched “free trading” in 2019. Robinhood was fined $70 million for failing to disclose it.

Atkins words ring loud and clear today. We all know what happened to Madoff. In 2021, new SEC Chair Gary Gensler said he’s considering a ban on PFOF. Senator Pat Toomey, a ranking member of the Senate Banking Committee, attempted to pass a bill limiting his power to do it. Democrats blocked the legislation. I guess that lobbyist money was wasted.

Ban or no ban, Acorns Grow is safe. They have a subscription model business that generated $54 million in revenue last year. Robinhood posted a net loss of $1.32 billion in the third quarter. They’re leaking faster than they can bail. Add in any regulation on their business model and say goodbye. Their nineteen million monthly active users will be trading on Acorns.

2021 SPAC Deals to Watch in 2022  

Acorns SPAC merger with Pioneer Merger Corp means they’re still trading under the PACX ticker symbol. That will change later this year when they switch to OAKS, making them easier to find. The merged entity went public at $10 and opened at $9.87 this morning. Expect it go up significantly when they launch trading in the next few months.

Another SPAC deal from last year, the merger between SoFi (SOFI) and Social Capital Hedosophia Holdings, is in a similar position. Despite double-digit losses this year, the stock is still trading at roughly $13.00 a share. Two factors will make that go up: the end of federal student loan forbearance and a national bank charter they’re expected to get in Q4.

Generally, I’m not a fan of special acquisition mergers. They almost never generate good returns for retail investors. My philosophy is to wait until the dust settles, the same approach that I take with IPOs. Acorns/Pioneer has settled and is in a good position to grab market share. SoFi will surge when student loan payments become due again. That’s my input for today.




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About the Author

Acorns vs Robinhood Could be the End of PFOF

Kevin Flynn

A former financial professional and founder of AdvisorScale Financial Writing, Kevin lives in Leominster, Massachusetts with his wife Evelyn, two cats, and nine wonderful grandchildren.