Broker or bookie? Robinhood's mix of betting, investing concerns advisors

Robinhood has the name-recognition and the ear of young investors, but is it really a threat to RIA advisors, who pride themselves on being held to a fiduciary standard? What we hear from independent advisors is that while not a direct competitor for assets, concerns linger over the app’s wider impact on young people’s attitude to money and the strategy of merging betting and wealth management.
 

Financial advisors are grappling with cross-industry disruption from Robinhood, the popular stock-trading app for millennial and Gen Z investors that has branched into robo-advising, RIA custody services and controversial sports prediction markets.

“I think Robinhood is trying to do too much,” said Andrew Herzog of The Watchman Group, a Texas-based RIA. “I'm just leery of putting those two things together—betting markets and calling yourself some sort of financial app. That's a dangerous mix.” 

Herzog, 35, is the same age as the reported median age of Robinhood users. The Watchman Group has an AUM of $500 million serving mass affluent and ultra-high-net-worth clients, none of whom are active on Robinhood, according to Herzog.

In late 2024, Robinhood announced its $300 million acquisition of RIA custodial platform TradePMR. Robinhood has since planned new subscription-based wealth management services and a robo-advisor platform. Its app also offered event prediction markets around March Madness college basketball games, which regulators have investigated as being a potential form of sports betting. 

“When you're Robinhood and you're trying to mingle the two, I think that's going to be very dangerous for millennials and Gen Z, who go in there and contribute to an IRA, and then they think, ‘let me just hop over to the betting markets and gamble $50 here’,” Herzog said. “You could have stuck that 50 bucks into your IRA instead, or put it into a traditional brokerage account and bought some stock or ETF that could theoretically generate value. There's a little bit more logic and reasoning than let me just throw something at the wall and see if I win big.”

The SEC fined Robinhood $45 million for securities law violations that occurred between 2018 and 2022. Robinhood’s regulatory rap sheet also includes a $70 million fine and restitutions from Finra in 2021, a $65 million payment to settle an SEC investigation into stock orders in 2020, and two small payments to regulators in California and Massachusetts in 2024.

“What is a concern is that Robinhood has shown a complete and utter disdain for fiduciary advice,” said Knut A. Rostad, president of the Institute for the Fiduciary Standard. “It's getting into the robo advice business. I don't know how that plays out, but Robinhood doesn't have a clue what fiduciary advice means based on their own record.”

Rostad said he views Robinhood to be “very insignificant at best” in terms of its RIA services appeal to high-net-worth clients. “I'd be shocked if [Robinhood] were to become a serious contender of custodians in this country, at least in the short term,” added Herzog. “RIAs that focus on millennials and people that aren't wealthy yet, sure, maybe they can use Robinhood, and it fits with the market they’re trying to appeal to.”

Dave Settanni, chief financial officer at the New York-based RIA Settanni Financial with $300 million in AUM, recognizes a positive impact Robinhood has had on wealth management while also acknowledging his “concern” of the platform merging sports betting and investing. 

“I appreciate the disruption. I believe it was because of Robinhood that we have no more trading commissions like at Schwab and Fidelity and the like. So I believe that was because Robinhood made their trade zero, the rest followed. So I do see the competition as good for the industry,” said Settanni. “I don't believe that robo advisors are going to replace traditional advisors in the near term. I do believe they will capture funds, and especially from more like millennials and younger with Gen Y or Gen Z.”

Themes ETFs chief revenue officer Paul Marino previously described a “sea change in mentality” in America’s embrace of gambling, particularly since the Supreme Court’s 2018 decision to overturn the PASPA ban on sports betting. Sports betting has since become legal in nearly 40 states, with regulated U.S. sportsbooks reaching $13.7 billion in revenue last year.

Robinhood first tried to offer prediction markets in its app to let users wager on the outcome of the Super Bowl in February, but stopped that rollout after a request from the U.S. Commodity Futures Trading Commission. The emergence of U.S. prediction markets, which some regulators challenge as being a form of gambling, has been led by Kalshi which has let users bet on predicting the outcome of sports, elections, weather patterns and more. 

“I'm a financial planner, but I do like to gamble,” said Herzog. “I used the Kalshi app a little while ago and that was extremely addictive. I had to delete it because I lost $200. I'm happy to say that's where I cut it off and said, you know what, this is Vegas in my pocket so this could be really dangerous for me.”

Both Herzog and Settanni said that gambling allocations are not normally discussed with clients at their RIAs. “If I do see a client enjoys partaking in gambling activities, I will kind of remind them to make sure this is something within your entertainment budget, that this doesn't affect your overall financial plan,” said Settanni. 

Even before Robinhood’s 2025 debut of prediction markets, the financial app came under fire for its alleged usage of gamification strategies to attract customers. The app has been criticized for celebratory animations such as dropping confetti when a user trades a stock.

“I'm only aware of that being in Robinhood,” said Herzog. “We use Schwab, and there's no sounds. There's no flashy confetti or thumbs up or ‘congratulations, you just bought a stock.’” 

As Robinhood continues its push into RIA and wealth management services, the company sees "societal value" in prediction markets. 

“Our view is we want to list all prediction markets,” Robinhood CEO Vlad Tenev told The Verge. “We believe that they have societal value in addition to any value they have as a trading asset for our traders. We think they’re a better source of information.”