By Andrew Welsch

For more than a decade, Robinhood has been a disruptive force in the brokerage industry, helping to bring trading commissions to zero. Now, the company is poised to try to bring a similar level of disruption to the financial advice business.

New documents filed with the Securities and Exchange Commission indicate Robinhood's digital advice offering will boast an investment minimum of just $50 and charge an annual fee of just 0.25% on the net portfolio value of a client's account. The documents, which are drafts and subject to change, were filed by Robinhood Asset Management $(RAM)$, a subsidiary of Robinhood Markets. That division had $0 under management as of Dec. 19, according to the documents.

A representative for Robinhood declined to comment.

Some details about the forthcoming offering, which is not yet available to Robinhood's nearly 25 million customers, remain unknown and Robinhood could make changes prior to launch. That said, the filings suggest that Robinhood intends to emphasize low costs and accessibility. The proposed minimum and fees are at the low end of other available robo-advisor offerings.

Client portfolios managed by Robinhood will consist of exchange-traded funds and may include individual stocks if the client maintains a portfolio value of at least $500 and depending on the client's investor profile, according to the documents. "The portfolios offered are constructed from a limited number of investments, none of which are proprietary products," a draft of the customer relationship summary form states.

Clients with an active Robinhood Gold subscription will only be charged the advisory fee on portfolio values between $0 and $100,000, according to the document. The company's Gold subscription service currently offers Robinhood customers a variety of benefits, including access to discounts. It costs $5 monthly or $50 annually, according to the company's website.

Advice clients will be required to participate in a cash sweep program, which moves, or "sweeps," clients' uninvested cash into deposit accounts at partner banks. "The sweep program is the only option available for a RAM client's uninvested cash balance," the documents state.

Robinhood's filing with the SEC says its advice offering's methodology will be "grounded in the benefits of diversification and low costs, and behavioral finance analysis." The company's investment strategy team will rely on proprietary tools and analysis as well as third-party companies for research and other services, the filing states.

No crypto, for now. Although Robinhood offers customers direct access to cryptocurrencies as well as crypto ETFs, these products may not make it into the company's discretionary advice offering. "RAM does not offer investment advice or utilize the products and services available through Robinhood Crypto, though RAM may mention crypto or cryptocurrency matters with its clients," the document states.

Custody of advice clients' assets will be maintained by Robinhood Securities, the company's in-house custodian.

Robinhood has signaled for some time its desire to get into wealth management, which makes strategic sense for the brokerage firm and mirrors the gamut of offerings available at competitors such as Charles Schwab and Fidelity.

At the company's investor day in December, CEO Vlad Tenev said wealth management was one of three focus areas for the company and emphasized the need to round out Robinhood's product suite. "I think we can offer a much higher level of service, but at a self-serve price point," he said. "That is an exciting opportunity."

He also touted artificial intelligence as a way to do more for clients, though the documents filed with the SEC make no mention of AI.

Last year, Robinhood bought an investment research company that uses AI to develop customized investment strategies. It's also in the midst of acquiring TradePMR, a custodian for registered investment advisory firms. Robinhood has said it plans to create a referral program to connect its clients with human advisors who use TradePMR as its custodian.

The robo-advisor offering would fill in a gap between investors who want to manage their own investments and customers who want advice but either aren't willing to pay higher fees or don't have enough assets to meet an advisor's minimum requirement. Some customers may also want both self-directed and advised accounts.

RAM's suggested annual fee is well below the 1% human advisors charge, but in line with other robo-advisors who offer automated portfolio services. Wealthfront and Betterment, for instance, both charge 0.25%. Wealthfront has a $500 minimum for investment accounts while Betterment has none.

Charles Schwab's basic robo-advisor doesn't have an advisory fee, but does have a $5,000 minimum. Schwab offers access to human advisors at additional cost. In September, Vanguard slashed the investment minimum for its pure digital robo-advisor to just $100 from $3,000. Vanguard Digital Advisor charges a net advisory fee of approximately 0.15% for an all-index portfolio.

Robo-advisors have filled a niche within the wealth management industry, offering professionally managed portfolios at affordable prices. But they haven't replaced human advisors as was once feared, suggesting there are limits to how many customers will opt for a robo-advisor over a human.

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

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 05, 2025 15:48 ET (20:48 GMT)

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