Could Robinhood's IPO Access Platform Level the Financial Playing Field For Retail Investors?

When it comes to the world of finance, retail investors rarely get to experience a level playing field with their institutional counterparts. However, with new inclusive platforms like Robinhood’s IPO Access portal, could we soon see an investment landscape that’s truly fair and available to all? 

Initial public offerings represent an excellent opportunity for investors to buy into a company before they go public to be listed on a stock exchange. However, for smaller individual investors, it’s traditionally been a difficult form of investing to gain access to. 

When IPOs are devised, underwriters consult with the company to work out the basic terms and structure of the offering before trading starts. This will include the percentage of shares allocated to institutions and to institutional investors alike. However, because underwriters believe that institutional investors have the resources to buy significant amounts of IPO shares, take on the financial risk, and hold those shares over the long term, initial public offering terms tend to broadly favor institutions rather than individual retail investors. 

However, this may be about to change, as Robinhood, an investing platform that intends to “democratize finance for all,” has announced its groundbreaking new feature, called ‘IPO Access.’ This function has been developed to counter Wall Street’s favoring of institutional inventors or high net worth individuals when it comes to initial public offerings and is set to help provide retail investors access to companies before their share prices surge upon listing. 

“We’re starting to roll out IPO Access, a new product that will give you the opportunity to buy shares of companies at their IPO price, before trading on public exchanges,” Robinhood posted on its website blog in May. “With IPO Access, you can now participate in upcoming IPOs with no account minimums.”

The App of Choice for Retail Investors

Although it’s been an app that’s rarely strayed from controversy in 2021, Robinhood appears dedicated to its pledge of making finance and the world of investing more accessible to all. 

The app found itself in hot water in the wake of the GameStop short squeeze in January of this year after the app limited the actions of users around the stock. Later on, Wall Street stalwarts Warren Buffett and Charlie Munger both dismissed the retail investing app as a ‘gambling’ platform rather than a serious vehicle for investing. 

However, Robinhood has clearly found favor with its target audience of more casual retail investors. 

(Image: BusinessOfApps)

Fascinatingly, Robinhood’s average account size sits at around $3,500 - just a fraction of its online brokerage counterparts. Although the size of user accounts may not seem significant, it’s clear that the investment app has become one of the world’s favorite platforms to invest small savings and spare change. 

(Image: Brave New Coin)

Here, we can see that Robinhood has been the most popular app to download by some margin since 2019 - with interest spiking during the initial outbreak of the Covid-19 pandemic and in the immediate aftermath of the GameStop squeeze. 

According to data gathered by Charles Schwab, the pandemic led to a new wave of retail investors entering the stock market - many of whom appear to be besotted with Robinhood’s format over its rivals. 

Based on an analysis of around 500 investors, Charles Schwab noted that 15% of current retail investors started out in 2020 - dubbing this new industry player the ‘generation investor.’ 

“A big part of this growth is Generation Investor — the large number of people who are bound together not by their birth years but by when they got started in their investing journey — who are now on a path to ownership and reaching their financial goals,” Jonathan Craig, Charles Schwab senior executive vice president, explained to CNBC. 

Pathway to the IPO Boom

Another significant event that appears to have been driven by the Covid-19 pandemic revolves around the unprecedented rise of initial public offerings. As some businesses struggled during the health crisis, others thrived. It’s the companies that experienced a year of significant growth throughout 2020 that are seeking to capitalize on it in IPO listings. 

(Image: Seeking Alpha)

As we can see in the chart above, global IPO proceeds in quarter one of 2021 have more than tripled that of any other first quarter across the past decade - surpassing levels that we haven’t seen since the height of the dotcom boom in 2000. 

This significant event brings the matter of financial inclusivity and the quality of work done by Robinhood to level playing fields into a fresh light. 

At a time when interest in IPOs is reaching a fever pitch, it seems reductive to deprive a whole market of investors access to such a significant event due to the size of their accounts or household assets. Although Robinhood isn’t a perfect investing app, its work in making initial public offerings accessible to all investors should be commended as we work towards a more financially inclusive future.