Robinhood Markets announced on Wednesday that it has agreed to acquire TradePMR, taking a fresh shot at the much larger Charles Schwab with its entry into the investment advisory space. Robinhood stock popped to a multiyear high amid a Street-leading price-target hike.
TradePMR, a custodial and portfolio management platform, serves about 400 Registered Investment Advisor (RIA) firms, with more than $40 billion in assets under administration.
Charles Schwab, the nation's largest RIA custodian, served more than 13,000 RIAs as of November 2021. That number is likely to have grown since then. Robinhood's move encroaches upon Schwab's RIA advisory bastion after the upstart financial services company targeted other Schwab businesses, including brokerage and banking.
Typically, RIAs serve wealthy individuals and institutional investors.
Millennials Seek Advice, Wealth Transfer Looms
"The needs of Robinhood customers are evolving, and they are seeking advice on how to build and manage their growing portfolios," the company said in a blog post. The TradePMR platform will connect "financial advisors to a new generation of investors," Robinhood added.
Robinhood cited an estimated $84 trillion in wealth transfer over the next two decades, a transition that should benefit its core customers. The company said Wednesday that about 75% of those customers are Gen Z and millennials, which means they range in age from around 12 to 43.
In 2015, Robinhood disrupted traditional online brokers by introducing zero-fee trades via a slick trading app. The company began to roll out banking and cash management services three years later. On Wednesday, Robinhood called the $7 trillion RIA market it's poised to enter, via the TradePMR purchase, "one of the fastest-growing areas in wealth management."
The estimated $300 million cash-and-stock deal is set to close in the first half of 2025.
Robinhood Stock, Charles Schwab Stock
HOOD stock shows a market capitalization of $32.1 billion. Schwab's market capitalization is $145.51 billion.
Shares of Robinhood climbed 2.4%, to 36.08, in Wednesday's stock market action. Robinhood stock hit a three-year high intraday, extending its big post-earnings and postelection rally before paring gains. Charles Schwab stock added 0.3%.
Interactive Brokers, a leading online broker and smaller RIA custodian, gained 1.3%, making a new high intraday.
Growing RIA Market, Advisory Services
On Wednesday, Bernstein analysts raised their Robinhood price target to a Street-high $51 from $30. The 70% hike set the target almost 42% above where HOOD stock traded on Wednesday.
Robinhood stock has already more than doubled so far in 2024. But Bernstein said it sees more upside potential. Its analysts said that they expect Robinhood to be a major beneficiary of cryptocurrency regulatory tailwinds. Looser crypto rules are expected to come under incoming President Donald Trump.
Analysts at JMP Securities said they were not surprised by the TradePMR acquisition, after previously calling the RIA custodial space a complementary area for Robinhood. The RIA market is growing with long-term secular tailwinds, while Robinhood tries to expand its reach with wealthier customers, they said. The firm has an outperform rating on Robinhood stock with a price target of $40.
Keefe Bruyette analyst Kyle Voigt said the acquisition is likely to be financially immaterial in the near term, but could help to fill out Robinhood's advice solutions.
For the week so far, Robinhood stock is up 11%.
