Why Michael Bolton is crooning over online brokerages

Michael Bolton, the undisputed king of the unrequited love ballad, wants retail investors to break up with their discount brokerages. 

He’s betting a social-media-driven upstart, called Public.com, is the next big thing in online investing. The New York-based company landed $220 million in funding in February with a valuation of $1.2 billion, and high-profile investors have already sunk money into the project, including actor Will Smith, NFL defensive end J.J. Watt and former professional skateboarder Tony Hawk.

The latest remake of his 1983 “How am I supposed to live without you” asks retail investors to ditch commission-free brokerages that make money from payment for order flow, where firms get discounts for routing through high-speed traders. Robinhood makes most of its money by sending customer trades to the highest bidder, and CEO Vlad Tenev has repeatedly said the practice is legal, regulated and properly disclosed.

“I could hardly believe it, what I saw on Reddit today,” Bolton sings in the accompanying music video. “They told me about order flow, so I Googled, now I know. I think I gotta find somebody new.”

The advertisement is just the latest ploy in an industry war over the throngs of retail investors that have flocked to digital wealth platforms over the past year. Morgan Stanley, for example, opened more new accounts in the first two months of 2021 than in the last two quarters of 2020 combined, according to its chief finance officer. The bank’s digital investment offering routed more than 2 million trades per day. Other online brokerages have also welcomed millions of new customers stuck at home during lockdowns. 

Some of the biggest names in wealth management are diving into the feeding frenzy. Fidelity Investments hosted an hour-long Reddit discussion to reach out to those very customers just days after users discussed dropping Robinhood for suspending trades in so-called meme stocks in January. More than 1,300 comments from Redditors flooded the group.

There will certainly be repercussions to the massive new account openings. If the GameStop saga has taught us one thing, it’s that retail investors are zeroed in on the stock market and are clearly not afraid of persistent volatility. These online platforms have opened up access to retail investors, and they have arguably treated those apps like miniature slot machines. In fact, investors took on massive risks during the short squeeze, and many novice investors were left holding the bag.

While access to the markets is generally good for investors, it could also put a strain on overall financial literacy. Some experts have criticized online apps, like Robinhood, for its use of gamification strategies that attract and manipulate investors, many of whom are new to the markets, into excessive trades. The Massachusetts Securities Division filed a complaint in December.

The spike in account openings may also leave clients less inclined to seek out professional advice. The do-it-yourselfers generally don’t delegate investment decisions, but the ease and popularity of these platforms has made investing almost alarmingly simple. 

For now, Mr. Time, Love and Tenderness, as he’s known to fans, has the perfect song to get investors over their breakup with their discount brokerages — and he’s got just the app to trade on instead.

“Tell me, how am I supposed to trade without you?” Bolton sings in the memorable hook. “I think it’s time I must be moving on.”