Commission-free brokerage Public rolled out a strong attempt at a viral ad campaign on Tuesday with none other than the power ballad maestro Michael Bolton. In a video, the Bolton and Public took square aim at competitor Robinhood.
Bolton, who rose to the top of the Billboard charts in the late 1980s and has since leaned into the comedy of his image and pops up regularly in advertisements, sings about “breaking up” with your brokerage platform, a clear allusion to Robinhood, which has recently been in under intense scrutiny — from users, regulators and Congress — amid the GameStop volatility.
“Hey there, people of Twitter, it’s me, Michael Bolton,” the singer, who’s been featured previously in ads for Audible.com and Honda, says to the camera. “I know you’ve been disappointed by your stock brokerage. You might be thinking: How can I ever trust again?”
In the song, Bolton sings about seeing things on Reddit and “order flow,” and because of that has to find somebody new.
“Tell me who you sell my trades to, ohhhhh,” Bolton croons.
— Public.com (@public) February 23, 2021
This is the lynchpin of the campaign against Robinhood: Market makers like Citadel Securities pay Robinhood for the right (opportunity) to execute trades on the platform, often for a better price than they can get on exchanges. This practice is called “payment for order flow.”
The reason they’ll pay is because when these market makers execute orders, they get a lot of information about the trading of retail investors that may give high-frequency traders advantages. According to some studies, the market is negatively affected by this.
Public is different from your old broker, Bolton says in the ad: “They don’t sell your trades to third parties.” Public’s big hook is that it would like to be a combination of a brokerage platform and social network, in which portfolios are shared and examined by other users.
In a recent announcement on Feb. 1, the company said it would stop participating in payment for order flow.
Public’s investment in this viral marketing campaign suggests it smells blood in the water and looks to capture as many Robinhood clients with ruffled feathers as possible by spreading the message that Robinhood is a bad broker.
Robinhood currently has 13 million accounts, CEO Vlad Tenev told Congress in testimony on Feb. 18. Public, which launched a year and a half ago, has 1 million. A spokesperson told Yahoo Finance that on Jan. 28, the day Robinhood barred customers from purchasing shares of GameStop and some other stocks, the company saw a 20-fold increase in signups compared to their average growth rate of around 30% month over month.
(Though Public declined to share their precise growth, the February post’s language said that the “community” had doubled in size over the prior few weeks.)
Payment for order flow is something many brokerage firms do and see considerable revenue from, and is one of the reasons why zero-commission trading has become possible.
Public, unlike Robinhood, does not offer margin, meaning that two of the major tools zero-commission brokerages use — fees from market makers and margin lending — are off the table. (A margin loan allows an investor to borrow against the value of securities he or she already owns.)
Instead, Public makes money on interest from cash accounts as well as by lending out securities its users own to short sellers.
Lending securities to short sellers is a common practice like payment for order flow, and the practice allows one of these entities to borrow a stock to short. The practice is built into some trading platforms so many users may not realize that their shares are lent. (Some brokers do this, some don’t, and some offer clients a cut of the proceeds.)
Perhaps surprisingly, this has not blown up into a “scandal” the way payment for order flow has (it was a big part of last week’s Congressional hearing), considering public attitudes to short sellers after the GameStop affair. (During the GameStop short squeeze, some investors asked their brokers not to lend out their shares to short sellers.)
Public, however, will honor requests for their shares not to be lent out, a spokesperson said. All of this debate about ways to make money while still being able to provide commission-free trading has changed considerably from the influx of new investors questioning the status quo. If none of this works out, Public says it might end up with a subscription fee for a premium product.