Tuesday, February 9, 2021

Why I Will Be Switching From Robinhood To Fidelity

The decision of major brokers such as Robinhood to limit the trading of meme stocks (up to last week when Robinhood lifted all limitations on the trading of meme stocks) led to many p'ed off customers, with many leaving bad reviews on Google Play, and some even switching to other brokerage firms as a rebellion against Robinhood.

It was this development that prompted me to come to the decision to switch my investment holdings from Robinhood to Fidelity.

While I lean toward the side of these disgruntled customers, I personally don't share their risk tolerance and renting rather than ownership mentality toward stocks.

As I'll discuss below, my reasons to switch from Robinhood to Fidelity lie in the fact that Fidelity offers a much stronger platform for investment research (and it's free), Fidelity's margin rates basically discourage the use of margin (which is a plus in this case as I have really wanted to shore up my personal balance sheet even more than ever before despite the fact that I have leveraged Robinhood's 2.5% margin rate to boost my net annual dividend income and acquire high-quality dividend growth stocks), and Fidelity is a more sustainable platform in the long-term as compared to Robinhood.

Image result for fidelity logo Image Source: 1000logos

The First Reason: A Robust Research Platform

While I have enjoyed access to Morningstar's research reports via my Robinhood Gold membership for $5/month, the primary reason that I intend on switching to Fidelity is the fact that the broker offers free access to stock research from nearly two dozen third-party providers, including Thomson Reuters and Zacks.

Aside from Robinhood's Morningstar research reports for the $5/month fee that comes with Robinhood Gold, the platform lacks any meaningful research reports, which is a major downside IMO.

Fidelity will provide me with a great deal of information that I can refer to while conducting my own research all at a savings of my $5/month Robinhood Gold membership.

The Second Reason: The Switch Will Prompt Drastic Improvement In My Personal Balance Sheet

While my personal balance sheet only consists of roughly $2,700 in margin debt and $200 in credit card debt at the time of my writing this blog post against roughly $51,000 in assets, I have reverted to my previous view of margin in that I would rather own the entirety of my portfolio.

Since I will need to entirely pay down my margin to initiate my account transfer from Robinhood to Fidelity, this would serve the purpose of shoring up my personal balance sheet and transforming it from solid to rock solid.

Although it is unlikely that Robinhood will raise its margin rates from 2.5% in the foreseeable future due to the Federal Reserve's commitment to keeping rates near zero through 2023, it's just an added risk to my personal finances that rates could eventually rise or in a severe bear market, I could be issued a margin call (it would take a roughly 75% downturn in my portfolio at this time to activate a margin call, but crazier things have happened in the past).

Because Fidelity's margin rates are relatively high, a switch to Fidelity as my broker would essentially eliminate the temptation of the use of margin in my portfolio, which would also eliminate the risk of being a forced seller in a severe bear market.

Given that I'm doing relatively well from a financial standpoint for my age, I view it as foolish to risk my financial well-being for minimal financial gain.

The Third Reason: I Believe Fidelity Is More Sustainable Over The Long-Term

Going back to my introduction that alluded to the fallout from Robinhood's decision to briefly eliminate the trading of meme stocks, my final reason to switch to Fidelity ultimately comes down to the fact that Robinhood has received several hundred thousand 1 star reviews on Google Play from disgruntled customers.

While I don't believe that Robinhood will go bankrupt in the near future as a result of the backlash of its meme stock decisions (though the damage to its reputation will be significant in at least the near future IMO), I feel more comfortable with Fidelity's track record since its founding in 1946 than I do with Robinhood's track record since its founding in 2013.

Concluding Thoughts: 

While I will always be grateful to Robinhood for being my first broker, the company's limited research platform, tempting margin rates, and near-term damage to its reputation led to my decision to switch to Fidelity in a couple months.

I believe that my switch to Fidelity once I fully deleverage my Robinhood margin debt will allow me access to a much stronger research platform, disincentivize the future use of margin, and provide me with more peace of mind with the sustainability of my broker.


Have you ever switched brokers in your investing career? If so, how many times have you switched brokers and are you pleased with your current broker or are you considering a switch?

Thanks for your readership and I look forward to your comments in the comment section below!

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