Robinhood, the pioneer of fee-free trading, has become the financial wunderkind of the last decade. Launched in 2014, with $3 million in venture capital, it now has over 13 million users and has raised $2.2 billion in funding. Robinhood completely disrupted the discount broker market, forcing many incumbents to change their business model in an attempt to keep up.
How did nobody see it coming? Perhaps because traditional finance is just that – traditional. It tends to take entrepreneurs with out-of-the-box thinking to disrupt the industry, as we’ve seen with the rise of “challenger banks” and even cryptocurrencies.
Now, a keen new startup, Stirlingshire Investments, is looking to take aim at the full-service broker-dealer model, currently dominated by global investment banks, including Goldman Sachs, JPMorgan Chase, and Citigroup, among others. However, whereas Robinhood’s first target was millennial investors and the discount firms, Stirlingshire Investments looks to build a stellar network of broker representatives. How? By making them an offer, they can’t refuse.
Stirlingshire will be the first broker-dealer to offer all of its reps a 100% commission payout, allowing them to keep every dollar they make in commission. Contrast this with the global investment banks, and they’d be looking at around 35 or 40%, perhaps rising to 60% at private banks. Even those brokers bringing in over $3 million a year can’t expect to pocket all their commission, so Stirlingshire is aiming to attract the very best reps on the market. All from the comfort of home as all brokers will be WFH.
It will also operate a commission recapture model, making Stirlingshire’s product easier for reps to sell. Fifty percent of gross profits the firm captures (same revenue streams as RH) are rebated back to the customer, in proportion to the contribution of customer’s fees to the profit. They expect to start operations in Q2 2021.
Stirlingshire Investment’s profit model is similar to Robinhood’s in that it will earn revenues from cash balances, rebates, volume rebates, margin interest, and stock loans.
From the customer perspective, Stirlingshire will solve a problem that the full-service brokerage industry tends to overlook – that of unauthorized trading. Often, a broker will make financial decisions on behalf of their clients that they believe in the client’s interests but doesn’t necessarily have the approval to buy or sell. Stirlingshire Investments is developing an app whereby the broker can provide an active portfolio management service, but orders would be managed via push notifications to a client’s phone, so they always have the final word.
Ultimately, the firm aims to ensure that clients retain full control but still obtain all the benefits of an active portfolio manager. Clients only pay commissions on profits, ensuring that the broker has every incentive to manage the portfolio effectively so they can benefit from their 100% commission payout.
Stirlingshire Investments is the brainchild of Steven Woods, an entrepreneur hailing from Missouri. Having dropped out of high school, Woods went on to be a Wall Street broker for eleven years and is now set to become an alumnus of Harvard Business School’s General Management Program.
The company is currently in the process of obtaining FINRA registration, which should be finalized early in 2021. In the meantime, Woods is looking to onboard a talented network of reps that will be ready to start once FINRA approves that Stirlingshire Investments can begin to service clients. Brokers wishing to join can continue to do business with their existing client network through legacy products.
It’s early days for Stirlingshire Investments. However, the digital revolution has proven to be extremely disruptive for the notoriously staid financial services industry to date. The full-service brokerage model has yet to feel the full impact. If Stirlingshire can establish itself as the go-to company for eager brokers, perhaps it will be on track to emulate the success of its predecessors like Robinhood.
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