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19 Duke L. & Tech. Rev. 43 (2020-2021)
Consumers Beware: How Are Your Favorite "Free" Investment Apps Regulated?

handle is hein.journals/dltr19 and id is 43 raw text is: CONSUMERS BEWARE: HOW ARE YOUR FAVORITE FREE INVESTMENT APPS REGULATED? SIQI WANGT ABSTRACT The proliferation of free or low-cost investment apps has disrupted the financial industry in recent years. Major brokerage firms have been pressured to go to zero fees due to intense competition from their fintech counterparts. While these apps have extended their products and services to those underserved by traditional brokers, some of their practices raise consumer protection concerns. Namely, the practice of payment for order flow, which helps fintech startups sustain a zero-commission model, could lead to subordinating customers' best interest to market makers who acquire their retail orders from these fintech startups. Further, cash management accounts, newly popular among fintech startups with an ambition to compete with chartered banks raise questions about the use of idle customer assets and the protections afforded to these accounts in case of liquidation. This Note considers the products and services of these investment apps in the context of existing U.S. regulations and regulators for broker-dealers, investment advisors, and chartered banks. To illustrate this, this Note analyzes the potential consumer financial protection issues arising out of these fintech-based investment platforms' distinctive business models and the services they provide. INTRODUCTION Robinhood, Acorns, Betterment, Stash, and other free or low-cost investment apps make it easier than ever for every smartphone user to invest on the go, with zero experience and little more than pocket change. These kinds of apps are exploding right now, appealing mainly to young people because of their low barriers to entry, automation and familiar tap- swipe-buy, Tinder-style interface.2 For almost all of these apps, all users have to do is first download the app, then set up a profile that lets the company behind the app know the best kinds of investment suitable for the user's risk averseness and return expectations, and finally connect a bank account to give access to some funds and be done. t Duke University School of Law, J.D. expected, May 2021; Peking University, L.L.B., July 2018. 2 Jennifer Jolly, Micro Investing Apps Have Been Popular during the Stock Market's Rise. Do They Work When It Dives? USA TODAY (Mar. 8, 2018), https://www.usatoday.com/story/tech/columnist/2018/03/08/micro-investing- apps -have-been-popular-during-stock-markets-rise-do-they-work-when- dives/390787002/.

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