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.
Siqi Wang, Consumers Beware: How Are Your Favorite "Free" Investment Apps Regulated?, 19 Duke Law & Technology Review 43-58 (2021)