Bob Cortright is the CEO of fintech firm DriveWealth, which provides the fractional share trading technology that underpins several Robinhood-like do-it-yourself retail platforms. He argues that most of the later investors into the trade, the ones who caused GameStop’s price to peak, were motivated by the populist story. “Among a small group of investors, this absolutely was a populist revolt,” Cortright says. “The profits were less important than the moral aspects. There was a sense of ‘Just go get the man.’ Inequality has been a problem for a long time. This was a way to get back at it.”

These investors were likely more willing to incur some losses to make a political point, he notes.

Robinhood makes most of its money by selling order flow to major trading firms, like Citadel Securities, that act as market-makers in the trades posted on Robinhood’s platform. As it turns out, Citadel’s subsidiary Citadel LLC this year tried to bail out one prominent GameStop short seller, Melvin Capital, after the short squeeze cost it billions of dollars.

Some Robinhood customers caught up in the WallStreetBets frenzy cried foul, claiming that Robinhood was restricting trading to help Citadel. Those complaints culminated in lawsuits against the digital trading platform and protesters showing up at Robinhood’s Menlo Park, Calif., offices and the New York Stock Exchange in late January.

“Citadel wasn’t the bad guy. That narrative isn’t real,” says VanEck’s Lee. “They had a short position through their buyout of Melvin, but they made so much more money out of the trading going on in options and they’re making hundreds of millions of dollars on the volume of trade alone. They’re making the market, they’re paying Robinhood and others for order flow. They really don’t care if something goes up or down. They’re making enough money because people are trading.”

Both the wild swing in GameStop’s price and the restriction of trading by platforms like Robinhood have caught the eyes of the Securities and Exchange Commission and prominent politicians like Sen. Elizabeth Warren, Sen. Ted Cruz and Rep. Alexandria Ocasio-Cortez.

However, Robinhood’s action to limit trading in GameStop and other stocks promoted by WallStreetBets does not appear motivated by the Citadel Securities connection. Instead, Robinhood’s hand was forced by a capital call from its regulators requiring higher margin rates on certain trades.

When Robinhood lacked the cash on hand to meet these capital requirements, it was forced to throttle trading in stocks like GameStop promoted by WallStreetBets. “They didn’t have the money,” says Lee. “They were only able to put up $1.7 billion of that $3 billion margin call, so to account for the remaining $1.3 billion, they shut trading off on those names. It’s much more complicated and much more nuanced than the prevailing narrative.”

So what should advisors make of the GameStop craze?

It could be a symptom of greater changes in financial markets, says Brent Weiss, founder and chief evangelist of Facet Wealth, a tech-driven RIA. Weiss called on advisors to recognize three concurrent trends driving young and mass-affluent investors. One is decentralization, demonstrated by the rise of cryptocurrencies like Bitcoin. The next is democratization, best seen in the rise of Robinhood and other commission-free, simplified, do-it-yourself trading apps. And the last is distribution, emblematized by online trading communities like WallStreetBets.

“I think it’s wrong to say that do-it-yourself is the next big thing, just as it’s wrong to say to advisors that we have to tell our clients ‘no’ to all of this,” says Weiss. “Clients are now calling me for financial jam sessions. They don’t always want holistic financial planning all the time. They have a couple ideas, they want to talk them out and riff on them. This is an opportunity for us.”

Advisors will have to deal with more clients who want to take chances with a portion of their money, who want to be more hands-on with their financial lives, and who are able to access more sophisticated tools, Weiss says.

Cortright describes it as an opportunity to reach more potential clients with valuable financial literacy help. “Most of these people will grow out of it; they need to save for the future,” says Cortright. “Over time, they’ll get educated, they’ll get older, they’ll have needs like saving for retirement, and through those needs, they’ll see the importance of a well-balanced portfolio and planning.

“But this is exciting to them,” he adds.         

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