The Securities and Exchange Commission is granting Robinhood Financial some regulatory relief in implementing Trump Accounts by lifting the typical mandate to deliver a Customer Relationship Summary to clients.
Specifically, the SEC will offer no-action relief and “not recommend enforcement action” if Robinhood “does not deliver Form CRS to parents, legal guardians or individuals authorized by the United States Department of the Treasury who open Trump Accounts on behalf of eligible individuals.”
In a statement about the no-action relief, SEC Chair Paul Atkins claimed that “critical investor protections remain in place,” and that “Trump Accounts present a historic opportunity to change the course of the lives of the next generation by helping Americans save and invest for the future.”
Trump Accounts were created in last year’s tax bill as an investment vehicle for children, allowing parents, employers and others to deposit money and let it grow over time, akin to an individual retirement account.
According to the Internal Revenue Service, the Account’s pilot program offering $1,000 will be open to children born from 2025 through 2028 (running concurrently with President Donald Trump’s second term in office). Last year, Michael Dell of Dell Technologies and his wife, Susan, announced they were donating $6.25 billion to help fund the first year of the Trump Accounts.
In early April, Robinhood announced it would be the brokerage and initial trustee for the program, working in tandem with BNY, which is serving as the financial agent. According to Robinhood, the firm will “develop and operate the infrastructure” for Trump Accounts, including tech needs and customer support.
According to reporting from The Street, the initial market reaction was strong. However, the rise temporarily cooled after the company told investors it would spend an additional $100 million on building and operating the infrastructure. In a subsequent Wall Street Journal interview, Robinhood CEO Vlad Tenev said the firm was acting as a “government subcontractor,” and expected the deal to be profitable for the firm while operating at a “cost plus model.”
According to the SEC’s letter approving no-action relief for Robinhood, the Division of Trading Markets wouldn’t recommend enforcement actions related to agency rules mandating that advisors must deliver “to retail investors a relationship summary disclosing certain information about the firm.”
Robinhood’s letter requesting no-action relief (dated May 5) lays out its case for foregoing the typical compliance requirement. In the letter, Robinhood Counsel John Markle said the CRS shouldn’t apply to Trump Accounts because they “at least initially, do not create the kind of relationship with retail investors” that Form CRS is intended to address.
“Trump Accounts are structured as non-advisory, non-discretionary accounts limited to investments in broad-based index funds, with no associated account-level fees, compensation or material conflicts of interest of the type Form CRS is designed to address,” Markle wrote.
Instead, Markle claims the delivery of Robinhood’s Form CRS to Trump Account clients “could introduce confusion or misleading inferences.”
Markle writes that the firm will provide disclosures “tailored” to the Trump Accounts, including explanations of the account’s “limited investment scope,” as well as “plain English descriptions of the absence of account-level fees, advice and additional services,” among other aspects.
In a statement to Wealth Management, a Robinhood spokesperson said the Trump Accounts would be “transformational for future generations of Americans,” and said the firm was proud to act “as sole initial trustee” along with BNY as the designated financial agent.
“As we said in our letter to the SEC, Trump Accounts are subject to statutory restrictions that materially limit account features in a way that does not create the kind of relationship with retail investors that Form CRS was designed to address,” the spokesperson said. “In fact, providing Form CRS to Trump Account holders could cause unnecessary confusion. Robinhood will provide relevant disclosures to Trump Account holders that will outline Trump Accounts’ scope, account-level fees and more.”
The SEC declined to comment beyond Atkins’ statement.
Max Schatzow, a partner with RIA Lawyers, said that the “relief made a lot of sense” to him. According to Schatzow, if the firm were required to deliver the Form CRS to Trump Account holders, client would receive a description of the firm’s brokerage and advisory services. The Trump Account might be a small part of an amended Form CRS, but he said the rest could wind up inapplicable to the relationship.
“The delivery of Robinhood’s Form CRS could actually have the opposite effect of providing an investor with sufficient information to make an informed decision in determining to hire Robinhood in connection with these accounts,” he said.
However, Corey Frayer, the director of investor protection with Consumer Federation of America and a former senior policy advisor under former SEC Chair Gary Gensler, argued that it was “indefensible to call a two-page disclosure to investors a burden,” and argued that even if some disclosures on a CRS are inapplicable, it doesn’t mean they all are.
“The other issue is if the administration is going to give Robinhood the seal of approval on administering these accounts, it’s more important that investors have the disclosures about that relationship,” Frayer said. “Because otherwise it’s reasonable for them to think there’s something special to Robinhood’s investor protection.”
To Frayer, there was “no reason” to suspend the disclosure in ways that would apply to any other customer relationship.
“The customer relationship summary is a disclosure about a relationship. No one denies that these customers have a relationship with Robinhood,” he said. “Therefore, you can’t argue that a customer relationship summary disclosure is inapplicable to this customer relationship.”
Trump Accounts will open for deposits on July 4. According to the IRS, the program is open to “a child who has not turned age 18 before the end of the calendar year in which the election is made and has a valid Social Security number.”
