Aligning with our community
This last week was a historic moment for retail investing. Notably, it has shed an unprecedented amount of light on the discussion around “if you’re not paying for the product, you are the product.”
It seems that everyone has been focused on democratization — but at the cost of transparency.
Since the inception of this company, we have said that the reason most people don’t participate in the stock market is not because of commission fees, but rather because of a lack of financial literacy. This was literally the first slide of our pitch deck.
Where do you go after zero commission?¹
We’ve given a lot of thought to the future of our industry and have come to the conclusion that most players have been following each other — without actual leadership. We were part of that. We started off with zero commission, accepting it as the standard of the industry — and in turn, we participated in Payment for Order Flow (PFOF). This is a practice where brokerages are paid to route orders to market makers for trade execution, creating a potential conflict of interest between brokerage and customer.
To do the right thing for our customers, we have to lead the industry with first principles thinking, and proper values.
Public will stop participating in Payment for Order Flow and introduce tipping.
To align our incentives with those of our members, we will stop participating in the practice of PFOF and instead introduce a tipping feature² on trades. By doing this, we can remove this conflict of interest from our business model.
Trades will remain commission-free and tipping is entirely optional. Members of the Public.com community can freely decide if they’d like to leave a tip to help pay for the cost of executing their trades. The reality is that there is no such thing as free trades.
We have notified our clearing firm that we want to be off the “PFOF rails,” and we started the process of getting that done on Saturday, Jan. 30. With the help of our clearing firm, Apex, we will route all orders directly to exchanges (e.g. Nasdaq and the NYSE)¹.
Direct routing to the exchanges is more expensive,² and therefore we’re turning what used to be a revenue stream (PFOF) into a cost center and we’re optimistic that the difference will be offset by the optional tipping feature. This process of transitioning to exchange execution may take a few weeks, and we’ll share updates on Twitter.
Let’s be clear, we are still a business. We need to make money, pay people’s salaries, and make our shareholders happy. If we succeed, we hope that one day, Public.com can be publicly traded as well, so that anyone can be an owner of this company and benefit from its success.
A core principle at Public is that “feedback comes from a place of care.” It’s about understanding that feedback is a gift, especially if we’re all aligned towards the same goal. We hope this change to our business model will achieve more alignment, and that you, our members, will continue to give us the gift of feedback (we’re always listening at hello@public.com and @public).
The foundation of this company is built on the idea of bringing the stock market to the public. It has become abundantly clear to us that staying true to our mission requires that our incentives align more closely with those of our community members. Transparency is a core pillar of building trust, and we think it’s important that we live up to our name.
Join us ✊💙
Leif, Jannick & the entire Public team
1: “Zero-commission” or “commission-free” means $0 commission for Open to the Public Investing, Inc. self-directed individual brokerage accounts that trade U.S. listed securities via mobile device. Other fees may apply. See our Fee Schedule for more information.
2: Tipping is one of a few ways that Public makes money. For more information, please see How does Public Make Money?
3: We primarily route our customer orders to the exchanges. We also route to Alternative Trading Systems (or “ATSs”) in cases where an order will get a better price on the ATS than any lit exchange. ATSs are not market makers; ATSs match buyers and sellers much like the exchanges do, whereas market makers fill customer orders out of their own inventory (a process known as “internalization”). We don’t accept PFOF or rebates from ATSs. We always have our members’ best interests in mind, which is why we don’t accept PFOF and we’ll execute your order in the way that gets you the best pricing.
