5 signs you can trust an investment app with your money (2024)

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• It's important to make sure you can trust an investment app with your money before you start using it.
• The most trustworthy apps offer educational resources, customer support, and transparency about fees.
• The best apps also act as fiduciaries and provide SIPC protection on your investments.
• Consult with an advisor to make sure you are doing everything to grow your wealth in this challenging time »

Investing app Robinhood, along with TD Ameritrade and Webull, temporarily halted sales of Gamestop and other surging stocks last week, which has led to some major user backlash.

If you've been investing with Robinhood or another app, you might be wondering: How do I know I can trust this app with my money? Most importantly, you want to be able to trust that an investment app is secure, won't collapse, and you'll always be able to access your money. But you might also consider how you feel about the company's business model and ethics — for example, is it OK if the app is selling your data?

The most trustworthy investing apps have a lot in common. Generally, these apps are:

1. Transparent about their fee structure
2. Registered with the SEC and/or FINRA
3. Helpful when you need to make a decision
4. Eager to help customers
5. Rated highly by the Better Business Bureau

Robinhood actually checks many of these boxes, though it currently has an F rating from the Better Business Bureau, in part due to a large number of customer complaints. But even if an investing app meets all the criteria below, know that some things — such as app outages and trading restrictions — are ultimately beyond users' control.

The best way to prevent any curveballs with investing apps is to avoid risky day-trading tactics. Instead, create a long-term investment strategy to build your wealth over time that won't be affected by an outage or short-term glitch. And if you're wary of using investment apps like Robinhood, remember that you don't need them to start trading — you can bypass them completely and open a brokerage account (or use a brokerage's app) instead.

Here are some more details on what makes an investment app trustworthy, including an explanation of why apps sell your data.

1. It's transparent about how it makes money

Trustworthy investment apps are typically transparent both about how they charge fees and how their advisors earn money. You may have to do some digging to find this information, but most investment apps and brokerages post fee disclosure documents on their website.

For instance, Fidelity provides publicly accessible brokerage commission and fee schedule documents on its site. The brokerage also offers a representatives' compensation disclosure document that details how each professional at the company makes money.

It's also important to note that investment apps usually aren't holding your money; instead, they generally facilitate trades and provide investment advice to guide you.

2. It's registered with the SEC and/or FINRA

The US Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) are like the federal government of all publicly registered investment companies and brokerages. All SEC-registered apps have to abide by certain financial requirements, including acting as fiduciaries that put your best interests first.

If your investment app doesn't provide this information on its website, you can typically find your company by doing a firm search on advisorinfo.sec.gov or brokercheck.finra.org.

And then there's the securities investor protection corporation (SIPC). The SIPC is a non-profit corporation that basically protects your investments and cash against loss. It covers up to $500,000 of your cash and securities, with a $250,000 limit for cash. Most trustworthy apps are registered with SIPC, so you shouldn't have a problem getting insurance on your investment accounts.

3. It helps you make smart decisions

According to Dan Egan, director of behavioral finance and investing at Betterment — which it should be noted is an investing app itself — the trustworthy investing apps offer advice on stock picking (the general consensus is usually: don't), account types, and financial planning.

It's not uncommon for brokerages, automated advisors, and other investment apps to offer educational tools like online webinars, newsletters, investment calculators, and online courses. Many investment apps also offer market insights to help you stay informed on the latest investment news.

Regardless of whether you're using a brokerage for DIY trading or an automated investing app that handles the work for you, it's useful to have resources that can help you sharpen your understanding of the investments you've put your money into.

4. It offers customer support

It's important that your investment platform offers some, if not multiple, forms of customer support. Many brokerages offer a live chat option, email support, and phone support during regular business hours.

If you're using a self-directed brokerage account rather than an automated investment app, this is arguably even more important since you're handling all of the trades on your own. Customer service can be instrumental in circ*mstances like power outages or when you're making specialty security trades.

5. It has a high Better Business Bureau rating

Another way to dive deeper into an investment app's background and overall performance is by searching the company on the Better Business Bureau's website. The Better Business Bureau is a private company that strives to advance marketplace trust between buyers and sellers. It also offers its services to consumers in the US, Canada, and Mexico.

The BBB analyzes companies by looking at things like government actions against the company, advertising reviews, customer complaints, customer reviews, licensing, and more. The bureau rates companies using letter grades. For instance, Charles Schwab has an A+, while Fundrise has an A-.

As a rule of thumb, it's generally safer to exercise caution with companies that have earned a C rating or lower.

Can you trust an app that sells your data?

Several investment apps — including Robinhood, TD Ameritrade, Charles Schwab, Webull, and E*TRADE — make money through a process called payment for order flow. With PFOF, brokerages and investment apps direct customers' trades through third-party services. The third party pays the brokerage or the investment app a fee in return for getting to fulfill the orders.

Essentially, these apps are selling your order data to third parties for a profit. These third parties function as a midpoint between your app and the stock exchange, so they have great control over how much you'll pay for shares. PFOF is common among investment apps that charge $0 commissions or extremely low fees.

While the practice of payment for order flow is currently under scrutiny for creating potential conflicts of interest, it's important to note that this business practice doesn't compromise the security of your funds. Instead, it primarily dictates the price you'll pay for investment shares. It's ultimately up to you to decide whether or not you think this makes an app trustworthy.

Should you use an investment app?

There are generally three ways to invest: human financial advisors, automated investment apps (robo-advisors), and online brokerages. But if you're thinking of using an app to invest, it's important to note that all investment apps aren't the same.

For instance, apps like Webull and Robinhood only allow active trading, but investment apps like Ellevest and Wealthfront provide long-term, automated investment management for hands-off investors. Some investing apps offer human advisor access, but this is usually only available as an add-on to online brokerage or automated investing platform accounts.

Whether you should use an app to invest depends on your own situation, and whether there's an app available that provides the experience you're looking for. Experts generally advise against day trading in favor of passive, long-term strategies as a safe way to build your wealth over time, but there's an app for just about every investment strategy you might want to pursue.

You should only invest through an app if you're comfortable without access to the traditional face-to-face support of a financial advisor. If you're curious about apps but not willing to give up personalized support, the great thing about investing is that you don't have to limit yourself to one option. You can trade on your own and utilize the guidance of a financial advisor or automated investment app.

Rickie Houston is a wealth-building reporter at Personal Finance Insider who covers investing, brokerage, and wealth-building products.