M1Finance Review
  • Commissions and Fees
  • Ease of Use
  • Investment Options
  • Performance
  • Support
3.9

Summary

A good robo-advisor could make a huge difference when it comes to stock trading. M1Finance could be that good robo-advisor you’ve been looking for. With loads of features that allow you to take your portfolio into your own hands, M1Finance’s popularity is only growing.

About M1 Finance

M1 Finance is a unique robo-advisory platform that enables investors to take a larger role in the construction and management of their portfolios. A do-it-yourself (DIY) robo-advisory platform is an oxymoron as most are structured to minimize direct involvement with portfolio content, since humans tend to emotionally over react (panic) on headlines and market volatility. Additionally, M1 Finance also invests directly in stocks using fractional share purchases up to 1/1000th of a stock as well as exchange-traded-funds (ETFs).  

Most robo-advisors tend to be very rigid in terms of manual portfolio creation since human discretionary investing and market timing can backfire. M1 Finance assumes investors can keep a cool head and places investors in the driver’s seat. This is great for seasoned investors but could be disastrous for newbies.

History

M1 Finance was launched by Brian Barnes out of Chicago, IL. His brainchild was to create a platform that would empower self-directed investors frustrated with the lack of accountability on Wall Street as retail investors were constantly mislead and overcharged for transactions. He references the book “Where Are The Customers’ Yachts” which points out that the brokerage industry and works thrive consistently regardless of how well clients make out. The 2008 financial meltdown was the turning point where Barnes’ disillusionment drove his mettle to rollout an automated investment platform as a tool for investors to take control of their financial destiny powered by cutting edge algorithmic innovations that would handle the tedious legwork and enable investors to stay invested.

M1Finance Portfolio Pie Chart

How M1 Finance Works

M1 Finance allows users the option of selecting pre-built portfolios categorized by themes and sectors or create their own portfolios using stocks. It falls under the category of robo-advisors like Wealthsimple, Betterment, and Acorns.

Portfolios are called ‘pies’ and ‘slices’ are the stocks that comprise them. The users select the target allocations per slice and then let the platform construct the pie during market hours by purchasing fractional shares. Investors can choose to auto-invest as well as set-up a funding schedule. Auto-dividend re-investment and auto re-balancing are also available.

M1 Finance Pies 2

Unlike other robo-advisory services, this platform doesn’t ask financial questions to create a user financial profile, instead it assumes that users have the experience to know their own risk tolerance levels. This is a do-it-yourself robo-broker. M1 Finance does go out of its way to steer investors towards recommending pre-built pies that are suitable to the individual. Newbies are best to start with these pies in the beginning as there are dozens to choose from.  

Account Requirements

M1 Finance is only available for U.S. residents of at least 18-years of age. The minimum starting balance is $100.

M1 Finance Pricing and Fees

M1 Finance is free to use. There are no management fees and trades are commission-free. M1 Finance doesn’t allow employer-based 401k retirement plans and outside assets to be transferred.  They allow taxable investment accounts and traditional, Roth, individual and joint IRAs set-up on the platform.

I appreciated that M1 Finance’s CEO Brian Barnes went out of his way to write a blog post about how the company makes money. As most diligent traders and investors know, the term “free” usually comes with a catch and many investors were surprised to learn how companies like Robinhood make money. While M1 Finance follows the same practices as most brokers, their transparency is refreshing.

The company makes its money from interest on cash, lending securities, lending money, payment for order flow, and membership fees. Realistically, none of these should have noticeable impacts on the casual investors who the app was designed for.

M1 Plus Membership

The M1 Plus premium membership costs $125-per year but is priced at a discounted $50 for the first-year enrollment fee. Members get access to digital banking services through its M1 Plus program. This includes an interest-bearing checking account (M1 Spend) earning 25X the national average at 1.5% APY and 17X on the savings account. M1 Plus members also receive the M1 Plus Visa Tungsten metal debit card that comes with a 1% cash back feature and 0.25% discounts on M1 Borrow.

Indirect Fees

For investors opting to include ETFs in their pies, keep in mind these carry separate management fees aka expense ratios. Passive domestic and global benchmark ETFs tend to carrier annual expense ratios ranging from 0.04%-to-0.25%. These fees are out of M1 Finance’s hands, so they need to be considered, especially when selecting pre-built theme-based pies.

M1Finance Stocks For Pie

M1 Finance Platform

M1 Finance can be accessed online and through mobile devices using Android or iOS. They raised the stakes in the robo-broker industry by eliminating management fees and making the platform completely free, except for M1 Plus membership.

The platform is very basic as you would expect for a service that is focused on simplicity. This type of platform is ideal for traders and investors who prefer ease-of-use to advanced functionality.

M1Finance Div Yield

M1 Finance Investing Tools

M1 Finance is a do-it-yourself platform that enables investors to do basic research on the underlying stocks. However, there’s limited depth in terms of charting or detailed research reports. Self-directed investors will have to do their own homework to generate their own insights and rationale for investments. That said, that’s pretty much the purpose of M1 Finance. It appears that the company’s goal is to make investing simpler for casual investors. 

M1 Finance does have a Blog with compelling articles relating to finance and investing.

  M1Finance Add Stock To Pie

Portfolios

Investors can construct and customize their own portfolio pies by selecting from over 6,000 stock slices and their allocation percentages. M1 Finance provides nearly 100 pre-built portfolio pies ranging from Technology to Green-themed, Real Estate or Stocks and Bonds. Investors have a choice every step of the way.

M1 Finance has some of the most diverse portfolios you will find from any robo advisory service. Unlike other services, these portfolios are not limited solely to ETFs. Investors can build a portfolio using both ETF’s and stocks. M1 Finance does a good job of creating even splits by selling fractional shares.

Here’s how it works. If your portfolio has $1000 and you want to build a “pie” with 10% of AAPL’s stock (currently ~$200/share), M1 would allow you to buy half a share for $100. This is an exciting feature for two key reasons.

First, it allows investors with smaller accounts to buy any stocks they like. You no longer need a couple grand to become an Amazon shareholder.

Second, the fractional shares allow for an impressive level of diversification You could literally split your portfolio across hundreds of stocks and ETF’s, regardless of your portfolio size.

  M1Finance Prebuilt Pie Charts

Performance

Depending on the portfolio composition, performance will vary greatly between individual investors due to the customization. M1 Finance expert portfolios incorporate the principles of Modern Portfolio Theory and manage to diversify investments with stocks and ETFs when applicable to the theme of the portfolio.

Rebalancing

When individual assets exceed the selected target allocation percentages, M1 Finance will reduce the position by selling shares and buying shares of stocks or assets that are underweighted.  It will sell-off overweight slices and buy underweight slices. Fractional shares enable precision rebalancing.

Auto-Investing  

M1 Finance will auto-invest funds whenever the cash balance surpasses the $10 threshold. Users can opt to increase or decrease that level. Here’s where the benefits of automation shine as human investors can get emotional or lazy if they must be reminded (or persuaded) to invest weekly. The platform enables investing schedules that are completely customizable and automated.

Tax-Efficient

When withdrawing assets, M1 Finance will sell positions that are overweight past threshold ranges with no taxable gains first then sell stocks with long-term then short-term capital gains to minimize the tax liability. While there is no active tax-loss harvesting, this tax efficient strategy is viable towards lowering potential tax liabilities.

M1 Borrow: Portfolio Line-of-Credit Borrowing

M1 Finance outfits investors with taxable accounts over $25,000 with M1 Borrow portfolio line-of-credit. This enables investors to borrow up to 35% of the value of their portfolio at significantly low rates typically below 4% interest. There’s not paperwork or applications to fill out, it’s just a matter of clicking a few tabs.

M1 Finance Comparisons

M1 Finance is literally a hybrid of Robinhood (free-commissions), Betterment/Wealthfront (robo-advisor) with online digital banking services (M1 Spend). While it doesn’t have the round-up function of Acorns, it has automated portfolio rebalancing, tax-efficient trading and expert portfolios with themes ranging from socially responsible (Green) to industry/sector-based or macro global.

M1 Finance is easily one of top robo advisors we’ve reviewed. The pie model allows for incredible flexibility and diversification. On top of that, the platform is very easy to use.

Key Differentiators

M1 Finance combines the automation of a robo-brokerage with the flexibility of do-it-yourself participation for self-directed investors. Unlike traditional robo-advisories, M1 Finance charges no management fees or commissions on trades. The only fees come from interest on borrowed funds with the M1 Borrow or if you upgrade to M1 Plus membership for digital banking services.   

M1 Finance also offers a competitive rate for savings accounts and the ability to purchase fractional shares (a feature that is not offered by many robo-advisors).

Trustworthiness

M1 Finance deposits are FDIC-insured up to $250,000 and up to $500,000 on securities as a member of SIPC. Their clearing firm also has additional insurance in the event SIPC limits get exhausted. All data is protected with 4096-bit Military-grade encryption. They also offer two-factor authentication.

As of March 2019, M1 Finance had $500 million in assets under management and was growing at a rate of $3 million AUM daily. While this number is relatively small compared to the company’s competitors, it’s no chump change. With over $500 million in AUM, M1 Finance is more than just a hot investing app. The company is serious about becoming an all-in-one solution for money management.

The company also goes out of their way to point out that they have “best-in-class” security.

Who is M1 Finance Best Suited For?

M1 caters to more experienced and self-directed investors that want to be in control of their investment decisions (investment pies) but desire automation in terms of maintaining and managing the legwork (automatic rebalancing). Enabling commission-free trades and fractional share trading further improves this flexibility and most importantly liquidity.

Pros

  • No fees or commissions for investors (unless M1 Plus member)
  • Fractional shares enable more accurate rebalancing and liquidity
  • Flexible platform enables robotic automation of tedious tasks
  • Impressive 1.25% APR on checking accounts through M1 Plus
  • Best of both worlds: Robo-broker and online broker
  • Customizable portfolios “pies” and nearly 100 expert pies
  • Intuitive and simple interface

Cons

  • Too much flexibility is dangerous for new investors
  • No tax-loss harvesting function