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A robo-advisor at work

M1 Finance strikes a balance between the completely hands-off approach of a robo-advisor and the technical complexity of a full-service investment firm. It allows investors to build an investment portfolio based on stocks, funds and professionally managed portfolios that they select. If you’d like the simplicity of a robo-advisory but want to have a little more control over your money than they offer, it might be worth checking this platform out. If you want hands-on guidance from an expert professional, though, consider enlisting the services of a trusted financial advisor.

Services & Features: What Does M1 Finance Offer?

M1 Finance is an investment platform that offers a hybrid model of traditional investing combined with robo-advising.

The platform is built around portfolio templates that M1 Finance calls its “Pies.” This bit of wordplay is based on the visual setup of the platform, in which you build your portfolio around pie charts that show your division of assets.

Investors can build their portfolios out of a mix of stocksexchange-traded funds (ETF) and portfolios that are either automatically or professionally managed, each of which you can select and weight independently. For example, an investor who wanted to include XYZ Co. stock to his or her portfolio can find and add this asset. Then the system will either automatically balance it with the rest of the assets in your portfolio, or you can set exactly how much of a portfolio should be made of that one stock. All portfolios on M1 Finance are built out based on stocks and ETFs, as this platform does not support any other assets.

By default, M1 Finance’s system steers investors to its automatically managed portfolios, which are grouped based on investment goals. These are known as its “Expert Pies.” For example, you can select an expert pie for retirement, income generation, industry-specific investment, etc. Investors who are looking for simplicity can choose an Expert Pie which best meets their goals and do nothing else. In this case, your portfolio will simply be managed according to that template. Others can choose one of M1 Finance’s automatically managed portfolios and use that as a place to start, adding their own assets as they see fit, or can ignore this option altogether.

The result is an interface from the robo-advising world. Unlike a standard investment platform where you purchase individual shares of stocks, M1 Finance balances your investments around your entire portfolio. You don’t select 100 shares of XYZ Co. Rather, you set your portfolio to contain 5% of XYZ shares. However, it also has some of the choices of an investment platform. While you can choose to have your portfolio entirely managed by M1 Finance’s algorithms by building your own portfolio entirely out of the platform’s portfolio choices, you can also independently add stocks and ETFs to the mix.

This is not to say that M1 Finance can take the place of a full-service investment platform. While the service offers tools such as stock and ETF screeners that allow you to search by some technical indicator such as dividends and price-earnings ratios, these are very limited. People looking for a truly sophisticated individual-asset experience will find the service very limiting. Instead, it is relatively clear that the option to select individual assets is an enhancement to M1 Finance’s core product. Perhaps the best way to think of this is as a robo-investment tool that allows individuals to round out their portfolios with individual stocks and ETFs as they see fit.

Finally, in addition to its investment services, M1 Finance offers limited banking options. Any money not actively under investment is placed in a checking account which you can access and even get a debit card for, and lines of credit for margin trading are available to some customers.

Pricing: How Much Does M1 Finance Cost?

There are usually four types of fees to look out for when choosing a trading platform. You should look out for these when evaluating any investment or trading service:

  • Trading Fees – Any fixed charge attached to each trade that you make. This can come in the form of a flat fee or what’s known as the “spread.” This is when your broker charges you based on the difference, if any, between the buying and the selling price of an asset.
  • Trading Commissions – This is when a broker will charge you a percentage based on the volume or value of each trade.
  • Inactivity Fees – Any fees that the broker charges you for not trading, such as for keeping money in a brokerage account.
  • Non-Trading/Other Fees – Any form of fee for trading on this platform not covered above. For example, a brokerage might charge you for making deposits into your brokerage account, taking money out of it or signing up for additional services.

In the case of a robo-advisor, you should typically expect these fees to come in the form of commissions. Most funds and advisories charge you a percent of assets under management, with the promise that they will grow your money faster than they take it.

M1 Finance is one of the cheapest advisors on the market. At time of writing it offered two options: the Basic Account and the M1 Plus Account. Neither account requires a minimum balance, nor does M1 Finance charge commissions or trading fees. (Readers should note, however, that some ETFs may have a commission or trading fee that attaches to the underlying asset, which will be charged.) M1 Finance does not charge inactivity fees, nor does it charge you to transfer money in or out of your account, although if an account has been inactive for more than 90 days a $20 service fee can apply.

M1 Plus charges an annual $125 fee. In exchange, users receive a 1% interest rate on any money in their M1 Finance checking account along with a 1% cash back offer on their debit card. (This banking service is, in fact, a significant part of the company’s published business model, which it advertises as a main source of its revenue.)

Effectiveness: How Well Does M1 Finance Work?

Fist bump between human and robotVery well. It’s important to understand who M1 Finance is for. This is not a robo-advisory for investors who would like to be completely hands off with their money. Nor does M1 Finance assume complete inexperience. Unlike many other platforms, setting up an account on this service does not involve questions about your personal goals or risk preferences. The system assumes you know this information already. Setting up an account is extremely easy, in fact, and that’s in part because M1 Finance skips many of the questions that help new investors put their choices in context.

This makes the platform less useful for people who both investment and financial planning. While M1 Finance does offer its funds around categories of investment, it doesn’t offer nearly the degree of advice of comparable services.

Instead, M1 Finance is very well targeted for someone with a degree of knowledge and experience in investing, but not necessarily the interest for active or granular fund management. Investors who understand enough about the stock market to take advantage of M1 Finance’s individual assets will find a lot to love here. The ability to mostly keep your hands off of your money, but occasionally introduce specific assets that catch your eye, is a great sales pitch to a specific class of investor.

If you’re someone who just wants to build an account and leave it to the pros, there’s nothing wrong with M1 Finance but nothing particularly right. You might be better off with a service like Betterment that offers a little bit more financial advising. However, if the idea of fund-based investment that you can rebalance as you like is both clear and interesting, M1 Finance may well be the platform for you.

The Bottom Line

Woman checks her investment accounts

M1 Finance is a robo-advising platform that allows you to introduce individual assets into your investment portfolio. While not for everyone, it is a terrific fit for investors who are generally hands-off but who would still like to stay somewhat engaged with their money. However, people looking for a truly sophisticated individual-asset experience will find this robo-advisor limiting. For either type of investor, this is a relatively inexpensive product to use.

Tips on Investing

  • Robots might do a good job passively watching your portfolio, but they’re no substitute for the real thing – a human financial advisor. Finding one doesn’t have to be hard. With SmartAsset’s matching tool you can find a financial advisor in your area who can help you talk through your financial goals and figure out exactly what you’re looking for out of your money, so you can know exactly what you want to tell that robot to do. If you’re ready, get started now.
  • Are robo-advisors right for you? In our article on the subject we discuss exactly what a robo-advisor is, how they work and what they can do for your portfolio. This is a brand new section of the market and it’s already increasingly popular… for very good reason.

Photo credit: ©, ©, © Trade


Eric Reed Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
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