M1 Finance
M1  rating

M1 Finance Review


M1 Finance review, investing account fees, broker rates, robo advisor mobile app pros and cons, performance/returns, fund withdrawals, and problems for 2018.



Overview of M1 Finance


If you're thinking about opening an account with a robo advisor, you might want to take a look at this review of M1 Finance (member of SIPC). Although the brokerage house isn't the most well-known, it does hit several home runs in some really important categories. Furthermore, it also provides some features that are normally found only at self-directed brokerage firms. Caution: this hybrid broker-dealer may win you over.


Customer Support


M1 Customer Rating

An M1 Finance representative can be reached during the weekday from 9:00 am until 5:00 pm, CST. The brokerage firm is closed on the weekend. It does offer a support e-mail address, but doesn't have an on-line chat feature, a pretty significant disappointment.

While we weren't overly impressed with these offerings, we did like the very extensive FAQ that appears on the M1 Finance website. The questions cover a wide variety of issues, such as how to invest the M1 way, how to access monthly statements, how to connect an external bank account, and how to open a retirement account.

After logging into our test account, we found an AI chatbot that provided a selection of questions after we typed in a question. It seems strange that the program would answer a question with more questions, and they weren't always related to the question we asked. A ‘contact us' button allowed us to send a message to the broker in case we weren't satisfied with the chatbot's answer. The contact form allowed for attachments, a nice feature.


Cash Management Tools


M1 Cash Management Rating

We didn't start our survey with the best category for M1, and this one isn't going to be much better. The broker does not offer checks or a debit card. Thus, the only way to move money in or out of an M1 account is by electronic means. Although a wire can be used to move funds into an M1 account, this method is not available in the other direction.

One feature in this category we did like was the ability to set up auto-investing of cash balances over $10. M1 Finance will automatically move a free cash balance into an investment when it crosses the $10 threshold.

Another attractive feature the broker-dealer offers is M1 Borrow. With this service, M1 allows its customers to borrow up to 35% of their account value. The interest rate for this loan is connected to the Federal Funds Rate. Currently, the APR is 4.00% - one of the best deals in the industry. In order to be eligible for this program, an account must have at least $25,000 in assets. M1 automatically enrolls accounts who meet this minimum. The service costs nothing unless you actually borrow.

There is no charge for sending or receiving an ACH. To connect an external bank account, M1 Finance will accept log-in credentials from the account for certain institutions. For other banks, the broker-dealer requires micro-deposits.


The Pie Method of Investing


M1 Investing Rating

M1 Finance is trying to change the way people invest. Clients of the brokerage firm create a basket of securities called Pies. They are composed of stocks, ETF's, and other Pies. Pies don't have any management fees other than the fees that underlying ETF's charge. One Pie can have up to a hundred slices.

M1 offers professionally-built Pies. It's also possible to construct your own if you're so inclined. The brokerage house restricts a single account from holding more than 500 individual positions.

Expert Pies are grouped into investment categories. For example, there are Pies for retirement, sectors, income, and general investing. Within the retirement category we found moderate and aggressive Pies for a variety of target dates.


M1 Finance review


The broker-constructed Pies are built using Modern Portfolio Theory. This investment philosophy assumed that for any given amount of return, there is an unavoidable level of risk. MPT attempts to maximize return while minimizing risk.

The M1-built Pies are rebalanced every quarter. The broker needs to do this because over time Pies can lose their original asset allocations. Pies constructed by individual investors are not automatically rebalanced; but they can be adjusted at any time.

One nice feature that M1 Finance offers is the ability to put just one stock or ETF in a single Pie. Thus, it's possible to trade individual securities with the broker.

Cash dividends that are paid by an underlying security are deposited as cash in an account's core cash position. There's no DRIP service. But remember, M1 Finance automatically invests any cash balance above $10.

Because of M1's unique style of investing, the brokerage house does not offer trading in options, bonds, or mutual funds. This is a pretty significant oversight as many traders will be interested in these products. Bond ETF's are available.

We really like M1's combination of robo-management (for company-built Pies) and self-directed Pies where customers can try to capture profits using their own strategies.


Pie Example


We found an oil, gas, and coal Pie on the M1 website. This one is constructed by the broker. It invests in the stocks of large energy companies. Besides exploration and production, the portfolio includes businesses that refine and transport energy.


M1 Investing review


There are 16 holdings. They are all stocks, which means there's no management fees paid on this Pie. The average dividend yield is 3.78%, and M1 Finance rates the risk level as medium-high.

ExxonMobil is the largest holding, making up 16%. Next is Shell at 13%, while Chevron comes in third at 11%. Petrobras is the smallest holding at 3%.

The 5-year return history of this Pie is an impressive 10.13%. The 1-year performance is an even more impressive 20.14%, beating the S&P 500 by 3%.


M1 Commissions, Fees, and Account Requirements


M1 Fees Rating

This is where M1 Finance impressed us the most. The brokerage firm has eliminated commissions and account management fees. It is now completely free to buy and sell Pies (and thus stocks and ETF's). Pies no longer have any management fees (other than the expense ratios of any ETF's). Regulatory fees are passed onto the client, although these are very small for most orders.

There are no regular account fees, such as low-balance or annual charges. An account can be opened with zero deposit, although the broker does require $100 to make an investment.

M1 Finance charges for paper statements and paper tax documents. They are $5 each. Transferring an account to another broker costs a fairly steep $100.


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ETF's


M1 ETF Rating

As already noted, M1 Finance permits the trading of exchange-traded funds via its Pies. Any ETF listed on a US exchange is fair game. Moreover, because of M1's great pricing schedule, every ETF is essentially commission free.


M1 ETFs review


There were some drawbacks in this category, however. We didn't care for the broker-dealer's ETF resources. There is only limited information on an ETF's profile page. We found 52-week price range, expense ratio, dividend yield, and portfolio size. There is a price history that extends out to five years, and the asset allocation is shown. The top holdings for XAR (the SPDR aerospace and defense fund) were shown, but there were only two stocks. A search on Morningstar revealed at least 25.

M1 Finance has a section on a fund's profile page for news articles, but XAR didn't have any. A search on MarketWatch revealed several news articles for XAR.

Charting for ETF's was even more depressing. There are no graph style options (line is the only choice). The history extends out to five years. We couldn't find any technical indicators or drawing tools. Comparisons weren't available, either; but we did find dividends on the chart.


IRA's


M1 IRA Rating

One really nice thing about M1 Finance is the ability to trade Pies inside a retirement account. The broker-dealer provides both Roth and Traditional accounts. For businesses with less than 100 employees, M1 also provides a SEP IRA. Unfortunately, the broker does not offer SIMPLE retirement accounts or self-employed 401(k)'s.

There is a good FAQ on the M1 website that contains answers to a lot of retirement questions that customers may have. These include topics such as Roth v. Traditional, contribution limits, and making withdrawals. Unfortunately, we didn't find any retirement calculators on the website.

What we did find was a large collection of retirement Pies built by M1 Finance. These range from 2020 to 2060. There are only two investment styles available: aggressive and conservative. We would like to see a moderate category and perhaps a very aggressive option for the more distant years.

The contents of these target-date Pies are mostly Vanguard ETF's. For example, in the 2045 Aggressive Pie we found VNQ (real estate), VBR (small-cap value), and VWO (emerging markets). There was also an Invesco fund. ETF's from SPDR and iShares can also be found in some of the other retirement Pies.

M1 Finance charges a steep $100 fee to close an IRA.


M1 Website review


Investment Advice


M1 Investment Rating

M1 Finance does not offer traditional financial planning or guidance. It does not actively manage portfolios beyond the baskets it creates. It does not decide to buy or sell any of the Pies; it is up to the individual investor to make that decision. So in this category, M1 seems to underperform.

Purchases and sales of Pies are overseen by a computer program that brings them back to original asset allocations when they drift away from these targets. For example, if one security has become overweight with time, and you sold $500 of it, the program would sell more of the underweight security than other assets. If you deposited $200 in a Pie, the software would put more into underweight securities.

We were disappointed to learn that M1 Finance does not automatically rebalance Pies. This seems like a disadvantage of the trading system. It is possible to manually rebalance Pies. To do this, you need to log into your account and click on a rebalance button on a Pie's profile.


Trading Tools


M1 Trading Tools Rating

Because M1 Finance isn't a typical on-line broker, there is no desktop platform. Moreover, M1 doesn't provide a browser-based platform or even a trade bar within the browser. Buying and selling Pies takes place on the website, and it's very simple.


M1 Website review


To create a Pie, you simply need to go to ‘My Pies' at the top of the website and then click on ‘Create New Pie.' Here, you'll be able to select from a long list of stocks (we found 4,263 in total). These can be filtered by sector, dividend yield, P/E ratio, and market cap. We thought there should have been more filters, such as beta, EPS growth, analyst ratings, and so many more. We did like the fact that most stocks have a company logo as an icon. This made going through the stocks much easier.


M1 Trading review


There's also a list of 1,946 ETF's that can be added to a Pie. After selecting the securities you want, there's an ‘Add' button at the bottom of the screen that will automatically create the Pie. We thought creating a Pie was a bit difficult; it is not possible to name Pies, and this can be a bit confusing when you have multiple Pies.

If you would rather go with a professionally-built Pie, the ‘Discover' menu has these. When choosing an M1-built Pie or creating your own, you actually add it to the account's Portfolio first, then add funds to the Portfolio. It's not possible to change the percent allocations within M1's Pies, although you can adjust them for the Pies you create.


Mobile App


M1 App Rating

M1 Finance customers can use the broker's mobile platform, which is compatible with Android and Apple devices. The platform is designed for phones (not tablets) and there's no smartwatch app. Nevertheless, the app is nicely designed.


M1 App review


The app is quite similar to the website and has a lot of the same functions. A ‘Discover' section in the menu shows broker-constructed Pies, a watchlist, ETF's, and stocks. Another tab shows market information. Oddly, the app displays price information for ETF's that track indexes rather than the indexes themselves. The information appears in small squares, and the graphs cannot be expanded for better viewing. There is essentially no graphing capability on the platform.

Instead of displaying news articles on the app, M1 has chosen to show links to the external sites that host such articles. CNBC and Fortune are the only two providers.

M1 Borrow is available on the app along with funds transfer. Sadly missing is mobile check deposit. Statements, tax forms, and trade confirmations can be accessed, though.


Comparison


M1 Comparison

The brokerage firm most similar to M1 Finance is Motif Investing. At Motif, customers invest in baskets of securities called motifs. They are either constructed by the company or by individual investors. One important difference is that customer-built motifs are available to trade by other customers. At M1 Finance, you can only invest in your own Pies.

Motif Investing charges $9.95 for broker-constructed motifs and $19.95 if they are customer-built. If you place a market-on-open order, the prices drops to $0 and $9.95.

For individual stocks and ETF's, the price is $0 for MOO orders and $4.95 for all others.

Unlike Pies, every motif has an annual fee. These range from 0.0% up to 0.50%. There's also a $10 quarterly account fee at Motif, although it can be avoided with a $10,000 account balance or one commissionable trade every three months.

Motif Investing does not offer SEP or SIMPLE IRA's.


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Recommendation


Because of M1 Finance's great pricing schedule (FREE), we can recommend the broker for small accounts, beginners, retirement, and other long term investors.

For obvious reasons, M1 Finance would be a bad choice for active traders as well as for bond, option, or mutual fund traders.


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M1 Finance Review Summary


As you see from this 2018 review of M1 Finance, the broker has a unique investing method with an impossible to beat commission schedule. Long-term investors who don't need a lot of guidance or sophisticated trading tools can do very well here.


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M1 Finance reviewed by Brokerage-Review.com on . Rating: 4.5