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Has anyone tried M1 Finance?

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  • Has anyone tried M1 Finance?

    Hey all,

    I'm wondering if anyone here has tried M1 Finance.  I have heard about it for the last several months. For those of you who don't know, it is a roboadvisor like Betterment or WealthFront, but it allows you choose your own asset allocation using any ETF or stock.  It also does not charge any commissions or management fees. (Of course any ETF that you choose will have it's own ER.)

    This sounds very intriguing to me, as it would greatly simplify maintaining the asset allocation between by 403b and Roth IRA. Has anyone here tried it and has feedback to offer?  I'm also curious if it would be possible to do a backdoor roth through them.

    Thanks for any replies!

  • #2
    I dont get the company at all? What are they? It seems like a robin hood type thing, theyre a brokerage which specializes in presenting pie charts? WTH.

    Sure, the totally free commissions are nice, but what happens when they run out of VC funding? Strange.


    Not saying its bad or anything, just wondering what their ultimate aim/business model is.


    • #3
      I’m familiar with them. They are a little more like a brokerage in how they make money. They collect fees from short sales and have revenue sharing arrangements with fund managers.

      It’s that last item that would be a potential concern if it is negatively influencing fund selection. While pretty much every brokerage does this, my understanding that Betterment and Wealthfront do not.


      • #4
        I perused the website. Looks like M1 Finance is a brokerage that offers either custom asset allocations or build-your-own AA. Betterment and Wealthfront are registered RIAs. The M1 Finance thesis is that all investment services are approaching zero cost to the customer, and M1 simply goes free ahead of the others. I'll presume that their business model is sound, earning revenue from lending and cash management.
        My hesitation is that the build-your-own-AA allows for loosey-goosey behavior by the customer. I use Wealthfront and know they have rules, flags, warnings against bad behavior. Example: I can only change my risk level 3 times annually and never more than once monthly. Is it worth 25 pb to pay for behavior management? in addition to the tax loss harvesting, rebalancing, and other features?
        Another difference is the "mind" or vibe of the business. The "mind" behind Wealthfront is all about guiding the customer. The mind behind M1 Financial is all about the founder, how smart and revolutionary he is.


        • #5
          I played around with it, even opened an account...but never funded it. I think that it is probably the next generation in investment gimmicks. Since I have already dabbled in the previous generation (Betterment, Motifs, and Robin Hood, and only seriously into Betterment), I thought that I could skip the next wave or two.


          • #6
            Do these things let you confirm their actions? Automated tax-loss harvesting is a nice draw, but the rest of the benefits seems like you have to blindly trust some proprietary algorithm. I'd rather invest in what I understand.

            If the system contacts me and asks, "Our algorithm thinks your a, b and c assets are above your risk tolerance based off of x, y and z, so we'd recommend selling. Do you want to sell?" That's different then me logging in and seeing that it already happened-- which I think is the current state of these things.

            Most of us here don't blindly trust active fund managers, so why should we blindly trust an active roboadvisor? Maybe in 30-50 years once these things approach being vetted, I'll change my mind.


            • #7
              If you look at their FAQ, they will not sell any of your positions unless you set the desired percentage of a slice to 0%. This is done to avoid taxable events. When you add money, it is invested in underweight slices, similar to what other robo-advisors do. The system does not rebalance automatically (unlike other robos), but there is an option to manually trigger a rebalance. M1 assumes that you will be depositing money on a regular basis and uses any new money to buy into any slices that are underweight. Other than having some pre-made "pies" that you can use, there is less specific guidance with M1 compared to other robo-advisors, and you are free to create whatever asset allocation you like, including stocks as well as ETF products. There is no risk tolerance survey, so you are pretty much left to your own devices with respect to investment choices.

              There is only one trading window per day, at 9 am central time. They have been asked about the possibility of having a second trading window, but that isn't a high priority. If someone trades the same equity multiple times per day, they are classed as a "day trader" and M1 would have to meet stricter regulatory standards (and the investor needs a higher balance). They haven't built that into their system, and their stated objective is to cater to people that are wanting a build a balanced portfolio (whatever that means to the individual) over a longer period of time and not enforce a high minimum balance.

              I watched a webinar they gave last night about a couple of new features that give you a bit more control. By default, any time you have more than $10 cash in the portfolio (e.g., dividends), that cash is invested into underweight slices. You can now set that to a higher amount if you like, or you can turn it off altogether. They also allow you to buy or sell any individual slices without necessarily reinvesting right away. The example they gave on the webinar was wanting to sell FB stock because of the recent adverse events, but you don't know (yet) how you might want to invest that money. You set the cash threshold higher than the value of the stock you have, and then when you sell, it isn't automatically reinvested and the cash sits there until you decide what to do with it. You can also choose to buy more of a single slice in a similar way. These things might get you away from your desired allocations, but new cash will eventually get you back to what you set. You could also sell your FB stock by setting the slice to 0%, but you would need to put that percentage somewhere else and know what you wanted to buy.

              Another question they get a lot is about tax-loss harvesting. That is not a high priority for them because you can invest in pretty much anything you want, so identifying alternate assets would be difficult, if not impossible (I suppose they could ask you to identify them). They do plan to improve the presentation of the unrealized gains in the portfolio. Combined with the ability to buy and sell individual slices, you could harvest losses yourself, but without any automation.

              They said they also plan to eventually add some banking services, so allowing a higher cash threshold is a step in that direction. They are also planning to allow folks to borrow against their stock portfolio, but they don't intend it to be like margin. They will probably charge a HELOC-like interest rate to get cash using your securities as collateral. In theory, you could use it like margin, but they intend it to be used more like a HELOC.