I’ll bet you agree there’s an overwhelming number of robo-advisors these days.

If you agree with me, you probably have a hard time distinguishing which robo-advisor is best for you?

When I started researching robo-advisors, I had the same problem.

While this M1 Finance review is extensive, you should ask yourself an initial question to distinguish if M1 Finance will be a fit for you.

If you answer yes to this question, you may want to look at the comparative table at the end of this article to see what will work better for you.

Ask yourself:

“Do I want a COMPLETELY passive robo-advisor to invest my money in ETFs based on a few questions?”

What do I mean by a few questions?

Many robo-advisors ask you questions like, “When do you want to retire?” and “How much risk do you want to take?”

Robo-advisors allocate your money based on these questions – you don’t do anything else.

If you want a robo-advisor to invest based on a few questions and an algorithm, then there are multiple options better than M1 Finance.

M1 Finance is a hybrid and a bit more of a do-it-yourself robo-advisor.

It does have pre-made portfolios, but it doesn’t have that question-based portfolio allocation that many other robo-advisors leverage.

That being said…I REALLY do love M1 Finance – I think it is a very sexy robo-advisor.

M1 Finance Review

M1 Finance Fees & Features

About M1 Finance Fees & Features

• Fees –  M1 Finance achieves “Rockstar” status with its fee structure.  The management fee is literally $0 (there is no management fee).  Many robo-advisors charge a management fee of 0.25% – 0.50%. This is huge benefit of M1 Finance.
• ETF fees – A management fee is a fee charged by the broker on underlying assets. ETFs come with their own underlying fee which has nothing to do with the broker, but with the fund company.  ETF fees are normal for all robo-advisors and brokers.  It is rare to find a robo-advisor offering an ETF without charging an underlying fee on ETFs.  When you are searching for ETFs, you can find the fee they charge inside the M1 Finance interface.
• ETFs –  M1 Finance has almost 2,000 ETFs to choose from.  This is very impressive.
• Stocks – One reason M1 Finance is sexy is its access to individual stocks.    It is rare to find robo-advisors providing access to the stock market on the scale that M1 Finance does.  Over 3,000 stocks are available through M1 Finance and there is no fee to buy and sell them.
• Investment options – Investments including:
  • Individual Stocks
  • Stock ETFs
  • Bond ETFs
  • Real Estate ETFs
• M1 Finance retirement options – Retirement accounts including:
  • Traditional IRA
  • Roth IRA
  • SEP IRA
• Minimum investment – $100. This is a low account minimum compared to some robo-advisors.  For example, Charles Schwab and TD Ameritrade both have an account minimum of $5,000 for their robo-advisor platforms.
• M1 Finance Referral Program – If you refer a friend to M1 Finance, you will receive $10 in your account and your friend will also receive $10.
• Free testing – If you want to test the M1 Finance platform, all you need to do is download the app and you will be able to test the interface.  You can do this before you even fund the account.
• Lending – M1 Borrow offers the ability for investors to borrow up to 35% of their account balance for a low interest rate.  You must have a balance of at least $25,000 and a taxable brokerage account.
• Portfolio Rebalancing – When your investment allocations move away from your preferred percentages you can easily rebalance using M1 Finance.

Positives of M1 Finance

• Fees – The first (and most important) positive attribute of M1 Finance is the fee structure.  It is free, and you can’t beat free.  If you are skeptical of why the platform is free, you can read the section below about its fee structure.
• Account minimum –  $100 for an account minimum is great.  It gives a low enough threshold to test the platform with some actual money before you commit to a larger sum.  Some robo-advisors require $1,000 – $5,000 for a minimum deposit.
• Individual securities – M1 finance gives you the opportunity to do what most robo-advisors don’t – It allows you to buy individual securities.  You can buy stocks and ETFs, and this is a huge part that distinguishes it from its competitors. It also happens to be a reason I think it may be the first sexy robo-advisor.
• Socially responsible investing –  Many individuals care about socially responsible investing.  If you are one of these people, M1 Finance has a pre-made pie (portfolio) just for you.  Many robo-advisors lack this feature.  An example of a robo-advisor that competes with M1 Finance here is, Wealthsimple.
• M1 Borrow –  The financial advisor in me doesn’t want you to increase your debt, but I am trying to be un-biased here.  If you are someone looking for a low interest rate on lending, M1 Borrow may be a way for you to accomplish this.
• Expert Pies – Since there is no algorithm-based investment strategy based on a risk tolerance, the Expert Pies can be a way to accomplish something similar to this.  These are pies that are pre-made so you can invest in them and your funds will be automatically allocated.
• Portfolio Rebalancing – Portfolio rebalancing is important for many investors.  When your investment allocation drifts, M1 Finance has top-tier rebalancing technology.  With no additional cost, you can rebalance your portfolio easily.

Negatives of M1 Finance

• Lack of algorithm-based investing –  The biggest drawback for potential M1 Finance customers is the lack of an algorithm-based investment option based on risk tolerance.  There is no question-based algorithm that will invest your money for you based on answers to financial questions.  Many investors seeking a robo-advisor are looking for this option and for this reason, it is the biggest drawback of M1 Finance.
• Individual bonds –  There are no individual bonds available with M1 Finance.  However, a bond ETF should work fine for most investors. 
• Options –  M1 Finance does not offer options trading.  While some investors will see this as a big negative, most people don’t need to be investing in options.  I find this to be a very minor drawback.
• Mutual Funds – There are no mutual funds available through M1 Finance.  Some investors prefer mutual funds over ETFs and index funds.  If this is you, it may be a factor for you.  However, many investors will do just fine with ETFs.
• Tax loss harvesting – Robo- advisors like Betterment and Wealthfront tout tax loss harvesting as a way to justify their fees.  They say that tax-loss harvesting saves the investor enough money so that their fees pay for themselves.  M1 Finance doesn’t offer this service, and so you either have to do it yourself, of you will run the risk of a less tax-efficient investment portfolio.  Of course, if you have retirement accounts, tax loss harvesting doesn’t matter to you.

M1 Finance Competitor Analysis

An analysis of robo-advisors vs. M1 Finance.  Below is an comparison of M1 Finance vs. Betterment and M1 Finance vs. Wealthsimple.

M1 Finance Vs. Betterment Vs. Wealthsimple

Pies and Portfolio Rebalancing

M1 Finance is based on creating pies (we’re not talking Pillsbury Doughboy pie, but pie as in a pie chart).  A percentage of your money will be allocated into a particular pie or pies that you either create or that are premade.

There are many different options when it comes to the creation of your pie.  You have the option of investing in vanilla ETFs, like Vangard’s VOO and target date funds, or you have the option of investing in more exotic ETF’s.  The best part about M1 Finance is the option to invest  your pie in individual stocks, but we will get to that later.

Like many robo-advisors, M1 allows you to re-balance your holdings.  You can simply click a button and all of your allocations will revert back to their original proportions.  You can do this by individual pie, or for your entire portfolio

For example, say you invested 60% of your money in Vanguard’s VOO and 40% in a Barclays bond ETF.  If the portion of the Vanguard pie increased to 65%, and the proportion of the bond ETF decreased to 35%, you can click a button and rebalance those proportions.  This will bring your proportions back to their original 60% and 40%.

Portfolio rebalancing is a tool that is available at most robo-advisors.  It is an important tool for a robo-advisor to have, but it is not what makes M1 Finance sexy.

Individual Stock Selection and Fractional Shares

When I started looking into M1 Finance, what excited me was the opportunity for the world to finally move away from the “boring” robo-advisor platform.  M1 Finance isn’t boring – it’s sexy.

M1 Finance is sexy because it allows you to finally purchase individual stocks, and even fractional shares of companies.  Most robo-advisors are offering vanilla ETF portfolios which you can go out and buy on your own if you really want.

Now, sexy can be both bad and good – just like a beautiful woman, you don’t want to marry her just for her looks.  The sexy features of M1 Finance can get you in trouble if you aren’t careful – but, net net, I think what they have is great.

As you can see in the picture, a few of the many stock investment options include Snapchat, Starbucks and Sprint.  You can purchase individual stocks as easy as ETFs.

By the way, you may want to read my article about the Snapchat IPO:  Are you an IPO Gremlin? The Snapchat IPO

Expert Pies

Talking about sexy, M1 Finance offers what they refer to as “Expert Pies”.  This is very unique and I love the idea of the Hedge Fund Followers.  They also have the ability to go with socially responsible investing, which is really huge for many people.

As for the Hedge Fund Followers expert pie, you should understand what you are doing when you invest in this type of pie.

For example, if you want to invest in the companies Warren Buffett invests in through Berkshire Hathaway, there is a portfolio that tracks Berkshire’s holdings.  Just be mindful it uses what is called a 13-F to track the investments.

13-Fs are filed with the SEC quarterly.  They show what institutional investment managers are buying and selling.  For this reason, companies like Berkshire Hathaway file a 13-F each quarter.  The data released in a 13-F is public data, but it can also be a few months old.  If Buffett purchased a company at a certain price two months ago, the price after the 13-F is public may not be in the range that Buffett would buy the company.

Also, there are two other managers at Berkshire, Todd and Ted, who invest smaller amounts of money.  So you are not getting pure Warren Buffett picks, but you are still getting Berkshire Hathaway securities.

As long as you are mindful of facts like these, you may still wish to use the expert portfolios.

M1 Finance has Hedge Fund Follower pies of some titans of investing, such as: Bill Ackman, Carl Icahn, and, of course, Warren Buffett (just to name a few).

Fractional Shares

Another unique feature offered by M1 Finance is the ability to purchase fractional shares.  If you wish to purchase stock in Amazon and add it to your pie, you may not have enough to purchase a share (considering it is selling for over $950).  M1 Finance allows you to purchase a fraction of a share of a company.  If you only want to purchase 1/10^th of a share of Amazon for around $95, you have the opportunity to do so.

This brings us to our next part – how much money do you need to fund an account?

Account Minimum

Yet another interesting feature of M1 Finance compared to other robo-advisors is the low account minimum.  You can open an account with as little as $100. 

There are not many robo-avisors out there allowing such a low account balance.  I would imagine the company feels confident you will stick with them after trying them out, and hopefully continue to build your account balance with them over time.

Mix this account minimum with the ability to invest in fractional shares and ETF’s, and you can try them out by creating a nice portfolio with a small amount of money.

M1 Finance Fees

Usage fee (management fee)

I first wrote this page in August, 2017.

At that time, M1 Finance was charging a usage fee (management fee) of 0.25% on less that 100k and 0.15% on more than 100k. 

During the first quarter of 2018, M1 Finance decided to completely remove its usage fee.

Today, you can invest in an M1 Finance account and you will pay no management fee (which used to range from 0.15% – 0.25%).

ETF fees

While there is no managment fee, you still pay an underlying fee for ETFs.

For example, a Vanguard Total Stock Market (VTI) ETF will charge 0.04%.

Whether you invest in VTI through Charles Schwab, TD Ameritrade, or M1 Finance, you will incur this fee.

So, it is not a drawback of M1 Finance – it is normal practice.

Stock and ETF trading commissions

Guess how much of a commission/fee you pay when buying individual stocks?

$0.

If you buy a stock with Charles Schwab, you pay $4.95.  With M1 Finance you pay no commission for trades.

You can create a portfolio of stocks with M1 Finance without paying a dime in trades or management fees.

So, if M1 Finance has no fees, how does it make money?

Read on…

How M1 Finance Makes Money

At this point (if you are like me) you may be a bit skeptical. 

Nothing in this world is free…so how can M1 Finance be free?

How M1 Finance can charge no fees

M1 Finance is a startup.  Like most robo-advisors, it is aggressively raising funding to scale operations and grow revenue.

Yes, M1 Finance makes no money from your trades and it makes no money by charging management fees.

How long M1 Finance can do this is uncertain, but it is the current practice, and you can use it to your benefit.

While the company makes no money from fees, it does have some revenue sources via their new lending arm – M1 Borrow.

M1 Borrow

M1 Borrow was launched in June 2018.

This is a new source of revenue for M1 Finance, since it does not charge a management fee or commission for trades.

M1 Borrow allows investors to borrow up to 35% of their account balance.

There are two factors needed to qualify for M1 Borrow.

1. You must have an account balance of at least $25,000.
2. You must have a taxable brokerage account

M1 Borrow will charge you a competitive interest rate of 3.75% (as of when this is written).

There is no payback schedule for this loan and you have control over when you pay.

One main risk you take when borrowing from a brokerage account is the potential to receive a maintenance call.

M1 Finance continues finding new ways to earn revenue so you can enjoy a fee-less platform.

Setting up M1 Finance

You can sign up using our referral link: stockstreetblog.com/m1finance

When signing up,  first, you will see these introduction screens.

Next, you will see three steps.  You will proceed to step 1 – Create Your Portfolio

You will then be able to hit Create New Pie

Here, you have all many different options to create pies.  You can use ETF funds or stocks to build something unique for yourself.

You don’t have to create pies alone.  You can also go to the expert pies and pick from pre-made pies

After you create some pies, you can select the type of account you need.

After this, all you need to do is fund the account and you are all set!

M1 Finance review conclusion – Is it the first free & sexy robo-advisor?

For me – personally – M1 Finance is a very sexy robo-advisor.

How amazing is it that you can buy individual stocks and ETFs with no trading fees and no management fees?

It sounds almost crazy.

I love the ability to buy individual stocks because that is what I am into.  I also use ETFs.

Because I like both individual stocks and ETFs, M1 Finance is an amazing option for me.

However…

If you want a completely passive option, will M1 Finance be for you?

It may or may not.

M1 Finance still has pre-made portfolios of ETFs available.  The only difference is that you will need to decide your risk tolerance; M1 Finance will not guide you to find your risk tolerance.

If that is a deal-breaker, M1 Finance will not be for you.

If not having a question based – completely passive – investment platform is OK with you, you may very well think M1 Finance is a sexy robo-advisor.

Has anyone tried M1 Finance?  Does anyone have any opinions on using robo-advisors to buy and sell stock?

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