This content is from: Wealth Management

A Robo-Advisor’s Successful Play For Motif’s Clients

“Money in motion is easier to get,” Michael Savino, vice president of operations at M1 Finance, said.

A robo-advisor has taken to social media to coax the clients of a shuttering competitor before they automatically transfer to another.

Last month, Motif, a portfolio management company that enables self-directed investors and financial advisors to build and invest in thematic portfolios of stocks and ETFs, told users in an email it was ceasing operations. Unless they act, their accounts will be transferred to Folio Financial, a self-clearing broker-dealer and technology company, after the market closes May 20.

“We’ve selected Folio to give you access to leading investment tools in a similar experience to what you’ve enjoyed at Motif,” the email said.

A multitude of accounts and hundreds of millions of dollars are now in play. Motif founder and CEO Hardeep Walia said his company had more than 300,000 retail customers at the Global Responsible Investing Forum in New York in December. The company had more than $868 million in assets, according to a March 27 regulatory filing.

At least one other company believes Motif’s investors might be better served by switching to them instead of Folio, and they have not been bashful about it.

Just five days after RIA Intel broke the news that Motif was closing, M1 Finance, a similar portfolio management company for self-directed investors, published a blog post asking Motif’s clients to consider it over Folio. Since then it has taken to social media, even teasing a promotion that could result in a $2,500 bonus for opening and funding an account.

Twitter (April 30, 2020)

Coincidence or not, after six months of little activity, Folio’s Twitter account has sprung to life and begun communicating to Motif clients about the transfer.

“No one likes to see an established firm like Motif close down,” the M1 blog post says. However, the robo-advisor was not going to waste an opportunity presented. When investors face a decision about how to manage their money, due to markets or a company closing, that is “the best time to make your pitch,” Michael Savino, vice president of operations at M1 Finance, told RIA Intel.

“Money in motion is easier to get. That’s why it's difficult in fintech to gather assets. People really aren’t moving money that often,” said Savino, who previously worked for Nuveen Investments and Morgan Stanley’s private wealth management business.

Convincing even a small percentage of Motif’s clients to forgo the transfer to Folio would be a nice win for M1, where more than 150,000 investors are managing an aggregate of over $1 billion. Unlike other robo-advisors, like Betterment and Wealthfront, M1 does not charge a management fee and is free for investors (although, an annual membership of $125 gets users better borrowing and interest rates). 

And the blog post and outreach might be working. “We have seen a steady flow of Motif customers since the closure announcement,” Savino said.

“Folio is excited to serve our soon-to-be customers and have a robust communications plan already underway for the periods before and after their arrival. We believe Motif customers are going to be pleasantly surprised by the breadth of investing solutions and features being made available to them, and we are honored to bring them the best of our 20-year track record of innovation and dedication to our customer’s investing success,” Folio said in a statement when asked comment for this story.

Folio has transferred clients in bulk from numerous other firms over the years, including Loyal3, BuyandHold and MyStockFund. In all of those cases, it successfully retained a high percentage of them, Paula Delaurentis, the Chief Retail Officer at Folio, previously told RIA Intel.

Like Motif, M1 attracts self-directed investors more interested in portfolio construction than trading. Most of M1’s clients want the ability to actively adjust their portfolio but they largely engage in passive investing, Savino said. (M1 makes trades in two windows per session, compared to discount brokerages that trade throughout them). M1 also lets investors trade fractional shares.

The value of M1 client portfolios fell in March as the pandemic spread to the U.S. and led to the fastest-ever bear market and economic turmoil. However, some of those losses have been recovered and M1 had “record flows” in April, Savino said.

The company, which has not charged commissions or management fees since it was founded in 2017, is in good financial shape, Savino added. Still, they acknowledge the “fear that we are a similar model to Motif, which means we are potentially looking down a similar barrel,” he said.

For years after its 2012 founding, Motif was doing things other investment firms weren’t, which helped it attract clients and investors in the company. It raised a total of $126 million from investors that included Goldman Sachs, JPMorgan, and a handful of venture capital firms. However, as legacy competitors like Charles Schwab and others have improved their services and eliminated commissions, that has made it harder for smaller firms to stay competitive, analysts say.

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