This content is from: Wealth Management

Charles Schwab Acquires Some Remains of Motif

The discount brokerage scoops up all of Motif’s technology, intellectual property, algorithms, patents, and source code.

Charles Schwab has agreed to buy some of the remains of Motif, the portfolio management company that told clients in April it was ceasing operations and transferring them to Folio Investing.

Schwab, the discount brokerage which is also the custodian to more than 7,500 RIAs, announced Thursday it reached an agreement to buy all of Motif’s technology, intellectual property, algorithms, patents and source code. It is an all-cash deal expected to close before mid 2020. No other details of the transaction were disclosed.

Motif raised a total of $126 million from investors that included Goldman Sachs, JPMorgan, and venture capital firms. In January 2015, the company raised a $40 million Series E round of funding, putting the company's pre-money valuation at $396 million, according to PitchBook.

The deal brings Motif’s “transformative technology” to the brokerage and will “build on Schwab’s existing capabilities and help accelerate our development of thematic and direct indexing solutions for Schwab’s retail investors and RIA clients,” Neesha Hathi, an executive vice president and the chief digital officer at Schwab, said in a statement.

Hardeep Walia, the founder and CEO of Motif, will join Schwab and the company also plans to hire the majority of Motif’s development and investment employees.

“Schwab shares our spirit and passion for making personalized investing easier and more accessible for all. We’re excited to join them in helping to shape the future of wealth management to better serve investors,” Walia said in the statement announcing the deal.

Motif’s broker-dealer, RIA, client accounts, and client assets are not included in the deal with Schwab. It had more than $868 million in assets, according to a March 27 regulatory filing. Walia said his company had more than 300,000 retail customers at the Global Responsible Investing Forum in New York in December.

RIA Intel was the first to report last month that Motif, which enabled self-directed investors and financial advisors to build and invest in thematic portfolios of stocks and ETFs, surprised users and told them it was ceasing operations. Unless they acted, their accounts would be transferred to Folio Investing, another self-clearing broker-dealer and technology company. (M1 Finance, a competing robo-advisor, has since taken to social media to coax Motif’s clients before they automatically transfer after the market closes May 20.)

The letter Motif sent to users in April did not explain why the company was closing. But since Motif was founded in 2012, the field of companies helping self-directed investors and financial advisors has changed dramatically.

For years, Motif traded fractional shares, something few others did. Fidelity Investments didn’t offer fractional-share trading until January and Schwab said it plans to begin doing the same this year.

Interactive Brokers was the first, but since Schwab made the biggest splash by eliminating commissions to trade stocks and ETFs last fall, other brokerages did the same shortly after. Without having to worry about commissions on those securities, direct indexing, if a company is capable of offering it, suddenly becomes much more affordable. More clients are asking for the customizing it allows, too. 

Historically, only institutions and high-net-worth individuals handled their portfolios in this manner using separately managed accounts.

“In addition to an increasing interest in personalizing portfolios, we know many individual investors and RIAs seek the powerful tools that allow them to minimize taxes, efficiently manage transitions out of concentrated stock positions, and incorporate personal investing preferences - all of which can be provided by a robust direct indexing offer,” Rick Wurster, an executive vice president and the head of Schwab Asset Management Solutions, said in a statement about the deal with Motif.

It is unclear why Motif’s business was broken up and sold. 

Paula Delaurentis, the Chief Retail Officer at Folio, told RIA Intel last month that Folio had “all the capabilities and more than what Motif currently has” and clients transferring to Folio May 20 will be “pleasantly surprised.”

If you're a Motif employee willing to speak to a journalist in confidence about the company’s closing and sale, contact Michael Thrasher at michael.thrasher@institutionalinvestor.com ; Signal: 330-962-6441



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