M1 Finance Review (2023): Is This Robo-Advisor Really Free? (2024)

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Can a legitimate robo advisor really be free?

M1 Finance opened its digital doors in 2015. And in the 2018, the robo advisor welcomed its 100,000th funded account holder. That is some pretty radical growth in just four years’ time!

Offering a premier service for free is definitely one way to garner 100,000 clients.

M1 Finance is a Securities and Exchange Commission (SEC) registered broker-dealer, and a member of the Financial Industry Regulatory Authority(FINRA). Members can also open a free SIPC investment account and their account securities will be protected up to $500,000.

Still however, according to the platform’s CEO Brian Barnes, M1 is so unique that there’s no “one thing” that sets it apart from competitors. Rather, it’s an aggregate of things that keeps changing and evolving to meet its users own needs and demands.

M1 Finance claims to offer $0 fees — but everything has a price. Is M1 Finance really free?

Let’s dive in.

Investor Warning: Investing with M1 Finance involves risk, including the risk of losing the money you invest, and past performance does not guarantee future performance. Borrowing on margin can add to these risks, and you should learn more before borrowing. Nothing in this informational site is an offer, solicitation of an offer, or advice to buy or sell any security and you are encouraged to consult your personal investment, legal, and tax advisors.

What is M1 Finance? 📚

Though you won’t find access to tax-loss harvesting or mutual funds, M1 Finance has a lot to offer. The hybrid robo advisor and traditional brokerage offers automated investment management at no-cost.

Fast Facts

Account Minimum: $0
Fees: $0
Best for: Zero-fee management and socially responsible investing
Highlight: No-cost automated investing

Rating

Commissions & Fees: 9/10
Investment Selection: 9/10
Account Options & Features: 9/10
Usability: 9/10
Educational Resources: 8/10
Customer Service: 6/10
Overall: 9/10

Visit M1 Financeon M1 Finance’s website

To understand the core business model fueling M1 Finance, it is necessary to rewind back to 2015. M1 Finance launched as a 100 percent free robo-advisor run entirely by its proprietary digital algorithm.

That is where M1 Finance came from. But where is it headed?

M1 Finance launched M1 Spend, its highly anticipated, FDIC-insured checking account that enjoys full integration with the robo advisor’s digital app.

Now, in addition to an hotly competitive algorithmic investing tool, M1 Finance is wading into the traditional banking arena with its own checking account, direct deposit features, debit card and funds transfer abilities.

M1 Spend has two tiers – one is totally free and one comes with some up-front expense (and back-end benefits). While M1 Spend and M1 Finance’s entree into this marketplace isn’t our focus here, it does feel relevant for the corporation’s overall stability in the fluid arena of robo advisor platforms.

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In other words, M1 Finance is not going anywhere and seems to be settling in for continued expansion in both the robo advisor and digital banking arena.

This is good news if you are on the hunt for a stable robo-advisor to participate in. So let’s spend a moment or two investigating what independent reviews have to say about M1 Finance’s digital platform services.

M1 Borrow Explained 👨‍🏫

In the early days, M1 stuck relatively close to the sidelines with its free robo advisor platform that appealed to what founder Brian Barnes termed the “mass affluent” (aka investors with anywhere from $10,000 to $500,000+ to invest).

All that is changing now. Don’t get us wrong – the core services are not going anywhere and are still going strong.

In 2018 M1 Finance released a new feature that blows its competitors right out of the water.

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The feature is called M1 Borrow. It allows any investor who has at least $25,000 in a funded portfolio borrow against that portfolio.

This “portfolio line of credit” offers M1 Finance users the option to borrow up to 35 percent of the value of their total portfolio. The interest rate for repayment is 3.75 percent and the repayment terms are flexible to say the least, in that currently there are none.

The ultimate vision, as founder Barnes describes, is to position M1 Finance as the all-purpose replacement to both investing and traditional banking services. A hefty proposition to be sure – and a heady one!

But should you trust M1 Finance to replace the tried and true financial tools that have been in use for decades? As with any financial tool, there are both pros and cons to be aware of and that is what we will take a look at next.

M1 Finance Compared

Accounts & Fees

Management fees

None

$3 or $5/month

Account Minimum

Account Types

Individual and joint taxable accounts
Traditional, Roth, SEP & rollover IRA
Trusts

Individual non-retirement accounts
Traditional & roth IRAs

General

Best for

Low fees
Socially responsible investors

Hands-off investing
Investors who have difficulty saving

Is M1 Finance Really Free? 🤔

One independent review site has gone as far as suggesting that M1 Finance itself represents the future potential of the robo advisor model.

This is an interesting assertion and, it turns out, M1 Finance can back it up.

For starters, M1 Finance hits all the high points of what is fast-becoming the traditional business model for digital investment platforms:

☑️ Zero minimum investment requirement
☑️ No fees to use the pure robo advisor digital platform
☑️ Automated periodic rebalancing of the investment portfolio to account for “drift”
☑️ iOs/Android app plus desktop portal options
☑️ Phone and email support
☑️ Integration with tax reporting software (H&R Block, Turbo Tax)
☑️ Socially responsible investment options
☑️ No commissions on trades

But this robo advisor takes its game to the next level with a suite of decidedly non-traditional extra features you would be hard-pressed to happen across elsewhere:

☑️ M1 Spend and M1 Borrow
☑️ Fractional shares option (option to purchase less than one full share)
☑️ Free initial consultation with live human “platform specialist”
☑️ SIPC (Securities Investor Protection Corporation) protected up to $500,000
☑️ Highly liquid funds for accounts over $2,000
☑️ Unique application of the Modern Portfolio Theory (MPT) – more on this here shortly

Where M1 Finance May Fall Short 🚧

While M1 Finance definitely has a great deal to offer, it is also definitely not a perfect offering. The bigger question then becomes, is M1 Finance the perfect platform for you personally?

The only fair way to answer this question is to take a look not just at the pros of what M1 Finance is offering but also at the cons. And even with all this platform serves up, there are definitely some important elements missing that you need to be aware of.

While there’s no tax loss harvesting, there is tax minimization.

Like many “free” online digital robo advisor platforms that are essentially targeting investors of less means, M1 Finance does not currently practice tax loss harvesting.

If you are not clear what this term means, tax loss harvesting is basically a way to use securities losses to offset securities gains within a single calendar tax year. While it won’t matter so much if you don’t have a lot to invest, as your portfolio begins to grow you will likely begin to feel its absence keenly.

However, M1 Finance deserves full credit for at least attempting to meet you in the middle to provide some form of tax-time investment portfolio support. The way M1 Finance does this is called “tax minimization.”

Tax minimization ensures that the sale of any securities prior to the tax year cut-off automatically proceeds in a set order as follows:

☑️ First, sell securities that do not create tax liability.
☑️ Next, sell securities that deliver long-term gains.
☑️ Finally, sell securities that deliver short-term gains.

Reviews state that this triage method isn’t as reliable as the preferred tax loss harvesting, but it is certainly better than nothing at all (which is what most robo advisors in M1 Finance’s class tend to provide).

M1 Finance’s leadership makes much of the option to include fractional shares – less than one full share of equity – in your portfolio.

In fact, it is not even possible to purchase fractional shares from the general marketplace. These partial shares most frequently happen when a stock splits unevenly and are not always viewed as desirable in that context.

For young investors or investors of limited means, being able to purchase a portion of a share of a highly valued or desirable security can be exciting. Fractional shares of stock do have value and they can appreciate just like full shares do. Fractional shares is a major way M1 Finance is different from Wealthfront — along with other competition.

But what often goes unsaid is that fractional shares can be difficult to work with and, ultimately, to sell when and if that time comes.

If you choose to include fractional shares in your M1 Finance investment portfolio, it is just important to go into this type of transaction understanding that these partial shares can need special handling should you ever want to find a buyer for them in the future.

Mutual Funds Are Not Available 🤨

For investors with low to moderate risk tolerance, which frankly represents the majority of investors today, the glaring lack of mutual funds as an investment option may come as an unwelcome surprise.

M1 Finance focuses on stocks and EFTs (exchange-traded funds). So if you are keen to invest in mutual funds, M1 Finance may not be the right choice for you.

You won’t get a big picture investment perspective.

This isn’t unusual for a robo advisor platform, but M1 Finance does not factor in any outside investment accounts or securities, including an IRA (individual retirement account) or employer-sponsored 401k, 403b or similar retirement account.

So it will be up to you to keep your eye on the full spectrum of your retirement and investment holdings over the long-term.

You really need to trust the robo advisor algorithm.

M1 Finance may be long on trusting that you, the investor, know what you want to do and how to do it. But where reviews underline that it falls short is in providing any type of expert guidance on either.

Aside from the extensive use of a series of investment Pies (more on that here shortly) designed to help guide your investing choices, you aren’t going to find a lot of – or really any – hand-holding here.

So you also need to check in with yourself about your level of confidence and your personal tolerance for risk before you choose a hands-off robo advisor platform like M1 Finance.

🤓 Do you like the idea of investing from an app? See how M1 Finance compares to Robinhood.

M1 Finance Investment Pies 📈

Earlier here we mentioned the Modern Portfolio Theory (MPT). Financial advisors sometimes call this theory of investing “Pies.”

Rest assured we are not trying to make you hungry!

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The Pies is a vastly simplistic way of explaining how MPT works in terms of M1 Finance’s digital algorithm.

Remember — all of the best robo advisor platforms have their own super-secret, in-house, proprietary digital algorithm. In other words, this algorithm is an advanced formula used to help investors allocate their funds appropriately to their investment needs and goals.

While each algorithm is a little different to set the robo advisor apart from competitors, all rely at some level on MPT and the use of “Pies.”

Pies are basically investment templates. There are eight major categories of templates that are designed to speak to the interests and needs of different categories of investors:

☑️ General Pie: a build-your-own risk tolerance Pie.
☑️ Retirement Pie: a Pie based on your target retirement date.
☑️ Socially Responsible Investing Pie: for the investor concerned with SRI.
☑️ Income Pie: a build-your-own income-generating Pie.
☑️ Hedge Fund Pie: a guided Pie based on investment best practices.
☑️ Sector Pie: Pies based on specific sectors or industries.
☑️ EFTs Pie: a build-your-own Pie comprised of stocks and bonds EFTs.
☑️ Other Pies: additional customizable Pie categories.

While most Pies use risk as one of the key determinants of asset allocation, M1 Finance takes away that control and gives you, the user, complete autonomy over how you use the Pies (or not) to build your portfolio.

However, when you work with a Pie template in part or in whole, you will be able to view the estimated and historical data associated with that Pie template, including risk, yield and overall performance.

You can use one of the more than 60 pre-built Pies as-is. You can use part of a Pie and go rogue with the remainder of your portfolio. You can even assemble your own custom Pie piece-meal – all without incurring any fees.

A Pie may have up to 100 segments, or slices. Each slice represents an investment decision. When you populate your Pie, M1 Finance’s digital algorithm will use your choices to allocate your funds accordingly.

If you are a highly visual person, you will likely love M1 Finance’s Pie-building tool. A display pops up showing you all the funds or securities or EFTs or bonds or stocks, etc. and you just check them off to add them to your Pie.

You can construct one Pie or many depending on how you want to use M1 Finance. For example, if you have twin goals to save for a downpayment on a house and save for your child’s college education, you may elect to populate two different investment Pies to achieve these savings goals.

🧐 How does M1 Finance stack-up to the competition? Inform yourself by taking a look at M1 Finance vs Betterment comparison.

M1 Finance Robo Advisor 🤖

The robo advisor platform is undeniably sleek and sophisticated, aggregating a wealth of investing wisdom through its myriad of Pie templates and delivering truly customizable portfolio construction.

In the hands of an experienced, confident investor, this is pure gold. In the hands of an untutored investor with low risk tolerance and a high need for liquidity and immediate gains, this could be a bit different.

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The takeaway here is that M1 Finance truly is automated. It is not going to watchdog you with warnings about exceeding your stated risk tolerance or tackling more complex investment challenges like pure stocks or fractional shares.

Final Thoughts 🏁

If we had to sum up in just a few words the experience of using M1 Finance as your robo advisor, it would be these: you will get as much responsibility as you can handle.

So the question then becomes, how much responsibility for your own investing can you handle?

How you answer this question will determine whether M1 Finance could be the right robo advisor platform for your investment needs.

M1 Finance: FAQs

Does M1 Finance Have Hidden Fees?
There aren’t necessarily “hidden fees”, but there are a few potential — albeit rare — rares that you should be aware of.
Accounts that have less than $20 in them and show no activity for 90 days will be charged a $20 inactivity fee. There are no maintenance fees associated with M1 Finance accounts, but accounts with less than $10 that haven’t been used for trading for over 6 months will be automatically closed.
As far as direct account transfers go, there is no fee associated with incoming account transfers, but outgoing transfers will incur a $100 fee. Escheatment processing incurs a $75 fee per account, and TOD account transfers cost $200 per transfer.
Overnight mail costs $125 per request for domestic deliveries and $100 per request for international deliveries and deliveries to Canada.
Domestic wire transfers will incur a $25 fee, and so will check requests. Returned checks, ACH, and wire transfers incur a $30 fee.
The broker’s IRA termination fee is $100 per event, and the IRA conversion fee is $25. Mutual fund sales will incur a $20 fee, and liquidating securities that are traded on foreign exchanges will incur a $50 fee.
How Does M1 Finance Make Money?
M1 Finance makes money in the same ways that most commission-free brokers do. So what exactly does this entail?
M1 Finance will lend out idle cash, and the interest that they charge for those loans is kept as profit. M1 Finance mostly lends cash to banks on an overnight basis. Apart from this, M1 Finance also lends out securities for short selling – although less than 5% of the securities owned on M1 are lent out.
M1 Plus, a subscription-based membership program that costs $125 per year, also plays a role in the broker’s revenue stream. The brokerage also offers portfolio margin loans via M1 Borrow and earns money on interest rates. On top of that, M1 Spend, the company’s checking account and debit card program also nets it interchange fees, as well as additional interest from cash balances.
Like other commission-free brokers, M1 Finance receives payments for directing order flow towards certain market makers.
You can find in-depth guide on how robo-advisors make money, here.
Can You Day Trade on M1 Finance?
No, you can’t. There is only one trading window available per day, and trades do not execute immediately. To give you a simple example, if you input an order in the afternoon, it won’t be executed until the next morning, as all orders are executed at 10.00AM EST.
If you’re an M1+ subscriber, you will get access to two trading windows per day, but that is still far too few, and the analysis tools that the platform offers are quite rudimentary. On top of that, M1 uses market orders – it doesn’t support advanced orders.
M1 Finance itself has made it clear that day trading isn’t anywhere near a priority – this is a platform designed for buy-and-hold investing, and it should be treated as such.
Is M1 Finance Better than Robinhood?
If you’re interested in howM1 Finance vs Robinhood compare, the answer will largely depend on your specific needs and goals. While both of these brokerages are known far and wide for commission-free trading, there are a couple of stark differences between them.
In general, M1 Finance is a better choice for intermediate investors looking to focus on stocks and ETFs, and those that are looking to retire, as Robinhood doesn’t offer tax-advantaged accounts.
While Robinhood is often compared to a robo-advisor due to how easy it is to use, it isn’t one – while M1 Finance is. Robinhood does have a slightly wider array of investment offerings than M1 Finance.
Is M1 Finance Safe?
Yes – M1 Finance is registered with both the SEC and FINRA, meaning that they have to comply with strict regulations. The brokerage has an A+ rating from the Better Business Bureau and carries SIPC insurance, which protects clients’ accounts for up to $500,000, with a maximum of $250,000 in cash.
How do I Contact M1 Finance’s Customer Support?
M1 Finance’s customer support team can be reached by email, atsupport@m1finance.com, or you can call them at 312-600-2883. If you opt to reach out to them via phone, keep in mind that they’re available from 9.30AM to 4PM EST from Monday to Friday.

Compare M1 Finance

Find out how M1 Finance stacks up against the competition.

M1 Finance vs. Robinhood
M1 Finance vs. Betterment
M1 Finance vs. Wealthfront

About the author

Tim Fries

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Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.