Our Review of M1 Financial

We have looked at many brokerage houses and we are glad to share our review of M1 Financial. Needing a new broker we actually moved 2 5 and 6 figure accounts to M1 Financial. Here are some initial findings and the first 30 days with M1.

• No minimum investment to start
• No commissions on window trades
• You can buy fractions of shares and ETF’s (although you can only transfer full shares in.)
• You might get a nice bonus from M1 to transfer in your balances from another account.
• Good Customer Service by phone or email – Including a great welcome/orientation call.
• Strong research tools
• M1 Financial lets you borrow a percentage of the value of your portfolio at very low rates. A margin loan but with great rates currently as low as 3.5% or even 2% if you have an M1 Plus account and a minimum $10,000 portfolio value.
• You can also bank with M1 Investments – Currently receive 1% APY on balances AND 1% cash back on qualified purchases.
• Your M1 Account can be your go to, for investment, banking, borrowing – a single hub for much of your financial affairs.

Let’s start with ease of opening an account. Well, they claim 4 minutes but that’s an overestimate. It’s very simple if you have your SS number(s) and bank account info handy.

M1 Financial is almost the perfect place for a beginning or sophisticated investor and here is why.

Review of M1 Financial for an early asset builder. A beginning investor really needs to watch out for fees – on the M1 Financial platform you can completely avoid fees with a basic account. Paying for trades on $50-100 transactions or even account fees would really take a bite out of your early investments. Another great feature is automating your investments, you can link your regular local checking account to M1. You may also set up an automatic transfers from your checking to M1 and then set up automatic investments. Transfers may go into your already set-up choices of cash, stock or EFT. It is easy and takes just a few minutes to set-up. So, perfect for an early or even experienced investor.

If your goal is to save a fixed amount per month, move the money automatically and auto invest, this is ideal. Set it and forget it!

Or review of M1 Financial for a more sophisticated investor is a similar conclusion. Low fees, easy to use, they offer almost everything you need including fractional share ownership and some nice extras like online banking, M1 Borrow.

Earn some interest and cash-back on purchases with M1

Early asset builders or those who would like some yield on idle cash. Using M1’s banking can get you 1% APY on cash balances and 1% cash back on debit card purchases. This all adds up and it is essentially “Money for Nothing.” An extra $2-500 per year will help anyone build assets. This is money that can become many thousands of dollars years down the road.

Early asset builders may also be working on paying down some short-term debt. You can reduce your interest costs using the M1 Borrow feature instead of car loans, credit cards and student loans. It is tempting to not save/invest and try and prepay off these types of debts as fast as possible. The problem is you also need to be building appreciating assets. When you can borrow money at 2-3.5% your problem is solved. You can do a little of both. Those with higher investment balances can have access to large amounts of cash at a low 2% APY. Need some cash, don’t disturb your investments or trigger taxable events – borrow your own money.

Save, Invest and borrow using M1 Borrow

A highlight from our review of M1 Financial is the Borrow feature, it’s excellent if you use it properly. Please think this strategy through and consult an advisor but here is the framework of an asset building, debt reducing strategy that might work for you. Concentrate on building your account past the $10,000 minimum and then of course beyond. You could then use the M1 Financial “Borrow” feature to pay down debt to the lower rates offered by M1. Doing this in small bites at first such as $2-3,000 a couple of rounds of this and perhaps you can pay off a small car loan in 1-2 years – or months faster. Then take the monthly payment you are no longer making and have it automatically taken from your checking account each month and invested in your M1 Financial account.

Here is what you can accomplish

• Reduce interest costs
• Focusing on debt reduction
• Staying on a savings plan
• Staying in the market – putting and pulling money out of the market is never a good strategy.

Pay down that debt!

Now instead of investing $500 per month in your M1 Account you add in the $300 you were paying on the car loan for a total of $800. per month. Then borrow out $2-3,000 again and start paying off another loan like a credit card or school loan. You are in one sense moving money around to save some interest but on the investment side you are saving regularly and likely getting an 8-12% return on your savings. Staying in the market and adding new savings each month is an almost sure way to increase your overall investments. You will see doing this for some time the investments will have grown and debts will disappear. Going back to our article on starting a budget and you will see you will always have an asset column and a liabilities column but whatever you can do to build assets and control interest costs will, over time, build your net worth.

Review of M1 Financial shows they may offer you a transfer bonus

My former investment account company decided to close to retail investors like myself. I was thus, forced to move my accounts. Upon doing some research M1 Financial looked attractive and fit many of my goals for an investment account. Setting up a more complicated account as I did by transferring in a jointly held brokerage account and one traditional IRA account did take 3-4 phone calls and some time online. The initial call was to verify the current bonus for transferring an account to M1, in this case they were willing to pay me $1,000 to move my account over.

These offers vary so verify the current offer by phone. As of this review of M1 Financial, bonuses on the total value of account transferred in were as follows:

• $100,000 – $249,999.99  Earns $250
• $250,000 – $499,999.99  Earns $500
• $500,000 – $999,999.99  Earns $1,000
• $1,000,000 +  Earns $2,500

So, for example if you have a $50,000 regular brokerage account and a $50,000 IRA account your combined balance would earn you a $250. bonus after 90 days of the transfer into M1 Financial.

Check the website and then call to see current offers M1 Financial Account Bonuses

Time to make my transfer to M1

After my review of M1 Financial and many other online brokers it was time to make the move. From the point of opening my new M1 Financial account online and requesting a transfer to seeing my stocks and cash move was just 3-4 business days. You really do not want to make a lot of trades in your old account during this time – in fact none is best. You also want to suspend any automatic dividend reinvestment while the transfer occurs. This is because a reinvested dividend will potentially result in you owning fractions of a share and almost all brokerages will not accept incoming fractional shares.

An important note about fractional shares – we always recommend that you use a broker who allows for trading of fractional shares on all stocks including buying fractions of shares by reinvesting dividends. There is a problem though, in researching brokers to select a new one, no one we could find will allow you to transfer in fractional shares. They will accept the whole shares but sell off any fractions of a share you may own. This could trigger tax consequences and may be opposite of your main goals.

Cleaning house before a transfer where you own fractional shares.

Here is what I did. First I sold some really small holdings that I wasn’t really engaged with. This reduced my over 100 different holdings down to about 80. I then went through all the remaining stocks and tried to round them all up to the next full share. This took some work that I ended up doing in Excel. Example if I had 10.0500 shares of a company, I would just sell off .0500 of a share and be content to keep the 10 remaining full shares. In most cases I would have something like 40.750 shares and I just went in and bought .250 of a share to make 41 full shares. This took time as I really didn’t want to sell any companies and didn’t want to trigger any capital gains. In some cases they would have been short-term as well, certainly something to avoid.

Conclusion of our initial review of M1 Financial

Back to M1, so one morning I checked my old brokerage account and it was empty. A strange feeling when it had been very full. Upon checking the new M1 Financial account it was now full but not yet nicely organized. Upon receipt of shares from my previous brokerage account M1 placed all my stocks in a holding pattern until I place them into “Pies” then once completed the account became fully functional. More on “Pies” later.

Overall, after some time now using my account and months after my initial review of M1 Financial, I am very pleased. I don’t trade too often and don’t have a need to create a lot of investment “Pies” but I do plan to do more than I have. I plan to write a follow-up a few months after transferring to M1 Investments. Stay tuned!

Please be advised the views expressed are a matter of opinion and not a recommendation. You should consult an advisor, do your own research and make responsible decisions.