{"id":69514,"date":"2018-03-21T11:34:30","date_gmt":"2018-03-21T16:34:30","guid":{"rendered":"http:\/\/news.medill.northwestern.edu\/chicago\/?p=69514"},"modified":"2018-03-21T15:59:29","modified_gmt":"2018-03-21T20:59:29","slug":"m1-finance-users-double-after-firm-ends-trading-fees","status":"publish","type":"post","link":"https:\/\/news.medill.northwestern.edu\/chicago\/m1-finance-users-double-after-firm-ends-trading-fees\/","title":{"rendered":"M1 Finance users double after firm ends trading fees"},"content":{"rendered":"

By Jinman Li<\/strong>
\nMedill Reports<\/em><\/p>\n

Can a securities brokerage make money without charging transaction fees?<\/p>\n

M1 Finance LLC, a Chicago start-up, removed fees for its customers’ trades in December 2017, and has witnessed its number of users more than double to 25,000 since then. The company\u2019s assets under management now total $100 million. <\/p>\n

Brokerage firms have been drawn into a \u201cprice war\u201d in the past few years, as a result of increasing efficiency brought by technological improvement and the popularity of passive funds and exchange-traded funds, or ETFs. Big players such as Fidelity and Charles Schwab both trimmed their commission rates in 2017. <\/p>\n

\u201cWe saw price compression everywhere in the industry, from automated robo-advisers to old institutional players,\u201d said Michael Savino, vice president of investment operations at M1 Finance. \u201cWe saw this as an inevitability and we wanted to be one of the first people there.\u201d<\/p>\n

<\/p>\n

As a digital-only platform, M1’s lack of brick-and-mortar locations makes it easier for the company to save costs and go free. Before M1 Finance, online broker Robinhood Financial LLC has been offering free stock trading since the introduction of its app in December 2014, and it slashed fees for stock-options trading to zero in December 2017. Interactive Brokers Group Inc., which claims to be the largest U.S. electronic brokerage firm by the number of daily average revenue trades, now boasts a $1 trading fee. <\/p>\n

M1 Finance didn\u2019t offer free transactions at the beginning. When it was launched to the public in September 2016, the platform charged a rate of 0.25 percent. However, Savino said, the company found a more efficient way to gain profits than charging trading fees: back-end services. These include lending out clients\u2019 cash and securities, giving out loans on customers’ portfolios, and receiving payment from clearing firms for order flows. Each of these services contributes roughly an even portion of the company\u2019s revenue. <\/p>\n

\u201cA hybrid robo-advisor and traditional investment broker\u201d is the way M1 Finance brands itself, underscoring its combination of automation and customization. Robo-advisors are digital platforms that provide automated financial advice based on algorithms. Although, as an automated platform M1 Finance does not provide advisory service, it employs the Modern Portfolio Theory and generates a spectrum of expert portfolio options that cater to different users\u2019 preferences, Savino said. The Modern Portfolio Theory focuses on how to create optimal portfolios for risk-averse investors based on a given level of risk, which is \u201ca very passive index model,\u201d said Savino. <\/p>\n

\"m1
A user skims over the expert pies offered on M1 Finance’s mobile app. (Jinman Li\/MEDILL)<\/figcaption><\/figure>\n

Compared with robo-advisors, users have more freedom to compose their own portfolios with the platform, which even allows them to purchase fractional shares, Savino added. <\/p>\n

Chris, a 28-year-old data analyst, said he enjoys watching his money be invested exactly how he wants. \u201cI\u2019d been looking for an easy way to manage my investments, and M1\u2019s free auto investing stuck out.\u201d <\/p>\n

Although appreciating the handiness of the platform, Jaquan, a 21-year-old student, said he wishes he could buy a share without modifying the pie, which is a dynamic portfolio template that shows the percentage of each investment slice. Jaquan was drawn to M1 because it was free and had a low investing threshold at $100. <\/p>\n

Jaquan\u2019s concern echoes with the direction that M1 Finance is working towards \u2013 offering users more freedom to customize how they trade and manage money. About a quarter of the platform’s users are 18 to 25 years old, and around 40 percent age 25 to 40, which generally fits the generic term of \u201cmillennials\u201d. <\/p>\n

As Savino sees it, being \u201cmobile and digital\u201d is the core feature of \u201cnext-generation investing\u201d and is the reason why the platform appeals to more millennials and the younger generation than other age groups. However, it would be a challenge to retain them. \u201cThe younger generation is going to have a lot of great tools and technologies available to them,\u201d he said, \u201cregardless of how they want to manage their money.\u201d<\/p>\n

Photo at top: A user browses stocks on M1 Finance’s mobile app. (Jinman Li\/MEDILL)<\/div>\n","protected":false},"excerpt":{"rendered":"

By Jinman Li Medill Reports Can a securities brokerage make money without charging transaction fees? M1 Finance LLC, a Chicago start-up, removed fees for its customers’ trades in December 2017, and has witnessed its number of users more than double to 25,000 since then. The company\u2019s assets under management now total $100 million. Brokerage firms […]<\/p>\n","protected":false},"author":445,"featured_media":69515,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[27,3987],"tags":[],"class_list":["post-69514","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-winter-2018"],"yoast_head":"\nM1 Finance users double after firm ends trading fees - Medill Reports Chicago<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/news.medill.northwestern.edu\/chicago\/m1-finance-users-double-after-firm-ends-trading-fees\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"M1 Finance users double after firm ends trading fees - Medill Reports Chicago\" \/>\n<meta property=\"og:description\" content=\"By Jinman Li Medill Reports Can a securities brokerage make money without charging transaction fees? 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