Introduction to M1 Finance
M1 Finance is a revolutionary investing platform that aims to change the way people invest, borrow, and spend their money. With a variety of customizable investment portfolios, low fees, and flexible borrowing options, M1 Finance is quickly becoming a favorite among investors.
In this article, we will delve into the details of M1 Finance, discussing the products, account types, founding history, and launch of this innovative platform.
Overview of M1 Finance Products
M1 Finance offers three main products:
Invest,
Borrow, and
Spend. Each product offers unique features and benefits, making it easy to customize a financial plan that fits your unique needs.
Invest
Invest is M1 Finance’s primary investment product, where you can create a custom investment portfolio tailored to your individual goals. With
Invest, you can choose from over 6,000 stocks and ETFs, including some of the most popular funds on the market.
Moreover, there are no commissions or management fees involved. M1 Finance’s model is based on fractional shares, which means you can invest even in high-priced stocks without having to buy a full share.
Additionally, the platform offers free rebalancing and automatic reinvestment to help you maintain your portfolio over time.
Borrow
M1 Finance also offers a unique borrowing experience. With
Borrow, you can access a low-interest, flexible, and instant line of credit.
The borrowing process is straightforward; all you need to do is borrow against your portfolio. You can use the loan for whatever purpose you wish, including home expenses, business expenses, or to invest.
One of the main advantages of
Borrow is the low-interest rate of 2%, which is lower than most credit cards and personal loans. Additionally, there is no credit check involved in the borrowing process.
Spend
M1 Finance’s
Spend product is a cash management account that integrates with both
Invest and
Borrow.
Spend is not a bank account, but it offers features similar to a traditional bank account, such as a debit card, direct deposit, and online bill payment.
With
Spend, you can earn interest on your cash deposits, and the funds in your account are FDIC insured up to $250,000.
Customization and Account Types
M1 Finance offers several account types to make investing more accessible to everyone. These include Individual accounts, Joint accounts, Trust accounts, and
IRAs. Additionally, M1 Finance offers the option to create a custom plan for your investing strategy, which is a great way to tailor your investment portfolio according to your specific needs.
Individual Account
Individual accounts are for investors who want to hold assets in their name and are taxed accordingly. You can customize the account through your investment plan, and you can also invest in any of the available securities.
Additionally, there is no limit to the number of Individual accounts you can open.
Joint Account
Joint accounts are for two or more investors who own assets together, such as couples or business partners. With Joint accounts, you can customize your investment plan, and all investors have equal access to the account.
Trust Account
Trust accounts are for individuals who want to invest on behalf of a trust or estate. You can customize your investment plan and set up an account according to the trust agreement.
Additionally, M1 Finance offers unique tax features for trust accounts.
IRA
M1 Finance offers both traditional and Roth
IRA options, which allows investors to save for retirement tax-free. You can customize your investment plan for your specific retirement needs with M1 Finance.
History of M1 Finance
Founders Background and Inspiration
M1 Finance was founded in 2015 by Brian Barnes, who comes from a family with a strong background in finance. Barnes’s grandfather was a financial advisor and had a significant influence on his approach to investment.
Barnes himself was also a finance major who went on to work in several financial planning and investment firms, including trading technology startup, Thinkorswim. Through his experiences, Barnes realized that there was a significant gap in the market for a high-quality, customizable and low-cost investing platform, which led him to create M1 Finance.
Development and Launch of M1 Finance
M1 Finance’s development process began in 2015, and it took three years to develop. The platform launched in July 2018, and it made waves at the FinovateFall conference.
The platform was met with significant interest from investors and financial institutions alike. M1 Finance’s unique model has made investing more accessible to everyone, and it has quickly become a popular choice among investors.
Conclusion
M1 Finance is an innovative platform that has disrupted the traditional investing approach. With its customizable investment portfolios, low fees, and flexible borrowing options, M1 Finance offers an all-in-one financial management experience that is accessible to everyone.
Whether you are an experienced investor or a beginner, M1 Finance provides an opportunity to create a tailored financial plan that meets your investment goals.
Revenue Streams of M1 Finance
M1 Finance is an innovative financial management platform that provides its clients with various investment opportunities. Like any other investment service, M1 Finance has multiple revenue streams that generate its profits.
These revenue streams include payment for order flow, subscription fees, lending activities, interest on cash, and short sales.
Payment for Order Flow
M1 Finance generates revenue through the
Payment for Order Flow model. This model involves market makers paying brokers like M1 Finance to direct retail order flow to them.
In layman’s terms, this means that market makers like Virtu or Citadel Securities pay M1 Finance to route the platform’s client orders to them. Market makers use this order flow information to improve their operations and generate profit via the bid-ask spread.
Despite being a controversial practice,
Payment for Order Flow allows brokers like M1 Finance to offer their clients commission-free trading while generating revenue.
Subscription Fees and Lending
Another source of revenue for M1 Finance is subscription fees and lending. M1 Finance offers a premium service known as M1 Plus that provides additional features such as lower borrowing rates, higher interest rates on cash, and cashback rewards on debit card usage.
M1 Finance generates revenue through the monthly subscription fees from its M1 Plus members. The platform also generates revenue through its lending services such as
Borrow.
M1 Finance allows its clients to use their investment portfolio as collateral and borrow at a low-interest rate of 2%. This borrowing rate is lower than most lenders in the industry, making it an attractive option among clients.
M1 Finance generates revenue through interest earned on loans through
Borrow and collects a fee on the borrowing activities.
Interest on Cash and Short Sales
M1 Finance also generates revenue through interest earnings on cash deposits and short sales. Cash deposits made by clients on M1 Finance’s platform are invested in high-yielding money market instruments, and the platform earns a margin between the interest it pays to clients and the interest it earns on these investments.
This process is known as the net interest margin.
M1 Finance also generates revenue through short sales.
Short sales involve borrowing securities and selling them in the market, hoping to buy them back at a lower price. If the purchase price is lower than the sale price, the difference is profit.
M1 Finance earns revenue by charging interest on the borrowed funds, making it an attractive option for clients seeking to earn additional income on their investments. Funding, Valuation, and Revenue of M1 Finance
Venture Capital Funding
M1 Finance has received significant venture capital funding from different investors, including Left Lane Capital, Chicago Ventures, and Jump Capital. The company raised $75 million in Series D funding in April 2021, bringing its total funding to $200 million.
The funding has helped the company scale its operations and expand its range of services.
Valuation and Revenue
M1 Finance’s revenue model is gaining traction, and consequently, its valuation and revenue are rapidly increasing. As of April 2021, M1 Finance’s valuation was $1.45 billion, and the platform’s assets under management were over $4.5 billion.
Additionally, the platform’s revenue run-rate stood at approximately $100 million for the year 2021. M1’s revenue growth is impressive, especially when compared to robo-adviser Stash
Invest, whose revenue grew by about 100% between 2018 and 2019 to $37 million.
M1 Finance’s diversified revenue streams and exceptional customer experience may be the primary drivers of its growth and valuation.
Conclusion
M1 Finance’s revenue model is impressive and has allowed the platform to grow and scale its services. The platform generates revenue through
Payment for Order Flow, subscription fees, lending, interest on cash, and short sales, ensuring a diversified stream of revenue.
Furthermore, the company has received significant venture capital funding from investors and has a soaring valuation and revenue run-rate. With its innovative and customer-centric approach, M1 Finance is poised for growth and success in the competitive industry of financial management.
In summary, M1 Finance is an innovative and customer-focused financial management platform that generates revenue through various streams, including
Payment for Order Flow, subscription fees, lending, interest on cash, and short sales. The company has received significant venture capital funding, and its valuation and revenue run-rate continue to grow.
M1 Finance’s diversified revenue streams make it an attractive option for investors seeking to create a tailored financial plan while its exceptional customer experience sets it apart from its competitors. In conclusion, M1 Finance’s revenue streams play an important role in the company’s success and provide insights for the future of financial management platforms.