Advisor Platform
Also last month, Motif unveiled a flat-fee wealth management platform focused on financial advisors that’s designed to streamline how advisors build, monitor and rebalance model portfolios. The platform came about because Motif noticed a number of advisors were using its product. “This [Motif’s retail-focused] product isn’t designed for financial advisors who want to manage a large book of business because they’d have to log into each account to do this,” Walia says.
Instead, Motif’s advisor platform enables advisors to create or assign an existing model portfolio of up to 30 stocks for just one client––or as many clients as he or she wants to put into that motif––in just one mouse click. And the same goes for rebalancing the holdings for all clients invested in a particular portfolio. “We’ve taken all of that overhead activity and turned it into the art of pressing a button,” Walia says.
Depending on the amount of assets involved, advisors pay a flat monthly rate of $20 to $50 that covers onboarding clients and all trading and rebalancing costs.
Advisors can also license their model portfolios to other advisors, which may or may not be a hit with advisors. “The only way I’d make my motifs public is if I could charge a management fee for any individual who invests in them,” says Jaime Harpst, the Ohio advisor who has created seven motifs he uses for clients. “I don’t think it’s fair for me to not charge people to use my strategies when I have a client base that’s paying me a yearly 1% fee to use them.”
Walia says Motif took to heart the feedback gleaned from users during the beta launch of the advisor platform, and it’s trying to incorporate some of their suggestions, which Harpst says is encouraging.
“What they have is great, but it’s still a little raw, Harpst says. “But I think a year from now the finished product will be amazing.”
Motif recently introduced its Horizon motifs, which provide self-directed retail investors with commission-free asset allocation-based models (conservative, moderate and aggressive) and rebalancing capability that Motif says gives investors more flexibility than static robo-allocator models.
And Walia says Motif in the second quarter plans to launch more sophisticated smart beta asset allocation models available only to financial advisors, who will then make them available to clients.
Competitor To ETFs
Indeed, Motif makes building your own portfolio a snap. But depending on how an investor uses these motifs, that can be a problem at tax time for people who do a lot of trading.
As mentioned in Motif’s online FAQ section, when you buy a motif, you own each stock it contains individually, so Motif places a separate trade for each stock. For each of those individual stock trades, Motif’s clearing partner, Apex Clearing Corp., provides investors with cost basis and proceeds documentation.
“It definitely becomes an issue for active traders on our retail site,” Walia says. “Active day traders have brought up their concerns and we’re working on it.” He adds he doesn’t see that as a problem with the advisor platform because the majority of assets there are focused on asset allocation models meant to be rebalanced quarterly or annually and aren’t generating a lot of transactions.
At first blush, Motif’s portfolios appear to be uber-tactical versions of exchange-traded funds. “We like to think of us as ETFs 2.0, but we’re not a fund, even though we satisfy the same need as a fund,” Walia says. “We’re disruptive to the whole concept of ETFs, which are themselves doing a good job of challenging mutual funds. The need we’re fulfilling is similar to ETFs, but we’re doing it differently, and it’s not an apples-to-apples comparison.”
As fresh as Motif Investing’s product appears to be, it’s not totally groundbreaking. Folio Investing rolled out its first customizable portfolios in 2000, and now offers more than 100 such products ranging from traditional allocation themes to tactical strategies such as analyst upgrades; military procurement; and wine, beer and spirits. The unlimited plan is $29 a month or $290 annually, while the basic plan is pay-as-you-go at a $4 commission per security transaction. Folio portfolios can hold as many as 100 securities.
“Motif is disruptive, but it fits into the broader trend of downward pressure on commission costs,” says Grant Easterbrook, an analyst at Corporate Insight, a New York City-based financial services research company.
And down the road, Easterbrook posits that online discount brokers such as E*Trade, Scottrade and TD Ameritrade that don’t have their own fund families (unlike rivals Fidelity and Charles Schwab) could someday become competitors to Motif and Folio. “It’s possible to imagine them rolling out a similar service of customizable funds,” he says.
For now, though, Motif Investing is creating a buzz with its fun, cost-effective way for investors to bring their own investing ideas to life. So if you’ve ever wanted to create a portfolio focused on doughnuts, now’s your chance (as of early May, that idea still didn’t have its own motif).