Digitization in the brokerage business is shrewd – Motif investing is closing

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

MOTIF Investing, one of the earliest innovators in the digital investing space in the US, is shutting down. Apparently, the communication hasn’t been that great, as some advisors found out from a tweet. Motif portfolios will be moved over to Folio Investing that has been competing with Motif.

At Daily Fintech we started covering Motif as early as 2014. The company is 10yrs old and its retail arm `Motif Investing` allowed DIY investors to invest in customized thematic portfolios for $9.95. It was not a social trading platform. It was a regulated broker-dealer in the US whose product offering was low cost but active, as individuals could change weights in each Motif.

In mid 2017, I had picked and covered the `Digital Dollars` Motif that had a 30% one year performance. It was an example of a thematic, fully transparent and customizable motif, with a fintech focus. In that post I was comparing alternative structured product offering exposure to the same thematic.

`What is more important is that Motif offers an optimization algo that allows users to take stocks that can be considered players in the mobile payments space (which are 26 US listed stocks) and optimize (holdings and weights). This is a great tool for DIY thematic investing.` excerpt from my 2017 post

 Motif Capital was the other part of the Motif business launched in 2016 as an investment advisor of all institutional dealings. Through that business, Goldman Sachs had a partnership with Motif, which created in 2019 thematic indices and ETFs, the Goldman Sachs Motif Next Wave of Innovation ETFs.

Screen Shot 2020-04-20 at 09.58.20 

In 2015, Motif had also struck a unique deal with JP Morgan, through which it would offer Pre-IPO access to retail. A strategic investment happened but unfortunately, the market never saw anything actually happen.

Motif was clearly a fascinating early innovator. They even added direct indexing, fractional investing capabilities, and a growing offering with ESG thematics. Seems like they were doing everything right.

They were backed by Goldman Sachs, JP Morgan, the UK based VC is Balderton Capital and the Chinese social network company Renren Inc.

Screen Shot 2020-04-20 at 10.06.16

Source: Crunchbase

Motif had raised $126million over the past 10yrs. When I spoke to them in 2016, they were already concerned about a Chinese copycat site MotifInvesting.net that had launched with the same even dashboard. And of course, about being leapfrogged by incumbents.

Fast forward to today, and the Robinhood effect killed them.

Folio Investing (a 20yr player) had already `copied` Motif Investing with their Ready-to-Go-Folios and a much cheaper price. Motif had to fold its business and investors using the unlimited plan will be getting a very similar offering with a 30% lower subscription.

`Investors will be transferred to a Folio Investing Unlimited plan by May 20 and charged $19.95 per month, a discounted fee from the usual $29 negotiated by Motif. ` Source

The sentiment in most online media is one of sadness, as an innovator is killed or stopped because of the price wars. WealthManagement reported that As of late March, Motif Investing’s wholly-owned subsidiary, Motif Capital Management, had $868 million in assets under management, according to regulatory filings.

Motif`s data-driven business that was behind the customized indices and the white papers around investment themes, will also suffer from this sad event.

The vision that Motif had to expand to China, the birthplace of Techfin, will not become reality.

The brokerage business is in danger to stop innovating, simply because commissions have gone to zero and the Schwab`s of the world have caught up with fractional ownership offerings, direct indexing, low cost financial advice and more.

Some say that Motif never found a product market fit. I say, that Motif was in the low-cost active space during a time that low cost passive outperformed. And it was not bought out 3-4 yrs ago from a large broker, like Interactive Brokers bought Covestor in 2015.

Notes: InvestorJunkie review of the Folio investing product and pricing

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  1. […] Tuesday Efi Pylarinou @efipm our Swiss-based Fintech Adviser,  founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019 wrote Digitization in the brokerage business is shrewd – Motif investing is closing […]

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