Drawbacks of M1 Finance

May 27, 2020 m1finance [investing]

Today lets continue discussing M1 Finance. People tout the benefits of M1 but not many go into its drawbacks. Perhaps the sweet seductive siren song of the $10 referral payola sways their opinions. Of course not. There is absolutely no referral spam on the internet. lol.

People get drawn into talk of pies and being able to invest small amounts over time. They forget the biggest contributor to wealth is savings rate and not compounding 7% annually on a measly monthly $100 contribution. As if the 7% is guaranteed.

Bad Support : I could write an entire post on their poor support. And that is just from my personal experience. I couldn’t even get my account opened when I first tried two years ago. I was just recently able to activate my account when I went back and persisted at it. The M1 Finance reddit is filled with folks trying to get replies from support and report wait times of more than 15 days for replies that merely regurgitate what is already on the site.

Pernicious Fees : This is so annoying that I’ve actually written an article about it. I completely don’t understand their fees. For example getting charged $20 if you don’t do something in your account for 90 days. I mean, how is it buy and hold if you can’t even set it and forget it. And lets not forget their very punitive $200 “Death fee” or TOD Account Transfer Fee. Its like sticking it to you one last time after you pass away. All other competing brokerages like Schwab, Vanguard, and Interactive Brokers don’t stick it to you like this.

Shady Trade Times : M1 openly lists their trade times. This means all the dark pools, hedge funds, day traders, and WSB posers know exactly when to put in their high limit sell orders. They may not fleece every M1 customer, but this is definitely a disadvantage. Which leads me to my next topic …

Selling Order Flow : M1 sells your order flow and the common justification is you’re not getting fleeced because you’ll get the NBBO or National Best Bid and Offer. Its touted that this is required by law. What keeps the dark pool traders from flooding the market with low offers right when M1 is performing their trades and skimming off money by reselling the stock at a higher price once M1 is finished? And remember that M1, unlike every other brokerage out there, doesn’t allow limit orders. So you’re stuck with whatever price the stock is bought at. Oh, and you do know better than NBBO prices exist?

No Stock Lending Revenue : You don’t get any revenue from M1 lending out your own shares. Think about it. You’re assuming all the risk and they keep all the money. Other brokerages like Vanguard and Interactive Brokers are generous and share revenue with you. Vanguard returns all profits from its lending back to its funds, which at times completely covers the expenses of their funds. Interactive Brokers similarly shares revenue, yes even on the free lite version.

No Interest On Cash : M1 keeps all the interest on your deposits. Vanguard by default keeps your money in their money market fund which at least gives you a little something. Even Schwab gives a pittance just to be in the game.

I’d keep going but by now you’ve probably made up your mind about M1. So please consider using my referral link. I’ll get $10 and you’ll also get $10. Although the minimum investment is $25 and the minimum bank transfer is $100. I don’t know how that works.