Another one bites the dust. Motif Investing – a digital robo advisor based out of Silicon Valley, which helped investors put assets into thematic portfolios based on specific themes such as sustainable and impact investing – told users it was ceasing operations. On May 20th, investors will be transferred to a Folio account and charged $19.95 per month unless the account holder transfers the account to another advisor or brokerage firm. Motif clients may want to think about their next move…
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Keep in mind if a client is going to pay $19.95 per month for their services, this equates to $239.40 per year. If you were to work with a platform like Sustainfolio which charges a flat 50bps (1/2 a percent a year) for a $25,000 account, the annual fee would be $125 or almost half. There is no mention of their closure or transfer of assets to Folio on their website as of 4/27/2020.
Founded in 2010, Motif was able to amass a large following with one of the largest fintech venture capital raise of about $125 million. Whether or not those investors who backed the company will be paid back is unknown. According to its March filing with the Securities and Exchange Commission, Motif had $18.2 million in assets from individual investors and $586.3 million from banks. This could be the tip of the iceberg for digital platforms that are trying to scale quickly with venture backed monies. Just recently Swell, another robo-advisor which focused on sustainable investing, after an incubation by Pacific Life, had amassed just $34 million in assets under management and 14,122 accounts as of April 9, 2019, according to its latest Form ADV filing. Other recently failed digital firms include SheCapital, WorthFM and Hedgeable.
Now the issue is, where do all of these clients go? The problem with these fly by night robos is that they are just really one thing—a robo. Investment advisory firms that are integrating both a traditional investment management firm and having a digital platform as an option for clients seems to be the more stable and time tested way for clients to work with a company that is not reliant on venture funding. Working with an independent fiduciary advisor who also has a custodian as the 3rd party holding assets like Charles Schwab seems to be the full proof way to not be bumped around by start ups looking to make bank.
For those left to wonder what Folio will do with their accounts and wanting to work with either a full service financial planning firm OR opening up a digitally managed account that matches each client’s individual risk profile, Sustainvest Asset Management and/or its digital platform Sustainfolio (which uses Charles Schwab and Co. for all client accounts) may be an option. Having to worry about whether or not your account will continue to be transferred to another broker due to tech companies changing hands, may not be something clients are interested in and Sustainfolio may be an option for those sitting with Motif accounts in limbo.
Enter sustainability. It’s clear sustainable investing is important to most. More and more, investors want to place their money where it can do some good, and rightfully so considering. “SRI” targets businesses that are advocates of the environment, consumer protection, human rights, and diversity while avoiding those involved in fossil fuels and weapons. Socially responsible investing considers environmental, social and corporate governance, also known as ESG criteria. Hundreds of studies have been done to understand whether embracing ESG can lead to better financial and operational performance. Oxford University and Arabesque Partners examined 200 such studies and found that 88 percent of this research found that robust ESG practices did help improve operational performance.
For those with Motif accounts it may be time to consider a change. Investors are advised to transfer their funds to another investment platform by Aug. 15, to the same type of IRA account, or to a bank account by Aug. 30. IRA account holders are advised to begin that process by mid-August. Otherwise Folio, the robo’s custodian, will sell out account positions — which could result in tax penalties if the account has capital gains and early-withdrawal penalties for retirement investors under age 59-1/2. Advisory firms like Sustainvest and Sustainfolio could make the transfer easy as they handle all Charles Schwab paperwork for new client onboarding.