Motif Investing was an innovative online broker that popularized thematic investing, empowering investors to buy groups of similar stocks in one investment transaction.
For a time, it was also the most promising platform for IPO investors. Motif Investing provided IPO access to ordinary investors for a minimum investment of $250.
In the Fall of October 2015, the company announced the launch of its IPO investing platform as a place for customers to access shares of IPO stocks. However, it wasn’t until about a year later that the deals started to arrive.
From late 2016 through 2019, Motif Investing facilitated more than 200 IPOs and secondary offerings on its platform. Some of the more notable deals were Trivago, Redfin, several biotech IPOs, and a handful of Reg A+ IPOs.
By early 2020, the IPO deal flow slowed. As Charles Schwab led the online brokerage industry into commission-free trading, Motif Investing was meeting with potential suitors.
Motif Investing sold its customers and technology to two different buyers in an unexpected fate, breaking up the company and directing its former customers to a lesser-known investing platform.
This article lays out what happened to Motif Investing and what lies ahead for its former customers.
Motif Investing Customers Sold to Folio Investing
On April 17th, 2020, Motif Investing customers received an email informing them that the company was ceasing its operations.
All individual and registered investment advisor (RIA) accounts transferred to Folio Financial, the McLean, VA-based boutique wealth management custodian, fintech, and online broker that previously purchased the customer accounts from LOYAL3 and BuyandHold.com.
It appears the Motif Investing customers will go to the Folio Investing platform, not the FolioFirst platform.
Folio Investing is a lower-tier option for individual investors that offers folios, which are similar to motifs. The platform pre-dated FolioFirst, which was built for former LOYAL3 customers and comes with a $5 per month fee.
Folio Financial, the umbrella company, has other unique capabilities, including the ViaFolio private investing platform and its institutional platform for RIAs.
It also maintains a secondary marketplace for LendingClub called FolioFN.
Folio Investing also provided limited access to Reg A+ IPOs, a type of crowdfunding IPO enabled by the JOBS Act of 2012.
Customers looking to switch from Folio Investing to an alternative online broker can find suitable options further below.
Motif Investing Technology Sold to Charles Schwab
A few weeks after the Motif and Folio Investing announcement, Charles Schwab announced its acquisition of Motif Investing’s technology, including source code, patents, and algorithms.
Schwab also hired most of Motif Investing’s San Francisco-based engineering team and its founder, Hardeep Walia.
We continue to see an increasing number of clients interested in customizing their investing experience to suit their values, objectives, and personal circumstances. We intend to leverage Motif’s platform to build on Schwab’s existing capabilities and help accelerate our development of thematic and direct indexing solutions for Schwab’s retail investors and RIA clients – all with the sophisticated digital experience our clients expect from Schwab. – Neesha Hathi, EVP and Chief Digital Officer at Schwab
Direct indexing is the term Schwab is now using to describe a custom ETF-like investing experience with fractional shares, a la Motif.
Reports suggest that the Motif Investing customer base was of no interest to Charles Schwab, so they declined the customers and purchased only the technology.
Retail Motif Investing customers had smaller average account balances than Charles Schwab’s existing client base.
Goldman Sachs Purchased Folio Investing
Less than a month after the Folio Financial customer acquisition announcement, Goldman Sachs purchased Folio Financial for an undisclosed sum.
Folio Financial seems to be a jack of all trades but master of none. With various customer accounts from different acquisitions over the years, and maintaining at least two separate retail platforms, perhaps it was too segmented to consolidate and grow alone.
Goldman Sachs was looking to further its business expansion into the retail banking space on the heels of its successful growth of the Marcus online banking and lending platform.
The institutional platform will become a new RIA product for Goldman Sachs.
For the individual accounts, Goldman Sachs can either improve and consolidate Folio Investing and FolioFirst, sell the accounts, or launch a brand new standalone platform or a brokerage integrated with Marcus.
This may be an exciting new offering for patient customers.
Folio Investing Accounts Sold to Interactive Brokers
On December 4th, 2020, Interactive Brokers announced that it purchased the self-directed retail brokerage segment from Folio Investments Inc (owned by Goldman Sachs).
Goldman Sachs will keep the clearing and custody services created by Folio Investments for investment advisors.
The acquisition involves 70,000 retail accounts with assets totaling about $3 billion (~43,000 per account).
Since the transaction involves all self-directed retail accounts, we can infer this includes both the individual Folio Investing accounts (former non-RIA Motif) and FolioFirst (former LOYAL3) accounts.
This transaction appears to be the end of the LOYAL3 and Motif customer saga. Notably, only 70,000 accounts remain. The original LOYAL3 accounts totaled about 400,000, as I recall. Motif and Folio Investing never disclosed the number of accounts involved in the transaction.
That means most of the former LOYAL3 customers already closed or transferred accounts, and many of the Motif customers followed suit.
Interactive Brokers should serve as a permanent home for these customers, finally getting access to a full-service commission-free broker.
The Downfall of Motif Investing
What led to the end of Motif Investing?
First and foremost, I don’t think thematic investing ever resonated with retail investors because active investors seek to buy and trade best of class stocks.
For example, if you buy a group of biotechnology stocks, your portfolio will rise the average of all the stocks combined.
However, if you can identify the best stock of the bunch and only own that one, your portfolio will benefit.
Of course, finding that best in class is the challenge, but Motif Investing was the antithesis of a best in class investing strategy.
I also believe Motif Investing became distracted from its core offering instead of focusing on continuous improvement. Investors wanted zero-commission trades and a simplified investing experience.
Motif offered neither.
The company focused a great deal of its attention on ESG investing (environmental, social, and governance) with its Motif Impact product.
ESG always seems like the next big thing in retail investing, but most investors aren’t interested, preferring active trading, dividend growth, or passive indexing strategies.
Swell Investing, an offshoot of Pacific Life Insurance, was exclusively aimed at ESG investors. It failed, as did Motif Impact.
Motif Blue was an attempt to create a recurring revenue model, likely pushed by its venture investors.
Meanwhile, Robinhood entered the industry as a lightweight app with zero trading commissions.
The IPO platform was probably a distraction too. Though exciting for those of us interested, it wasn’t enough to drive new revenue growth.
The biggest disappointment was lack of access to the high-demand IPOs and an abundance of mediocre deals.
Motif built a robust IPO platform, but Charles Schwab already has its own.
The wealthiest Schwab customers will likely continue to get preferred access to the high-demand IPOs. Former Motif IPO investors should expect to be out of the loop unless Goldman Sachs builds IPO investing into its new endeavor.
The company de-emphasized peer referral and affiliate marketing efforts while its competitors aggressively grew theirs.
Motif’s sixth and final funding round closed in January 2015. With an unproven business model and lack of new funding, April’s announcement was inevitable.
Motif Investing Alternatives
Now that former Motif Investing customers have been moved to the Folio Investing platform, what are the best alternatives if you’re looking to switch?
If you like the Motif Investing model, your best bet may be to switch to Charles Schwab since they’ve acquired the technology. It remains to be seen which aspects of Motif Investing will be adopted.
Former Motif IPO investors have two decent options to invest in IPOs. The two brokers below have partnered with ClickIPO, a smartphone app that helps match investors with IPO deals.
The first is Tradestation.
Tradestation is a full-service online broker with excellent desktop and smartphone access. The platform is integrated with the ClickIPO app so that you can place orders on the app, and allocated shares show up in your Tradestation account.
Get started with IPO investing with a $500 minimum account balance.
The second option is Webull, which has also partnered with ClickIPO to access IPO deals through the Webull app directly.
Read my Webull review for IPO investing and get free stock for joining and funding your account. The account minimum is $100.
Click here for a complete list of the best online brokers for IPO investing.
For Motif-Style Investing
Motif Investing was innovative and unique how it enabled investors to create personalized mini-ETFs.
A newer broker that empowers investors to do the same thing is M1 Finance. M1 Finance’s core investing platform is designed for long-term investors.
On M1, investors create customized pies, including whatever stocks or ETFs the investor wants to own in pre-determined allocation percentages.
Every time the investors adds more funds to the account, M1 Finance automatically distributes new funds into the portfolio as allocated.
It’s a way to dollar cost average into a portfolio of stocks instead of individual stocks or ETFs. You can easily use the pies as a replacement for motifs.
Read my M1 Finance review here to understand how it works. The platform is more intuitive than Motif Investing. Trades are 100% commission-free.
I am a former Motif Investing customer who joined to get free access to IPOs. I’m grateful that I participated in a handful of profitable deals. Still, the IPO access was not enough of a value for me to maintain an additional investing account.
I closed my account to consolidate and simplify my overall investing strategy.
In the wake of LOYAL3, Motif Investing demonstrated that ordinary investors have a strong desire for IPO access, and built a powerful and seamless platform to facilitate deals.
But they demonstrated that breaking into the old-boys-club of IPO share allocation is challenging for start-ups in an industry full of behemoths.
Perhaps ClickIPO and its partners are learning this now.
The lesson to take away from the downfall of Motif Investing is that there’s value in innovative technology. But investors also demand simplicity, flexibility, zero-fee commissions, and consistent improvement to core offerings.
Companies that get too distracted from their core products may be passed by if they aren’t on the lookout.
And another takeaway, the most prominent players continue to grow with strategic acquisitions. Aspiring broker start-ups beware.
Congratulations to the Motif Investing team for a triumphant acquisition.