We talk about M1 Finance a lot here on Robo-Advisor Pros, and for good reason: it’s one of the most affordable robo-advisors, with low minimum investments and zero account management fees. This is one of those robo-advisors that reminds us everyone should have an opportunity to invest, no matter their current net worth. Online investors ask, “Is M1 Finance a scam?,” “Is M1 Finance Legit?,” and “Is M1 Finance secure?”
Yet free investment management might sound too good to be true. The good news is that no, M1 Finance is not a scam, and yes, it is a legitimate and secure robo-advisor! In this post, learn more about how M1 Finance keeps your money safe.
What is M1 Finance?
M1 Finance is one of only a handful of free robo-advisors. It has a minimum investment requirement of $100 for investment accounts, or $500 for retirement accounts. They do offer premium services under M1 Plus for $125 per month, but many find the basic, free account more than adequate for their investment needs. (Barbara Friedberg, the owner of this site has an account!)
Clients can either create their own portfolios or choose a pre-made option. Either way, investment portfolios are made up of any number of the 6,000+ stocks and ETFs available through M1 Finance. M1 Finance takes care of rebalancing your investments if your allocations get off-track.
Another great feature of M1 Finance is that they offer a wide variety of account types: individual and joint taxable accounts, IRAs (Traditional, Roth, SEP, and Rollovers), LLCs, Trusts, Partnerships, and Corporate accounts.
Is M1 Finance Safe?
M1 Finance’s responsibility is to keep your account secure, and they take that responsibility seriously. M1 Security meets industry standards and is in line with security measures taken by other robo-advisors and their competitors.
There are two main ways M1 Finance protects your account:
Account systems are protected through 4096-bit encryption which M1 Finance states is military-grade. This encryption protects your data as it is transferred to or stored in the M1 Finance system.
If the base-level encryption isn’t enough for you to feel fully secure, M1 Finance also allows users to turn on two-factor authentication. Two-factor authentication usually requires users to approve any login attempts via their cellphone, making this a nice security feature.
M1 Finance is as safe as your bank!
How Does M1 Finance Protect My Money?
In addition to their security features, M1 Finance also goes to great lengths to ensure your money is protected against loss whenever possible.
Any investment should be considered “at risk,” as changes in the market can result in loss of portfolio value. However, M1 Finance is secure in that they are a member if SIPC, or the Securities Investor Protection Corporation. This membership protects investor funds up to $500,000, or $250,000 maximum for cash claims.
SIPC does not protect you from market-related loss. Instead, these insurance benefits kick in if you lose money because of a liquidation or failure of the company. This is highly unlikely.
“M1 Finance went from managing $1 billion in assets to managing $3.5 billion in almost exactly a year. The company also saw a 3x increase in new sign-ups in January of 2021 compared to the previous month.”Builtinchicago.org article “M1 Finance Adds to Year of Growth With $75M Funding and 140 Planned Hires” by Gordon Gottsegen
M1 Finance has also purchased additional insurance to help supplement the protection already available through SIPC. This is a common practice among legitimate financial institutions.
Registered as Broker/Dealer with FINRA
The Financial Industry Regulatory Authority, or FINRA, has one important mission: “to protect investors and ensure the market’s integrity” that oversees broker/dealers across the United States. They ensure that investor protections are in place, broker-dealers are operating fairly and ethically, and that investors receive appropriate disclosures about any investment they make.
FINRA membership demonstrates M1 Finance’s commitment to taking care of their customers and providing safe, secure investment opportunities.
Is M1 Finance FDIC Insured?
Yes! M1 Finance’s Spend account – their digital banking account with a linked debit card – is FDIC insured up to $250,000, just like a traditional bank account.
M1 Finance does not charge any account management fees at the basic account level. M1 Plus, which offers additional benefits, costs $125 per year.
There are a few fees for miscellaneous services, such as wire transfers or returned mail, but these are not services the average user will use.
Regulatory fees from SEC (Securities Exchange Commission) and TAF (Trading Activity Fee) are mandatory even with free robo-advisors.
M1 Finance is a good option for beginning investors. They do offer a fully customizable portfolio, which lets investors choose their own investments. However, beginners will be happy to know that M1 Finance also has many pre-made portfolios. These are great for those who like to simplify their investment strategies or newbies who want pre-selected investments.
Another reason M1 Finance is good for beginners is the low minimum investment. You don’t need thousands of dollars stashed away to get started, making M1 Finance in reach for even the newest investor.
It is! M1 Security uses military-grade encryption to protect account data. They also have two-factor authorization for clients who want another layer of protection.
Another way M1 Finance protects clients is through their insurance memberships. SIPC protects investments up to $500,000 (or $250,000 for cash) in case of brokerage liquidation; FDIC protects M1 Spend accounts for up to $250,000.
Like M1 Finance, Robinhood strives to be accessible to the everyday investor. They have no minimum investment requirement and do not charge account management fees for their basic accounts. Both offer socially-responsible investing options.
Active traders will favor Robinhood due to the opportunity to invest throughout the day. While those seeking pre-made portfolios and rebalancing for all investments would veer towards M1 Finance. M1 Finance also offers greater account types than Robinhood.
For an in-depth look at which is better, check out our M1 Finance vs. Robinhood comparison post.
The Takeaway: Is M1 Finance a Safe, Legitimate Investing Option?
M1 Finance is also a legitimate robo-advisor with many security features in place to make sure clients’ data are safe. These security features start with 4096-bit, military-grade encryption and two-factor authorization. Clients are also protected through SIPC and FDIC, as well as FINRA oversight.
All of these features together make it clear M1 Finance takes their security responsibilities seriously.
There are quite a few benefits to investing with M1 Finance. M1 Finance is a good option for beginning investors looking for a free, low-minimum robo-advisor. It also benefits clients who want pre-made portfolios or who value socially-responsible investments.
They also offer a lot of value for a free robo-advisor, including myriad account types, portfolio rebalancing, and thousands of stocks and ETFs.
If that isn’t enough to pique your interest, they also tend to offer promotions, like promo codes and special offers.
Overall, M1 Finance provides clients peace of mind with their account security, all while keeping investing affordable. For these reasons, and many more, M1 Finance is a strong contender on the robo-advisor market.
*Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t believe is valuable.
Barbara Friedberg, CEO, Robo-Advisor Pros has an accoun with M1 Finance.