Investing platform M1 Finance made a decision last December: It would drop fees from its app, allowing users to invest for free.
It's a move that has caught the financial industry's attention, drawing criticism from some of its competitors who described the move as "desperate."
But the decision to drop its previous charge of 0.25 percent per year in asset management fees has caused Chicago-based M1's popularity with consumers to skyrocket in the last month. The startup is adding 600-700 new accounts every day---10 times higher than it was before---with daily inflows hitting as high as $1 million, CEO and Founder Brain Barnes said.
"Since making the announcement, overnight all of our key metrics went up 10X," Barnes said. "In the startup world, this is what you hope for. This is what you want. This is the growth that every startup plans for and builds for."
To put the last month into perspective, M1 has hit growth metrics in the last four weeks that it did in the entire 12 months prior. Implementing zero fees has attracted plenty of first-time investors, but Barnes said M1 has also seen an influx of experienced investors moving their assets over from legacy players like Fidelity and Charles Schwab. Investors with six-figure and seven-figure accounts have joined M1, with the startup now holding roughly $100 million in total assets, Barnes said.
"We want to build the Amazon of financial services"
M1 launched in 2015 and has raised $9 million in venture funding to date. The company makes revenue on back-end services like selling flow to trading firms.
M1 is following in the footsteps of another mobile investing app Robinhood, a stock trading platform that launched in 2012 that also doesn't charge fees. Robinhood, backed with over $175 million in VC funding, was in the news last week when it announced plans for a no-fee cryptocurrency trading product to rival Coinbase. (M1 said it doesn't plan to add crypto investing, but if there was a bitcoin ETF traded on a major exchange, the startup would consider adding it.)
While no-fee investing may be relatively new, Barnes said he expects it to be the norm in the next 5-10 years. Just as people expect their checking account or credit card to be free, the same will go for an investing account, he said.
But M1's decision to forgo fees for user growth is part of a larger plan, said Barnes, one that looks to position M1 as a major player in the financial space beyond just investing. M1 wants to be an all-in-one financial app, with the ability to direct deposit, pay bills, hold cash, borrow credit and invest in stocks right from the M1 platform. The company said it plans to add checking account functionality by the end of the year.
"We’re building what we think is the next-generation investing platform that will supplant the multi-billion-dollar publicly traded companies," Barnes said. "We want to build the Amazon of financial services."
