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M1 Finance and Robinhood are two financial tech companies that rattled the financial industry when they entered the market. Both firms enable investors in the United States to invest in the stock market through user-friendly platforms and services.
With M1 Finance, investors can rely on a traditional robo-advisor that helps build their portfolios within minutes and manages them. Robinhood caters more to the needs of active investors and traders that want to take advantage of the firm’s offerings.
In this review, we will look closely at the two innovative companies and focus on their main features, investment and account options, pricing, as well as pros and cons. That way, you can make an informed decision on which investing app is best for you.
M1 Finance vs. Robinhood: Overview
Both M1 Finance and Robinhood are two relatively young companies in the financial arena. The latter launched its services in 2013 and disrupted the industry by offering the first commission-free trades. M1 Finance was founded in 2015 and serves investors by providing automated investment services.
In A Nutshell: M1 Finance is a hybrid robo-advisor and online brokerage that combines the features of more traditional robo-advisors (like portfolio profiles) with online brokerage options (like trading individual stocks).
In A Nutshell: Robinhood allows you to make unlimited commission-free trades in stocks, ETFs, options and crypto. You can access professional research reports, trade on margin, and make bigger instant deposits with Robinhood Gold for $5 a month.
About M1 Finance
M1 Finance hybrid service brings you the best of the brokerage and robo-advisory worlds. This makes the company attractive for passive and active investors because both can be as hands-on as they like. Passive, long-term investors can utilize the pre-built expert portfolios, whereas active investors can build their portfolio from scratch.
The investing platform followed in Robinhood’s footsteps in 2017 and cut its fees to zero. This step helped M1 Finance increase its assets under management to more than $2 billion. Learn more about M1 Finance in our full M1 Finance review.
See Also: 12 Best Online Brokers for Stock Trading
Robinhood is probably the most widespread free self-directed trading platform in the market because it was the first to offer commission-free trading. It popularized trading among younger generations (millennials) through its innovative service offerings.
These inexpensive offerings include free trades on various asset classes, including alternative investments such as cryptocurrencies, fractional shares, and other features we will cover in the main features section. Check out our full Robinhood review for more information.
M1 Finance vs. Robinhood: Main Features
M1 Finance’s and Robinhood’s features are designed with their respective audiences in mind. Robinhood focuses on enhancing the trading experience through commission-free trading of various asset classes. On the other hand, M1 Finance is a passive investing platform for investors that seldom trade their assets or are seeking an automated, hands-off model.
|Minimum Investment||$100 on taxable accounts and $500 on retirement accounts||$0|
|Investment Types||Stocks and ETFs||Stocks, ETFs, Options and Cryptocurrencies|
|Account Types||Joint, Taxable, Traditional IRA, Roth IRA, Rollover IRA, SEP IRA and Trusts||Taxable|
|Platforms||Web-based and Mobile (iOS / Android)||Web-based, Mobile (iOS / Android) and Watch (WatchOS)|
|Promotions||Earn up to $3,500 when you transfer from another broker||Get a free stock for new account|
|Best For||DIY Passive Investors||DIY Active Traders|
M1 Finance’s number one feature is its robo-advisory service that automatically invests, manages, and rebalances the investor’s portfolio (called a pie). Using an algorithm, the robo-advisor allocates funds according to the investor’s risk tolerance and financial goals. About 80 different pre-designed expert portfolios are available to invest in.
However, experienced investors can choose to build customized portfolios on their own without the advisor’s assistance. They can further trade their assets commission-free during one or two trading windows per day. Besides, fractional shares are available for thousands of US-listed stocks and ETFs.
As a dividend investor, you will love M1 Finance’s Dividend Reinvestment Plan (DRIP). The paid dividends will be re-invested automatically once they cross the brokerage account’s $25 cash threshold. However, this is a portfolio-level DRIP. This means that reinvestments go back into the whole portfolio based on your allocations and not into the issuing stock.
To open an account with M1 Finance, a minimum investment of $100 is required for taxable accounts, while $500 is needed for retirement accounts. Once the account is open, deposits can be any amount above $10 and investors can schedule regular deposits to their accounts to reach their financial goals.
Additionally, M1 Finance offers the M1 borrow and the M1 spend program to its users.
Under the M1 borrow program, investors can instantly borrow up to 35% of their portfolio’s value without any paperwork while getting the lowest available interest rate for their credit line. These loans usually have interest rates between 2% and 3.5% depending on their plan. All accounts with a balance of more than $2,000 automatically have access to margin.
M1 Finance’s offers a debit card (through a checking account) as part of its M1 Spend program. The checking account is integrated into the investment account, which lets you quickly transfer money to invest the same day. M1 Spend additionally offers a 1% annual percentage yield along with 1% cash-back to M1 Plus users.
Investors can sign up to the mentioned M1 Plus Account, which guarantees a second trading window per day as well as access to the lowest interest rates in the M1 Borrow program. The cost of the M1 Plus Account is $125 per year.
Main Features Overview
- Free automated investing: M1 Finance’s robo-advisor allows users to build portfolios within minutes based on their financial goals and risk profile.
- Pre-built expert portfolios: The platform offers about 80 pre-designed portfolios for every investor type.
- Fractional shares: Active investors can purchase fractional shares (a portion of stock) to create a diversified portfolio with little money.
- Portfolio-level Dividend Reinvestment Plan: The platform re-invests paid dividends into the portfolio so that investors can earn compound interest.
- M1 Borrow Program: Users can borrow up to 35% of their portfolio value, paying only very low annual interest rates of 2% or 3.5%, according to their plan.
- M1 Spend Program: This is a free checking account that seamlessly integrates with your M1 Investment account. Plus, users also get a 1% APY and 1% cash back for purchases made with the included debit card.
- M1 Plus: M1 Plus is the premium account offered by M1 Finance at an annual fee of $125 per year. It allows users to borrow money at the lowest available interest rate and trade in a second window.
Robinhood offers zero-commission trades for multiple asset classes, including US-listed stocks, exchange-traded funds (ETFs), American Depositary Receipts (ADRs), options, and cryptocurrencies.
Investors with small account balances can buy and sell fractional shares, allowing them to expose their portfolios to high-priced assets.
Investors can place these trades on Robinhood during standard and extended hours of the markets while instant deposits allow them to use their money once the funds have been cleared immediately.
Robinhood also considers dividend investor’s needs and offers a dividend reinvestment plan. Investors can automatically reinvest their dividends back into the issuing security they received it from. In contrast to M1 Finance, the DRIP is stock-based instead of portfolio-based.
In addition, investors who upgrade to Robinhood Gold for $5 per month get access to premium features such as Morningstar’s professional research and Level II market data from Nasdaq TotalView, which shows more than just bid and ask prices, margin, and larger instant transfers up to portfolio value.
Investors can also open a margin account with Robinhood. From there, users having at least $2,000 can borrow money from the broker to increase their buying leverage. When borrowing, Robinhood charges a flat fee of 2.5% annually on the borrowed cash. The first $1,000 is included in the monthly $5 fee and is margin-free.
Looking at Robinhood’s self-directed trading platforms, it is apparent that its primary audience is beginning investors. The user-friendly interface is easy to navigate, basic, and relatively intuitive. Therefore, it lacks the more advanced features that active investors require.
Ultimately, Robinhood users can open a cash management account that currently generates an above-average annual percentage yield (APY) of 0.30% for uninvested cash. A debit card from Sutton Bank is also part of the package. Your cash is swept to Robinhood’s network of program banks and FDIC-insured up to $1.25 million. This partner account is provided by multiple financial institutions, including Goldman Sachs, Citibank, and Wells Fargo.
Main Features Overview
- Zero-commission trades: Robinhood users can enjoy zero-commission trades for a wide variety of securities, including US-listed stocks, ETFs, ADRs, options, and crypto.
- Fractional shares: Small-budget investors can trade fractional shares and don’t have to wait until they can fund whole shares.
- Instant deposits: This feature allows investors to use their deposits immediately.
- Dividend reinvestment plan: Robinhood also offers a DRIP to dividend investors so that they can automatically reinvest their dividends in assets to reach goals faster.
- Advanced features for Robinhood Gold accounts: This includes professional research from Morningstar and bigger instant deposits. Through Robinhood Gold and cash management, investors can turn on margin for day-to-day spending.
- Real-time access to Level II market data: Level II data shows the volume of buy and sell orders and their respective bid/ask prices, coming straight from the Nasdaq stock exchange.
- Margin trading: Investors trading on margin benefit from Robinhood because the first $1,000 in margin doesn’t generate an interest charge (for Gold accounts only) while additional borrowing comes at a competitive 2.5% flat annual interest rate.
- Easy-to-use platform: Although Robinhood’s platform lacks more advanced trading features, investors can still enjoy a user-friendly trading platform.
M1 Finance vs. Robinhood: Investment Options
Both of the featured companies offer a free investing platform but target different audiences. In contrast to Robinhood, which is better suited for active investors and traders, M1 Finance is primarily an automated passive investing platform using robo-advisors.
M1 Finance and Robinhood let their users trade stocks and ETFs free of charge. However, investors can also trade options and cryptocurrencies via the Robinhood platform. Other asset classes aren’t supported by either of the two companies.
Users can choose one (or multiple) pre-built expert pies (portfolios) or build one from scratch. Pre-built portfolios also include target-date funds (TDFs) and are perfect for retirement investors. M1 Finance’s pie portfolios can hold up to 100 stocks, and ETFs and more than 6,000 exchange-listed securities are available, including those trading on the NYSE, NASDAQ, and BAT.
M1 Finance also offers fractional shares for all their available assets. That way, beginner investors with smaller budgets can create a portfolio of more expensive stocks without having to wait until they can afford a full share.
Robinhood offers zero-commission trading to active investors and doesn’t charge any fees for purchases and sales on the platform. Currently, available assets include stocks, ETFs, options, ADRs, and cryptocurrencies.
Unfortunately, mutual funds, bonds, forex, futures, and penny stocks aren’t supported. Besides, only assets that are US exchange-listed can be traded.
Fractional shares are also available for free on Robinhood. The value must be equal to or higher than $1, and investors can choose to trade based on the number of shares or amount of dollars.
M1 Finance vs. Robinhood: Account Types
M1 Finance offers a wide selection of accounts (including retirement accounts) to address their investor’s needs, whereas Robinhood only provides taxable and margin accounts.
M1 Finance provides its users with an array of account types to invest in and enables you to roll over an existing 401(k) or IRA account to M1 Finance.
- Individual taxable brokerage account
- Joint taxable brokerage account
- Individual retirement account (traditional IRA, Roth IRA, and SEP IRA)
- Joint trust account
- Checking account (through M1 Spend)
Currently, Robinhood offers only individual taxable investment accounts to its investors. Joint accounts, trusts, and retirement products aren’t available.
Within this account, there are three types of accounts that suit investor’s needs. Using these accounts grants access to different features offered by Robinhood:
- Robinhood Instant: This is the standard account investors start with. The taxable margin account gives traders access to the instant deposit feature and extended-hours trading.
- Robinhood Gold: This is Robinhood’s premium account (like an instant account), which grants access to advanced research, Level II market data, higher-margin balance, and larger instant deposits.
- Robinhood Cash: The basic account Robinhood offers. It allows users to trade all the products offered by the firm during regular and extended market hours. However, a downgrade to this account doesn’t give access to margin trades or instant deposits.
M1 Finance vs. Robinhood: Sign up Bonus/Promotions
Both M1 Finance and Robinhood offer sign-up bonuses and referral programs to incentivize users when opening an account on their platforms and inviting friends to sign up.
M1 Finance currently offers two mutually exclusive promotions: Customers get a $30 bonus when referring a friend to the platform who will also receive $30 for signing up. The second promotion is for new users that make a first-time single deposit to an M1 Finance taxable account.
To be eligible for the referral program, the person sending the invitation link must have a funded M1 Invest account and the invited person must be a new user. The bonus will be paid within 14 days of the new user signing up and funding an account.
New investors that fund an M1 Investment account should make a first-time single deposit of at least $1,000. That way, they will receive a one-time deposit of $30 into their cash balance. M1 will make the deposit within three to five business days after investors satisfy the conditions.
Robinhood currently offers two similar promotions to its users: the referral program and the first-time sign-up reward.
If investors sign up with the provider, Robinhood guarantees to credit a free surprise stock into the user’s account. The stock can even be from Microsoft, GE, or Apple (1 in 80 chance) but keep in mind that 98% of awarded stocks are valued between $2.50 and $10.
Through the referral program, users can receive up to $500 in reward stock each year. They must invite friends to open a Robinhood account, and once the registration is complete, each of the two friends receives a free stock. In addition, for every three friends invited, investors will be rewarded an extra fourth stock.
M1 Finance vs. Robinhood: Fees & Pricing
Although M1 Finance and Robinhood are basically free services, extending commission-free trading of stocks and ETFs, they both offer premium services.
One thing that sets them apart, though, is that M1 Finance users need a minimum account balance of $100 ($500 for retirement accounts). In contrast, Robinhood allows investors to purchase stocks, ETFs, options, and cryptocurrency without depositing a minimum amount.
M1 Finance’s basic investing account is entirely free. However, users can enhance their position by paying an annual $125 subscription fee for the M1 Plus Account. In doing so, users have access to lower interest rates offered in the M1 Borrow program. This interest rate is reduced from 3.5% (basic M1 Account) to 2% for M1 Plus Account holders.
On the other hand, they get a 1% checking APY on their bank account balance and 1% cashback on any purchases made with the included debit card in the M1 Spend program. Basic account holders get neither of these additional benefits.
The Robinhood platform is free and Robinhood doesn’t charge any commissions for trading available assets on their platform. However, the firm charges a monthly $5 fee for Robinhood Gold upgrades.
Another fee the firm charges is a 2.5% yearly interest rate on margin trades. However, for Robinhood Gold accounts, the first $1,000 in the margin is free of charge.
Also, keep in mind that Robinhood charges fees for outgoing account transfers ($75), domestic wire transfers ($25), and international wire transfers ($50).
See Also: 7 Best Micro-Investing Apps
M1 Finance vs. Robinhood: What We Like (Pros)
Both companies effectively changed the way financial firms must operate to stay competitive. Find out below what we like best about the two companies featured in this article:
- US-based, regulated financial services firm
- Various account types to invest in (including retirement accounts)
- Free-of-charge stock and ETF trading
- Free robo-advisor-based passive investing service
- Experienced investors can create portfolios from scratch
- A portfolio-level dividend reinvestment plan (DRIP) is available for dividend investors
- Investors can buy fractional shares to diversify effectively
- Users can borrow money from their broker at a competitive rate
- User-friendly platform experience
- M1 Plus account offers cashback, above-average APY, lower borrow rate, and a second trade window
- A US-based, regulated brokerage firm
- Zero-commission trades for a wide variety of assets
- Access to cryptocurrencies, which other brokers don’t have (at least not for free)
- Robinhood offers a dividend reinvestment program
- The firm’s margin rates are very competitive
- Extended hours trading is possible for free
- Investors receive one free stock when they signed-up for Robinhood
- Access to advanced and beneficial features through Robinhood Gold
- Investors can trade fractional shares
M1 Finance vs. Robinhood: What We Don’t Like (Cons)
Every coin has two sides, and M1 Finance and Robinhood are no different. Here are a few things we dislike about them and that you should be aware of:
- $100 minimum to open a brokerage account and $500 to open a retirement account
- Only US-listed stocks and ETFs are available
- $125 for the M1 Plus Account can be pricey for small budget investors
- No tax-loss harvesting, which other robo-advisors offer
- Options and cryptocurrencies aren’t supported (due to the orientation towards long-term investing instead of short-term trading)
- Robinhood’s investments don’t include mutual funds, forex pairs, foreign stocks, OTC securities, penny stocks, or futures
- Only US-listed assets are available for investors
- Situations of extreme market volatility lead to assets being blocked for trading
- The provider lacks an automated investing feature
- Robinhood provides only a limited number of account types and no retirement accounts.
- Trades are routed to third-party market makers to generate revenue via payment for order flow (PFOF). While it’s true that you pay no commissions to Robinhood, its PFOF practices are obscure and potentially a conflict of interest.
- Cryptocurrencies can only be bought and sold through the app
M1 Finance vs. Robinhood: Security
M1 Finance and Robinhood are regulated US-based financial services firms. Both companies and their products are well insured and offer protection for your investments. This coverage ensures that the investor’s funds are safe in case their broker goes bust.
First off, M1 Finance is regulated by the Securities and Exchange Commission (SEC) and is a member of the self-regulatory Financial Industry Regulatory Authority (FINRA).
M1 Finance investment accounts further enjoy SIPC protection, which covers up to $500,000 and includes a limit of $250,000 for cash. The M1 spend account is also covered up to $250,000 by the Federal Deposit Insurance Corporation (FDIC).
Like M1 Finance, Robinhood is also regulated by the SEC and a part of FINRA.
Robinhood investor’s accounts further enjoy the same SIPC protection that provides coverage for accounts up to $500,000 (including $250,000 in cash claims). The broker’s financial products are issued by FDIC member banks and are covered up to $1.25 million. So this is five times more than the industry standard that M1 Finance provides.
M1 Finance vs. Robinhood: Platforms and Apps
M1 Finance and Robinhood offer user-friendly platforms and mobile apps and have been designed with beginner investors in mind. Still, they are slightly different.
Both M1 Finance’s trading platforms (web-based and mobile app) use a pie investing chart to illustrate the portfolio’s exact asset allocation. Pie charting makes it easier for you to fully understand how your assets and positions perform and where they currently stand.
Users can easily browse through the different features and make deposits, withdraw funds, borrow money, execute trades, and have customized portfolios built almost instantly through a highly user-friendly interface with the help of M1 Finance’s robo-advisory service.
The M1 Finance Android app, as well as the corresponding iOS version of the app, have been rated more than 30,000 times and have gotten excellent reviews and ratings from its users. Both offer an array of features to manage your investments on your phone.
Robinhood currently provides a web-based platform as well as a mobile trading app that is meant for absolute beginners who want to get up and running quickly. For that reason, their app is easy to navigate but lacks the complexity of more advanced trading apps.
Having said this, users can execute basic tasks such as buying and selling assets, checking their account balances, browsing research materials, and upgrading or downgrading their accounts.
The web-based platform also offers an intuitive search bar and a menu tab so that investors can quickly locate securities and select available features.
Ultimately, users have access to features including alarms and notifications for various events, a charting tool with indicators, newsfeeds, analyst reports, and basic fundamental data for stocks.
As of late January 2021, the iOS version has received a 4.2-star rating with more than 2.8 million reviews, while the Android version has a 1.1-star rating in Google’s Play Store with about 265,000 reviews.
Who Is M1 Finance For?
M1 Finance is the perfect investing platform for the long-term stock and ETF investor who wants to avoid hefty fees and keep investing on autopilot. It is also suited for the active investor looking for low trading fees and the ability to create an investment portfolio without a robo-advisory service.
The M1 Borrow program is very convenient in case of an emergency because it allows the user to instantly borrow money from the broker without having to sell any portfolio positions.
In A Nutshell
- Account Minimum: $100 taxable accounts ($500 retirement accounts)
- Fees: Zero-commission stock and ETF trading
- Promotion: Earn up to $3,500 when you transfer from another broker
Who Is Robinhood For?
Robinhood caters to two audiences. Active traders frequently use the platform because it offers inexpensive services such as low margin rates, no minimum amounts, and instant deposits. More importantly, the broker makes trading options and cryptocurrencies available free of charge.
The trading platform is also an exciting choice for small-budget investors. They can access fractional shares at no cost and build diversified portfolios with their favorite stocks.
However, Robinhood’s services aren’t a good fit for investors who need someone else to build a portfolio for them. M1 Finance’s services may be better suited for this type of investor.
M1 Finance and Robinhood have a strong value proposition for their products and offer excellent, inexpensive services and unique features that serve their respective audience. By making formerly expensive services affordable, they give investors the chance to grow their financial wealth.
Having said this, M1 Finance excels with its brilliant investing platform that is perfectly suited for long-term and dividend investors that want an automated passive investing service and someone else that does the work for them.
In contrast, Robinhood targets rather active users with the possibility of trading multiple asset classes commission-free, making this platform popular among millennials.
Investors that need a retirement account will prefer M1 Finance, whereas traders of options and cryptocurrencies will lean towards Robinhood. Both firms, while not perfect, are good in what they do and offer, so pick the broker that fits you and your financial activities — long-term investing or active trading — best.
- Robinhood Review: Commission Free Investing
- M1 Finance Review: A Hybrid Robo-Advisor & Brokerage
- Webull vs. Robinhood: Zero Commission Trading Battle
- Stash vs. Acorns: Micro-Investing App Battle
- 12 Best Robinhood Alternatives
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Carsten is a Freelance Copywriter with a personal interest in money management and investing. Besides taking care of his investments, he loves traveling, reading books, and working out (calisthenics & yoga).