Motif Investing: Democratizing investment selection for retail investors
The traditional model of personal investing looks like this: individuals like you and me either sign up for a brokerage account, select investments and construct our own portfolios (“the DIY approach”) or hire a financial advisor that makes investment suggestions and decisions on behalf of us (“professional management”). In the last few years, platforms have emerged to address the market void between those two options by leveraging the collective intelligence of digital crowds. Motif Investing is one of the innovative players in the space pioneering and riding that wave.
Founded in 2010, Motif Investing is a technology startup that enables individuals to invest in motifs, i.e. investment themes represented by a basket of stocks, ETFs, etc., crowd sourced by community members. A motif is built around everyday ideas and broad economic trends, e.g. drug-patent cliffs, cyber security, bear international markets. It consists of a couple up to 30 stocks of different weights and can be customized individually by adding, deleting and changing weights of stocks. Motif charges a transaction fee of $9.95 for each transaction. Considering the number of stocks in each transaction, the $9.95 fee is significantly lower than the $7.99 or $9.99 fee that traditional brokerage firms charge for each individual stock trade.
The motifs can be constructed by both professional fund managers (“professional motifs”) and hobbyist investors (“community motifs”). There are currently ~150 professionally built motifs and over 9000 community created motifs. There is also an interactive newsfeed where community members post and comment on investment ideas and stock picks. Each member in the Motif community has a profile that shows their profession, location, number of motifs constructed, number of investments, etc. Unlike traditional portfolio management, where ideas are constructed top-down by a select few investment managers, Motif investing takes a bottom-up approach and democratizes investment selection. Members can track returns by motif over time and follow the best performing motifs. Compared to mutual funds that typically represent a specific sector or demographic, Motif’s crowd sourced platform features more creative and original ideas. It also gives members passionate about investing who don’t necessarily have the professional titles a place to voice opinions and promote ideas.
Motif does not have a direct competitor today that offers the same features but competes with many companies (e.g. Personal Capital, Wealthfront) in the personal investing space for customer dollars. Assuming that consumers today are likely to multi-home and distribute their savings across several platforms for risk management, personal investing is not a winner-takes-all market and will have multiple winners. I think Motif needs to make the following improvements to enhance their chance of winning:
- Lower the $9.95 commission or even reduce it to zero. Competitors such as Robinhood charge no commission for cash account trades. To attract more customers and dollars, Motif needs to lower the commission for cash trades and make money elsewhere, such as interest on excess cash, option trading, etc.
- Promote hobbyist investors. They need to promote and feature best performing hobbyist investors to generate more crowd sourced motifs to increase engagement on the platform.
- Partnerships with major banks. Motif already has a deal with JP Morgan to allow users to invest in JP Morgan-led IPOs. It needs to offer more options like that with other major banks to attract customers.
With 90 employees, the company is based in San Mateo, CA and has raised $120MM+ in venture funding.
Interesting company. I wonder if multi homing is actually an issue for businesses in this space. they should all be charging their customers a lower fee as a % of AUM as an individual customer increases their AUM.
I suppose a major question is whether motifs are going to perform well over time or if they are just going to induce more momentum trading for retail investors.