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Motif Investing Enters Financial Advisor Market

After raising $35 million in a second funding round, the online site announced a platform for financial advisors along with plans to expand internationally and roll out asset allocation models to self-directed investors.

Motif Investing, the online brokerage company that popularized thematic investing for retail investors, is expanding its U.S. platform into servicing financial advisors.

Last week, Motif, based in San Mateo, Calif., launched a flat-fee trading and rebalancing platform for financial advisors to service their clients at a fraction of the cost of many current alternatives, the company said.

The Motif Advisor Platform will provide an entirely digital on-boarding process, said Hardeep Walla, CEO, Motif Investing CEO in an interview in New York City.

In working with financial advisors, Walia was struck by “how much time spent pushing paper around,” said Walia. “We allow them to build their own motifs – asset allocation models and then distribute them to 100 clients at a click,” he said. While online brokers that offer platforms to financial advisors charge them to rebalance their clients’ portfolios, Motif is charging low-cost fixed fees, he said.

“All of the overhead that advisers incur in running their businesses we are trying to mitigate on our platform,” said Walia. Motif offers this functionality for $20 to $50 per customer, covering all their trading and all their rebalancing, said Walia.

Funding: Round Two

At the same time, Motif said it raised $35 million in funding from new investors, JPMorgan Chase & Co., Wicklow Capitals, and Balderton Capital. Existing investors Goldman Sachs, Foundation Capital, Ignition Partners and Norwest Venture Partners also participated in the round.

A second round of financing comes as Motif Investing announced plans to expand into international markets and begins to roll out asset allocation models.

While it currently offers exposure to foreign stocks through international motifs, such as BRICs that use ADRs and GDRs, the company plans on developing a retail product for investors in select markets next year.

Motif also introduced its Horizon Motifs providing commission-free asset allocation models for rebalancing portfolios to individual investors and financial advisors. This will compete with so called robo-advisors offered by companies to investor that charge 25 to 75 basis points.

“We are doing this to allow advisors to compete with other automated tools,” he said. Then, when retail customers want help, Motif will refer them to advisors on their financial advisor platform. “As you get more sophisticated needs, you’re going to need advice, so we’ll refer you to an advisor,” said Walia.

Advisors Leaving Bigger Systems

The company is recruiting advisors to join its platform. “Most of the business is coming from advisors that are moving off the big firms’ systems,” said Walia. Once they learn those systems, they are reluctant to touch it, he suggests. Many larger online brokers, the likes of Fidelity and Charles Schwab, E*Trade and LPL Financial, offer platforms to financial advisors in exchange for sending trades to their firms and providing clearing services.

Some of these systems are complex and cumbersome, notes Walia. “To be fair, we’re not going to offer every bell and whistle. Most people don’t use every feature,” he said. Motif has been working with advisors to get a handle on what they need. Cost savings and ease of use are key factors. “You shouldn’t have to spend a couple of months to rebalance all of your models,” said Walia.

For example, an advisor may have 10 models for a thousand customers, with each model holding 30 securities. The idea is to match the models to the customers and then the adviser is done, versus keying in data.

While Walia said the company has the ability compete for the larger advisors, it has the ability to help an underserved market, small advisors with sub-$50 million in assets. “We’re able to onboard them and give them a compelling price point and not everybody can make money on the small advisors,” he said.

In addition, Motif also plans to unveil a family of smart-beta models for financial advisors. Smart beta refers to products that have greater risk and higher fees than low-cost index funds that track markets. Such products attach other features such as value stock exposure, small cap stock exposure and momentum, according to a Forbes article.

[For more on A Silicon Valley Startup Offers a Natural Way to Invest in "Big Ideas", see Ivy Schmerken's related story.]

The expansion into the financial advisor market comes a year after Motif Investing pioneered the concept of investors developing their own motifs — weighted baskets of stocks based on investment ideas, trends “A motif is an expression of investing and the expression can be an asset allocation model,” said Walia. For $9.95 they can build a portfolio of 30 stocks or ETFs in one motif. Some recent examples highlighted on its web site are Robotic Revolution whose one-year return is 14.2 % and Obamacare, up 25.3% over one year.

The company distinguishes between professional motifs created by its own staff and customized motifs built by investors. “It took our PhDs six months to build 120 motifs and it took our customers to build 35,000 motifs in 6 months,” said Walia, adding, “That’s the power of our model.”

Advisors can build their own models, or they can use one of the 35,000 motifs in its catalogue, he said. They can make use of motifs instead of a traditional fund.

If investors create a motif and share it on the site, they can collect royalty fee from the company. “We want to reward people who are creating IP for us,” said Walia. Some people choose to keep their motifs private, however. On the other hand, some of the top-performing motifs come from professional hedge fund managers, he said.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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