M1 Finance vs Charles Schwab 2023
Robo-advisors have become the go-to investment option for millions of investors worldwide. Yet despite that, just 8% of households use a robo-advisor, which gives this market tremendous room to grow.
Selecting the right robo-advisor is critical to achieving your investment aims. M1 Finance is one of the world’s leading robo-advisors for its simplicity and innovative pie investing system. Traditional brokerages like Charles Schwab have also developed their own robo-advisor.
When looking up M1 Finance vs Charles Schwab, these are opposite ends of the spectrum. Let’s weigh up the pros and cons of each.
M1 Finance Overview
Although not the oldest robo-advisor, M1 Finance has made one of the most significant impacts on the industry since its founding in 2015 by CEO Brian Barnes. Located in Chicago, Illinois, M1 Finance currently has about $5 billion in assets under management.
Like all robo-advisors, it emphasizes automated portfolios to provide well-diversified portfolios capable of offering long-term profits. The idea is to ensure that investors don’t need to rely on fund managers to make the right investments.
You can also take control of your own investments using the M1 pie investing system. Create as many pies as you want and construct a portfolio based on your own research. While not recommended for novices, the fact you have a choice is a significant plus of M1 investing.
Browse our M1 Finance review here at Modest Money to learn more about why the pie investing system is so revolutionary.
Whether you want to opt for an automated portfolio or create your own, investing with M1 Finance is user-friendly and affordable. In a way, M1 has transformed the way people invest forever, which is why brokerages like Schwab have taken note of robo-advisors.
M1 Finance Details
|Management Fees||$0-$125 per year|
|Account Types||Individual and joint brokerage accounts, Roth IRA, SEP IRA, and Traditional IRA, trust accounts, and custodial accounts|
|Investment Type||Stocks and Exchange-Traded Funds (ETFs)|
Launching your investing journey with M1 couldn’t be simpler. Just create your account and make a deposit when you’re ready to invest. Unlike traditional brokerages, you don’t need to deposit a minimum amount to get started.
There are no fees, management fees, or commissions. This approach to low-cost investing allows M1 to serve as a market disruptor. Even if you only have a few hundred dollars to build a portfolio with, you can. Since you can invest in fractional shares, you don’t need thousands to get started with M1.
Interestingly, M1 goes further with its supported account types. Most robo-advisors will only offer the basics, whereas M1 allows for multiple types of IRA, trust accounts, and even custodial accounts.
Our recommendation for newbies is to use M1 Expert Pies to allow for the professionals to choose your portfolio for you. These pies vary to suit different incomes, goals, and risk tolerances.
M1 Finance Fees
M1 Finance is unique in that there are no fees whatsoever. You’ll never pay a cent in ongoing management fees, commissions, or trading fees. There are also no setup fees to create your first portfolio. If you’re not ready to commit just yet, don’t worry. M1 doesn’t obligate you to hold a minimum dollar balance on your account.
This leads us to the question of how M1 makes money at all. Truthfully, M1 doesn’t make money from its investment platform but from the M1 Spend and M1 Borrow products.
There is a premium membership program known as M1 Plus. For just $125 per year, you gain access to some added benefits, such as higher daily ACH limits. While these extra perks may benefit confident investors, your average person won’t need anything more than the standard M1 investing account.
M1 Finance Pros
- Easy-to-use platform
- No fees or commissions
- M1 Expert Pies
M1 Finance Cons
- No human advisors
- Lack of tax-loss harvesting
- Limited asset range
Anyone who wants to build a portfolio for the future and put it on autopilot should consider getting started with M1 Finance. To discover more about how the platform works, read our detailed review on M1 Finance.
Charles Schwab Overview
On the other side of the spectrum, we have Charles Schwab, the world’s largest brokerage, with more than 32 million client accounts. Schwab has released “Intelligent Portfolios” in recent years, which is its supplementary robo-advisor. Anyone who wants a robo-advisor combined with all the traditional brokerage functions will likely want to consider Schwab.
Investing with Schwab opens up more asset classes to invest in and the opportunity to benefit from a broader range of supported account types. To expand beyond the usual array of stocks and ETFs, Schwab is the best option.
To begin your portfolio with Schwab, you’ll answer several questions relating to your time horizon, goals, and income. Like M1 Expert Pies, you’ll receive recommendations based on your answers. Don’t worry, you’re free to accept or reject their proposals.
Schwab builds its portfolios using ETFs that give you exposure to various parts of the market. With automatic portfolio rebalancing, you can ensure that your allocations never change without your input.
One advantage Schwab has over M1 Finance is tax-loss harvesting. Schwab has you covered if you have more money to invest and are worried about the tax implications.
|Account Types||All account types supported|
|Investment Type||Stocks, bonds, ETFs, mutual funds, options, and more|
When comparing M1 Finance vs. Charles Schwab, it’s easy to put the traditional brokerage services of the latter on a pedestal. After all, you gain access to far more investment classes and human financial advisors who can guide you going forward.
Its automatic portfolio rebalancing is another aspect that gains a lot of attention. Unlike many robo-advisors, this feature kicks in instantly, whereas robo-advisors tend to base their rebalancing features on specific amounts of portfolio drift. If you want minute adjustments to your allocations, Schwab is a great option.
Schwab offers a comprehensive customer support team. Access Schwab’s customer support department 24/7 with any questions or queries you might have.
At first glance, you might assume that Schwab beats out M1 Finance hands down. While it possesses all the advantages of a traditional brokerage, it also has all the disadvantages of working with a traditional brokerage.
The main problems? The fees.
Schwab has an accessibility problem for the average investor. Next-generation investing platforms like M1 Finance arose due to the issues of accessibility. Unfortunately, Schwab charges a massive $5,000 to open an account with them.
Its premium service, which comes with access to professional financial advisors, levies a one-time $300 setup fee and an ongoing $30 monthly subscription fee. Its ETF expense ratios start at 0.08% but go as high as 0.15%.
As you can see, these fees and minimum investment amounts are much higher than M1 and force you to make a big commitment from day one.
If you’re an investor who just wants to dip your toe into the market for the first time, Schwab is likely the wrong option for you.
- No management fees
- Access to a wide array of assets
- Tax-loss harvesting
- No socially responsible investing
- Extremely high fees
- Expensive premium membership
|Feature||M1 Finance||Charles Schwab|
|Min. Investment||$0||None for standard, $30 per month for premium|
|Avg. ETF Expense Ratio||$0 (with some exceptions)||0.08%-0.15%|
|Account Types||Individual and joint brokerage accounts, Roth IRA, SEP IRA, and Traditional IRA, Trust accounts, and Custodial accounts||All|
|Financial Advisor Fee||Unavailable||Free with Premium|
|Best For||Beginners||Higher Net-Worth Investors|
M1 Finance vs. Charles Schwab Comparison
Access to more investments, financial advisors, and the knowledge that you’re working with the largest broker in the world are all reasons why you might lean toward Schwab but think about it.
Investing with M1 Finance still allows you to invest in many of the assets you would find at Schwab. While you don’t have any access to financial advisors, you also don’t pay any of the fees charged by Schwab.
On balance, the average investor is more likely to generate an enormous profit by creating an account with M1 over Schwab. While higher net-worth investors may require the extra management that can only come with a more extensive portfolio, this is not the story of the average American investor.
For a user-friendly approach to investing for the first time, M1 is the single most effective robo-advisor on the market today. We wholeheartedly recommend M1 Finance’s robo-advisor over Schwab’s at Modest Money. Find out why by reading through our M1 Finance review.