M1 Finance is the latest robo advisor aiming to help investors manage their cash and capture more wallet share.
The Chicago-based company said Monday it plans to offer a checking account called M1 Spend, and a Visa debit card to accompany it, later this year. Brian Barnes, the founder and CEO of M1 Finance, said offering a checking account was "another essential component to seamless money management." The company partnered with Iowa-based Lincoln Savings Bank on the checking account, which will earn 1.5 percent APY, well above the national average. It will also include common bank account features such as direct deposit, automatic bill pay and integrate with their investment portfolio. Like funds with other FDIC members, deposits are are insured up to $250,000.
Customers who want a debit card for the account can join M1 Plus for a membership fee of $125 per year. Customers will get 1 percent cash back on all purchases made with the card, in addition to other exclusive features and rewards. M1 Finance did not disclose further details.
Other financial technology companies have recognized the same opportunity and sought ways to manage client cash.
Last month, Betterment, a robo advisor that currently manages $14.1 billion, said it planned to roll out a “Two-Way Sweep” feature to help investors earn more interest on cash, which could prove lucrative for the robo advisor if the company’s estimates and predictions hold up. Almost 30 percent of Betterment’s more than 360,000 customers have nearly $20,000 on average in what it considers to be excess cash, the company said.
Wealthfront, another popular robo adviser, has explored offering a product akin to a savings account. Late last year, Robinhood, the upstart online brokerage that doesn't charge trading fees, said it was launching a brokerage account that earns 3 percent interest called "Robinhood Checking & Savings.” But the company renamed the feature “Cash Management” following accusations that the marketing misled investors about the nature of the account.
For financial services firms, having clients’ cash in bank sweep accounts means missing out on a management fee, though there are other revenue opportunities. Earlier this fall, Morgan Stanley closed a money-market mutual fund yielding 1.8 percent where it placed $6.3 billion in cash from clients’ brokerage accounts and moved the money into bank accounts. Charles Schwab did the same earlier this year.
M1 Finance eliminated fees for all of its investors in December 2017, a move that Barnes predicts all similar investment managers will eventually do, but none have followed yet.