Disrupting the market for helping people lose money

March 12, 2013

Investors tend to lose money in boring, but effective, ways. Motif Investing (“turn any idea into a motif”) promises to disrupt this predictable pattern by helping people lose their money in new and exciting ways. Motif’s CEO proudly describes the company as like the iPhone, but for investing, with the ease of shopping on Amazon. The fact that that description makes no sense at all does not make it any less terrifying. It wasn’t hard to predict that Twitter mockery would (rightfully) ensue.

Here’s PandoDaily’s Michael Carney trying to describe what Motif actually does:

Since launching in 2010, the company has offered its own motif based investment ideas and allowed regular Joes and Janes to view data on the performance of these ideas, and then make actual investments. Consider it one part E*TRADE-esque online brokerage, one part think tank, one part tech startup.

Here are more gems from the PandoDaily piece:

  • “Each of us has areas of expertise, or even of personal curiosity, that may offer insights into the way the stock market will behave in the future.” Sure, we might, but if we do, the best thing to do about them is nothing.
  • “Motif Investing is… looking to turn Wall Street on its head.” This will end well.
  • “Motifs can be more than just collections of stocks.” You can also invest in Facebook likes.
  • “Fund creators will be able to make money through royalties when other investors buy their funds.” So it’s really like Reddit plus Herbalife, but for stocks.
  • “If an investor can create demand for the stocks in their Motif, they’re likely to increase in value.” This is bad, as Matthew Klein tweeted. But to be fair, it was also the basis of Giovanni Ribisi’s best work.
  • “Users can access financial data through Google Finance and Yahoo Finance.” This data is also available to any user of the internet.

Also, the pricing is terrible. Commission are a flat $9.95, and are charged not only on every trade, but also whenever a trade is rebalanced, which can happen automatically on a quarterly or annual basis. The investment minimum is $250, and the max is $100,000. I think most Motif users will be closer to $250 than $100,000. Motif probably thinks the same thing, or else they wouldn’t have chosen a regressive, flat-fee model. If you put $1,000 into a Motif account on a single trade, alter that trade once during the year, and assume quarterly rebalancing, you’ve just incurred 5.97% in annual fees. Accounts with the minimum $250 value rebalanced quarterly are charged annual fees of around 12%. To get an idea of what a terrible deal this is, the Vanguard 2045 target date fund charges a 0.18% fee.

Inexplicably, Arthur Levitt, the former head of the SEC, and Sallie Krawcheck, former CEO of Merrill Lynch Wealth Management, former CEO of Smith Barney, and former CFO of Citigroup, are now on the company’s advisory board. Levitt and Krawcheck must be getting paid well for their work (Motif has raised $26 million in funding), because I can’t why else they’d want to be be associated with this kind of company.

Since leaving BofA, Krawcheck has written serious columns about the need for money market reform, and was recently angling to lead the SEC, along with saying very politic things about bank bonuses. Levitt is a policy advisor to Goldman Sachs, but has retained a fair degree of independence. He, like Krawcheck, probably values his reputation more than compensation at this point in his career. It’s baffling that either of them would want to be on the board of a company that can easily be described as “like Farmville, but for stocks.”

One comment

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They do not rebalance automatically. They have to choose to do it when a rebalance is available. I’ve been using the site for a year and have not yet rebalanced due to the cost factor.

If you invest $1,000 and rebalance once per year, you’re paying 1% in costs. That’s high compared to index funds/ETFs, but it’s about average for actively-managed funds.

Posted by Ramage80 | Report as abusive