Traditional brokerages like Charles Schwab are slashing fees and adding features to compete with modern platforms like M1 Finance. Here we'll compare the two. I would argue that Schwab is perhaps M1's closest competitor. I wrote a separate comprehensive review of M1 Finance here if you're interested in seeing the specifics of the platform.
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M1 Finance vs. Schwab – Summary Comparison
Contents
M1 Finance vs. Schwab – Commissions and Fees
M1 Finance and Charles Schwab both offer commission-free trades for stocks and ETF's, and zero account fees, aside from the obvious miscellaneous fees for things like paper statements, outbound account transfers, etc.
Schwab does have commissions for other securities types:
- Options: $0.65 per contract
- Mutual funds not in Schwab Funds®: up to $49.95 per purchase
- Futures: $1.50 per contract
It's exciting that we're currently seeing a race to zero for brokerage fees and commissions, at least for “normal” stocks and ETF's, which is great for the average retail investor, and even traditional brokers like Schwab are following suit. Schwab and TD Ameritrade both announced zero-fee trading in October 2019.
Charles Schwab actually announced in November 2019 that it was acquiring TD Ameritrade, but the merger is expected to take at least a couple years to finalize.
Charles Schwab does offer a free robo-advisor option called Intelligent Portfolios® with a premium option that incorporates 1-on-1 guidance from a Certified Financial Planner, a digital financial plan, and interactive planning tools for a one-time signup fee of $300 and $30/mo. This service requires a minimum investment of $25,000.
M1 Finance is entirely self-directed, but they do offer expert-built “Expert Pies” that you can invest in for free.
M1 Finance vs. Schwab – Account Types
M1 Finance offers taxable, joint, Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, Trust, and Custodial (M1 Plus members) accounts. They currently do not offer SIMPLE IRA, 401(k), Solo 401(k), 529, HSA, or Non-Profit accounts.
Charles Schwab has basically every account type you can think of. They offer all of M1's account types plus Solo 401(k), SIMPLE IRA, 529, Coverdell, and more specialty accounts.
If you need any of the latter accounts, Schwab would be the better choice.
Both M1 and Charles Schwab also offer an FDIC-insured checking account.
M1 Finance vs. Schwab – Investment Products
M1 Finance offers most ETF's and individual stocks that are traded on major exchanges.
Charles Schwab offers every investment product except forex and crypto: ETF's, individual stocks, mutual funds, options contracts, futures, and over-the-counter (OTC) stocks aka “penny stocks.”
M1 Finance vs. Schwab – Margin
M1 Finance wins on margin rates. Margin rates are as follows for a $100,000 margin loan:
- Schwab – 6.83%
- M1 Finance – 3.50%
- M1 Plus – 2.00%
M1 Plus is a $125/year premium membership that gets you access to a lower margin rate as shown, as well as a second afternoon trading window.
You can use that cheap margin loan from M1 Finance for whatever you want – major purchases, refinancing higher-interest debt, unexpected expenses, etc.
Remember that margin is an additional risk, including the risk of losing more than you invest. Margin is not available for retirement or custodial accounts. Rates may vary.
M1 Finance vs. Schwab – Mobile App
Both M1 Finance and Schwab have sleek, intuitive, user-friendly, robust mobile apps for both Apple iOS and Android:
Charles Schwab has recently overhauled their mobile app, but I still found it slightly less intuitive and more clunky than M1's. Of course we should expect this somewhat, as Schwab offers more account types, investment products, and research tools, and has order control. Here are some screenshots from the Schwab mobile app:
M1 Finance vs. Schwab – Interface/Usability
While the mobile app is solid, the Charles Schwab desktop web-based interface is still somewhat antiquated. Again, we'd expect this to some degree, as they have a much more complex offering and a much larger, broader user base. The sheer number of tools and options may very well make this desktop interface overwhelming and more confusing for new, young investors, an audience that Schwab is working hard to attract. If you only plan to use the mobile app, you should be fine.
I'd like to think that Schwab will work on renovating the desktop interface to reflect their mobile app and the new features they've rolled out. In its current state, I think it would definitely be more confusing than M1's interface for a beginner investor. The Schwab user interface looks like this:
The M1 Finance interface is modern, simple, and intuitive with its pie-based visualization. With fewer features and tools than Schwab, it is much easier to navigate, especially for novices. It is great for beginner and experienced investors alike:
M1 Finance vs. Schwab – Extra Features
As a full trading brokerage, Charles Schwab naturally has much more robust charting, news, education, and analysis tools than M1 Finance. Again, their sheer number of resources can and likely will be overwhelming for new investors.
Charles Schwab obviously has an all-day trading window and order control. Since M1 Finance is built for long-term, buy-and-hold investing, and not for day trading, M1 has a once-daily trading window and no order control.
M1 Finance features “dynamic rebalancing,” an automatic rebalancing feature that automatically directs new deposits to specific assets to maintain your portfolio's target weights. Charles Schwab does offer this feature in their free automated robo-advisor service called Intelligent Portfolios®, but this limits you to their pre-built ETF portfolios; you cannot select your own investments. The free, basic version also requires a minimum investment of $5,000.
The Schwab Intelligent Portfolios® service also has a premium option that incorporates 1-on-1 guidance from a Certified Financial Planner, a digital financial plan, and interactive planning tools for a one-time signup fee of $300 and $30/mo. This level of the service requires a minimum investment of $25,000. These Intelligent Portfolios® also incorporate automatic tax-loss harvesting if your balance is above $50,000.
M1 Finance offers fractional shares for all investment products, which allows every dollar to work for you and allows you to buy small pieces of high-share-price stocks. This is especially important for beginner investors with a small amount of capital. Schwab announced in May 2020 that they would begin offering fractional shares, but only for stocks in the S&P 500. This feature will launch in June 2020.
M1 Finance also brings a cool social aspect to investing, allowing you to share your Custom Pies via a hyperlink.
M1 Finance vs. Schwab – Summary and Conclusion
- Both M1 Finance and Schwab offer zero-commission trades and zero fees in the context of stocks and ETF's traded on major exchanges. Schwab does have commissions on things like options, OTC stocks, and futures.
- Schwab has many more account types than M1 Finance, but I'd imagine most average retail investors won't need or utilize that difference.
- M1 Finance offers most ETF's and individual stocks. Schwab offers ETF's, stocks, OTC stocks (“penny stocks”), mutual funds, futures, and options contracts.
- M1 Finance offers much lower margin rates than Schwab.
- Schwab has a more confusing desktop user interface that would be more suitable for seasoned investors and traders. This is to be expected, as Schwab offers a broader range of account types and investment products. M1 Finance has a simple and intuitive desktop interface.
- Both M1 Finance and Schwab seem to have great mobile apps.
- Both M1 Finance and Schwab offer FDIC-insured checking accounts.
- M1 Finance offers fractional shares on all investment products. Schwab only offers fractional shares on S&P 500 stocks.
- M1 Finance has automatic rebalancing. The only way to get automatic rebalancing with Schwab is via their robo-advising program called Intelligent Portfolios®, which requires a $5,000 minimum investment for the basic account and a $25,000 minimum investment (and extra fees) for the premium account.
- Schwab has the typical order control and all-day trading window that we'd expect from a traditional brokerage platform. M1 does not offer order control and only uses one trading window per day.
- Schwab offers robo-advising and professional advising through their Intelligent Portfolios®. M1 Finance does not have a dedicated advising service but offers its expert-built “Expert Pies” for free. M1 is also probably better if you want to implement a “lazy portfolio” and have it rebalance automatically.
- M1 Finance brings a social aspect to investing, allowing you to share your Custom Pies via a hyperlink.
Again, I would suggest that Charles Schwab is perhaps the closest competitor to M1 Finance at this time. Your choice between these two platforms should depend on how you want to invest and what account types, products, and features you need. To some degree, it may also depend on your level of investing experience. Schwab inarguably offers many more options than M1 Finance in terms of account types, investment products, and research tools. But I maintain that this higher number of resources comes at a cost of increased complexity and decreased intuitiveness, making it potentially overwhelming and more difficult for a beginner investor to navigate successfully.
Moreover, I would argue that most of these extra account types, products, and tools aren't needed or even wanted by the average retail investor, especially a long-term, buy-and-hold investor. That said, you can be completely hands-off with either platform, using either Schwab's Intelligent Portfolios® or M1's Expert Pies (or a lazy portfolio through M1).
If you need access to things like options contracts, a Solo 401(k) or 529 accounts, and/or an all-day trading window, for example, Schwab is the platform for you. If you don't need those things and want access to fractional shares on all investments, automatic rebalancing on all accounts, and cheaper margin, M1 Finance is the better choice. I wrote a separate comprehensive review of M1 Finance here if you're interested in seeing the specifics of the platform.
I have to applaud Charles Schwab for making huge strides to improve and modernize its apps and features, even in just the past few months. I suspect they will continue to renovate and innovate to attract the younger, more tech-savvy audience who seem to naturally gravitate more to modern platforms like M1 Finance. Schwab is no longer just the brokerage for the older generations' retirement accounts. It will be interesting to see the future offerings of the platform.
I've actually talked to people who have accounts across both brokers – Schwab for mutual funds or robo-advised Intelligent Portfolios® in retirement accounts, and M1 for a taxable account to access extremely cheap margin and “fun” stock picking. About 5% of M1's transfers are from Schwab:
M1 Finance currently has an account transfer promotion to earn up to $15,000 as outlined below:
M1 also currently has a promotion for up to $500 when initially funding an investment account:
Disclaimer: While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.
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