Launched in 2012, Motif Investing is an innovative online broker that allows users to trade multiple stocks or exchange-traded funds (ETFs) that fit a theme for a single, flat fee. The San Mateo, Calif.-based company has attracted $35 million in backing from JPMorgan Chase and $25 million from Goldman Sachs. Although the platform has limitations, it offers low fees and services that are attractive to both individual investors and financial advisors.

How Does Motif Investing Work?

Motif Investing seeks to make thematic investing, or investing and diversifying within an industry or theme, simple for the individual investor. Suppose an investor notes the growing importance of social media and wants to invest . Traditionally, the investor would research the field and come up with a list of companies like Facebook (FB), Twitter (TWTR), and LinkedIn (LNKD). The investor could then buy each of these stocks individually (paying perhaps a $5-$10 transaction fee for each stock) and group them as a portfolio. Another option is to invest in a fund that offers exposure to social media stocks.

With Motif Investing, the same investor can skip or reduce the research and invest a certain amount in the firm’s social networking motif. With one transaction fee of $9.95, the investor is then exposed to 15 social media company stocks in one portfolio. Motif Investing offers as many as 150 motifs, each containing as many as 30 stocks or ETFs. Some motifs have catchy names like the seven deadly sins (stocks themed around vices like alcohol, tobacco, and fast food companies). Other motifs include home improvement, high-dividend stocks, floating-rate bonds, companies with a lot of Facebook likes, socially responsible companies, buyback leaders, and natural gas glut. The company adds new motifs pitched to current events like fighting Ebola or rebuilding after Hurricane Sandy. The seven deadly sins motif has turned in a higher than 14 percent return over the last year, while the home improvement motif has provided its investors with an almost 33 percent return.

Motif Investing also offers motifs tailored to specific retirement timelines with names like retiring 2030. Such a motif might contain bond and stock ETFs the user would hold for 15 years. These are similar to target date funds geared to investors targeting for a specific retirement date.

How to Start a Motif Investing Account

You could open a Motif Investing account with as little as $250 (that goes up to $2,000 if you are looking to trade on margin) and own fractional shares in a particular motif. The account can be an individual account, a joint brokerage account, an IRA, or even a trust account for estate management purposes.

To buy into any specific motif, which can contain up to 30 different stocks, the total commission is $9.95. To buy each stock individually at a conventional brokerage firm (at an average of $5 to $10 a trade) could total up to $300. Once invested in a motif, the investor can buy or sell individual stocks in the motif for a fee of $4.95 per stock trade. To buy additional shares of the entire motif, the fee would be $9.95.

Less Common Features

Within its brokerage model, Motif Investing also offers some additional features. For example, a user may have an idea for a motif that Motif Investing does not already offer. The user can create the motif and share it with friends or other users. The firm also offers a program where it pays the motif creator a fee whenever other users invest in it. That applies even if other users rebalance a user-created motif to better suit their own needs.

Motif has also added a social networking element by allowing users to share their investing ideas with others on the platform. Users can form restricted groups with only their friends or relatives and share ideas or recommendations. Users can also share with all Motif users.

What’s Not to Like?

Motif Investing is not without its disadvantages. For one, it does not offer trading for mutual funds and options. It also does not offer dividend reinvestment. That means that if a stock within a motif pays a cash dividend, it will be credited to the account and not reinvested in the stock. And there are also tax drawbacks. Users owe tax on individual shares in the motif. This is more complicated than owning an individual ETF or mutual fund and paying a consolidated tax. However, in a motif, users also have more timing control over buying and selling individual shares for tax management purposes.

The Bottom Line

If you are an investor looking to benefit from broader themes through exposure to multiple stocks and ETFs, Motif Investing offers a way of doing this at a lower cost. Whether you are a beginner, experienced investor, or even a financial advisor, this platform is worth checking out. However if you want to invest in mutual funds, options, or individual stocks, use a traditional online broker.

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