Power to the people: Thematic investing comes to life

The most exciting part of my work is getting to see innovative and potentially disruptive technology before it is rolled out and in use.
So it was that I first met Hardeep Walia, co-founder and chief executive of online broker Motif Investing, eight months ago and reported on his work in InvestmentNews in June.
“What we are delivering is natural-language investing: Peter Lynch meets Jack Bogle,” Mr. Walia said two weeks ago in a subsequent meeting, comparing the platform that his firm has built to the business and investing philosophies of two larger-than-life figures.

AN IDEA WITH APPEAL

At the time of our first meeting, he already had envisioned that the core idea behind his largely consumer-focused startup — namely, that “motifs,” or low-cost bundling of securities into rational, commonsense and intuitive groups that could be easily purchased and traded online — would appeal to financial advisers, too.
Turns out he was right.
In our recent meeting, he showed me what the firm announced Feb. 28: a beta program of features tailored specifically for those who want to build their own motifs. This includes users’ ability to create or customize their own index-weighted motifs that can be sold publicly, with the creator earning a share of revenue from users who buy them, or kept private for their own clients. (see last week’s story around Motif’s announcement to view screen shots of the Motif interface).
Motifs are collections of thematic stocks, bonds and exchange-traded funds (for example, securities of companies located in Denver or securities of companies with a large proportion of female executives) put together by a mix of analysts, and affiliated experts and academics.
There are two models for buying motifs using the new features when fully available: $9.95 per single motif of up to 30 securities, or $50 for 150 securities. Trades cost $9.95, and while there is no minimum account balance, users will have to have at least $250 invested in a motif in order to commence trading.
“Let’s say I’m an adviser, and I want to build or test a motif around my favorite brands in Seattle,” Mr. Walia said as he walked me through a demonstration of the process.
Within a minute, he had selected a dozen well-known firms, including Microsoft Corp., Starbucks Corp., Nordstrom Inc., Costco Wholesale Corp. and Boeing Co. He then used buttons or sliders on the interface to adjust the index and weights associated with the securities.
Sometime in the next few weeks, a Microsoft Excel feature will be available that allows advisers to upload an existing portfolio into the system, Mr. Walia said.
After Motif’s initial introduction last May, many advisers asked about adapting the system to their own use. Although the product is intended for use by investors, the company realized that some users were recognizably advisers.
Tom Nowak is among the early-adopting advisers who saw what Motif was doing as a good alternative to fee-based or fee-only platforms used by other advisers.

PLANS BUILT WITH CLIENTS

He is founder and principal of Quantum Financial Planning LLC, an hourly-planning practice and registered investment adviser. Mr. Nowak doesn’t manage assets but builds plans and works with clients to build their own investment portfolios — in the past, largely through discount brokerage firms.
“It was quite an effort to work with someone to load up all 25 or 30 stocks [to create a portfolio]. But when I investigated the Motif platform, it was like someone had come to me and said, “Here is a tool to make your life a hundred times easier,’” Mr. Nowak said.
He is interested in socially conscious investing and has written a book on the subject: “Low Fee Socially Responsible Investing: Investing in Your Worldview on Your Terms” (CreateSpace Independent Publishing Platform, 2012).
“Motif and I both share the same things,” Mr. Nowak said, namely, each wants a system and platform in which investors can express who they are by investing in their interests.
He helped create the socially conscious investing motif on the platform and has subsequently customized it for use with other clients.
“For my part in my work, I like to make certain that [clients] are not going to starve to death expressing their worldview,” Mr. Nowak said.
Ross Almlie, an investment adviser at TCI Financial Advisors, said that his firm began moving some client accounts over to Motif in November after some due diligence.
“We’re using them just for a segment of our clientele; it’s not for everybody,” he said.
“The way Motif has designed these around indexes, it has gotten my investors excited about investing again — basically, how they can follow the performance of something they can identify,” Mr. Almlie said.
“The XYZ growth fund or XYZ value fund has no meaning to my clients. And they have no idea what is under the hood other than when [the funds] publish their holdings fours time a year,” he said, referring to traditional mutual funds.
Mr. Nowak and Mr. Almlie were provided by Motif as sources.

IT’S NICE TO SHARE

At least part of advisers’ interest comes from being able to share and test their own investment ideas, Mr. Walia said.
“Advisers are interested in Motif for sharing directly with clients they manage, but also like it because it provides them with a retail channel,” he said.
Another feature due out this spring is being able to buy the motifs of others, with the creator eligible for an as-yet-unannounced royalty payment.
Check out our story last week on Motif’s announcement and to view screen shots of the Motif interface.

Related Topics: Technology Update