M1 Finance vs. Wealthfront for Socially Responsible (ESG) Investing (Review)
Both M1 Finance and Wealthfront let you create socially responsible investment portfolios, though the two platforms are very different. We have reviewed over 30 robo-advisor portfolios, and we will help you compare Wealthfront and M1 Finance with sustainability in mind.
SustainFi October 13, 2021
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At a glance
- Both M1 Finance and Wealthfront offer environmental, social, and governance (ESG) investing options that consider factors like carbon emissions and shareholder rights. Because the platforms are so different, the best option depends on what you are looking for
- Best for self-directed investors: M1 Finance. M1 Finance lets you easily create custom ESG portfolios, buy fractional shares and borrow against your investments at cheaper rates
- Best for low fees: M1 Finance. M1 Finance doesn’t charge account management fees
- Best full-service robo-advisor: Wealthfront. You can fully outsource your investments to Wealthfront, which will create a balanced portfolio for you
Keep reading to learn more.
None ($125/year for Plus accounts)
Two Responsible Investing "Pies"
Socially Responsible (SRI) Portfolio
What is Wealthfront?
Wealthfront is a top robo-advisor with a focus on tax minimization. A robo-advisor will create an investment portfolio for you based on factors like how much risk you want to take, your age, and your financial goals.
Wealthfront’s investment team is led by Dr. Burton Malkiel, a famous economist and the author of A Random Walk Down Wall Street, an investing best-seller. Wealthfront has over $21 billion in assets under management.
Wealthfront was late to the game in offering sustainable investments, but they finally rolled out the Socially Responsible Investing (SRI) Portfolio in September 2021. The funds in the SRI portfolio are screened for environmental, social, and governance factors like greenhouse gas emissions.
Although ESG ratings and screens are not a perfect indicator of how “good” a stock is, companies with better ESG scores are generally better for the environment and their shareholders.
The Palo Alto-based firm was founded in 2008 as Ka-Ching, a mutual fund analysis company, but has long since pivoted to robo-advisory. Today, Wealthfront appears to be pivoting again to allow for more self-directed trading.
🔔 Check out the full Wealthfront review.
What is M1 Finance?
M1 Finance is an investment platform rather than a full-service robo-advisor; it’s a cross between an online broker and a robo-advisor. M1 Finance offers an easy-to-use app that lets you build customizable portfolios (called “pies.”)
The pie portfolio model allows you to easily add a stock or an exchange-traded fund (ETF) as a piece of the pie. You choose what percentage to invest in each asset.
If you don’t want to “bake” your own pies, M1 Finance comes with over 80 premade options. The app offers two socially responsible pies, the Responsible Investing and the International Responsible Investing Pies. Both are made up of asset manager Nuveen’s ETFs. In addition, M1 Finance offers fractional shares and lets you borrow to invest.
Despite its flexibility, M1 Finance is a platform for investing, not for day trading. For example, you can only buy and sell during the daily trading window (two windows for M1 Plus members.) (If you are interested in trading more frequently, check out Public, a social investing app.)
Brian Barnes started Chicago-based M1 Finance in 2015. His startup has recently surpassed $4.5 billion in assets under management, raising over $300 million from investors like Softbank.
🔔 Read the full review of M1 Finance.
M1 Finance vs. Wealthfront: Account Types
Both M1 Finance and Wealthfront support:
- Individual and joint taxable investment accounts
- Retirement accounts for traditional, SEP, and Roth IRAs, plus rollover 401(k)s
In addition, M1 Finance offers custodial accounts (UTMA/UGMA accounts) for children. Custodial accounts are for M1 Plus members only.
In contrast, Wealthfront offers 529 college savings accounts. Wealthfront also offers 401(k)s, but it is up to your employer to decide if they want to use them.
💰 The winner: Tie. Wealthfront wins if you need a 529 savings account, M1 Finance wins if you need a custodial account for your child.
M1 Finance vs. Wealthfront: Banking
Both M1 Finance and Wealthfront can set you up with checking accounts.
M1 Spend is a free savings account that comes with a Visa debit card. M1 Plus members get 1% APY on their money and 1% cash back on qualifying purchases. The account is FDIC-insured for up to $250,000. M1 Plus members get reimbursed for up to four ATM transactions each month.
An M1 credit card is coming soon.
Wealthfront also offers a checking account with a Visa debit card. You can set up direct deposits and deposit checks. Plus, you earn a 0.10% APY on your cash and get access to 19,000 free ATMs. Your account is FDIC-insured for up to $1 million through partner banks.
💰 The winner: Tie. Although M1 Finance offers a higher APY, you need to be an M1 Plus member to qualify.
M1 Finance vs. Wealthfront: Minimum investment
Both M1 Finance and Wealthfront have low minimums compared to human financial advisors, some of whom require $250,000 to work with you.
M1 Finance asks you to deposit $100 into your account to start building pies. The minimum goes up to $500 for IRAs.
The minimum balance to get started with Wealthfront is $500. More sophisticated features, like stock-level tax-loss harvesting, require a $100,000 balance.
💰 The winner: M1 Finance. The M1 Finance minimum investment is only $100, compared to $500 with Wealthfront.
M1 Finance vs. Wealthfront: Management fees
Unlike full-service robo-advisors, M1 Finance doesn’t charge a management fee. M1 Finance makes money on lines of credit and optional extras like Plus memberships. (However, accounts with less than $20 and no trading activity for over 90 days are charged a $20 maintenance fee.)
M1 Finance Plus memberships cost $125 per year and offer access to perks like an extra trading window and discounted borrow rates. Plus accounts also let you set up Smart Transfers, a service that sweeps excess cash into your investing account. As a Plus member, you also earn interest and get cash back on your M1 Spend account.
In contrast, Wealthfront charges an annual fee of 0.25% of assets under management.
Neither M1 Finance nor Wealthfront charges any account opening fees.
💰 The winner: M1 Finance. M1 Finance doesn’t charge management fees (unless you choose the Plus membership). (However, M1 Finance does not offer full-service robo-advisor services either.)
M1 Finance vs. Wealthfront: Socially Responsible (ESG) Portfolio
Both M1 Finance and Wealthfront offer socially responsible investing (SRI) options. SRI, also known as ESG, portfolios score better on environmental, social, and governance metrics like carbon emissions, diversity and governance.
🔔 Read our ESG investing guide to learn more.
M1 Finance comes with two premade Responsible Investing Pies, though you can design your own.
The International Responsible Investing Pie includes seven Nuveen ETFs. International “slices,” split between developed and emerging market ETFs, are 30% of the pie. The remainder is made up of large, mid, and small-cap U.S. stock ETFs.
Here are the funds in the International Responsible Investing Pie:
- U.S. large-cap growth stocks: Nuveen ESG Large-Cap Growth ETF (NULG)
- U.S. large-cap value stocks: Nuveen ESG Large-Cap Value ETF (NULV)
- U.S. mid-cap growth stocks: Nuveen ESG Mid-Cap Growth ETF (NUMG)
- U.S. mid-cap value stocks: Nuveen ESG Mid-Cap Value ETF (NUMV)
- U.S. small-cap stocks: Nuveen ESG Small-Cap ETF (NUSC)
- International developed markets stocks: Nuveen ESG International Developed Markets Equity ETF (NUDM)
- Emerging markets stocks: Nuveen ESG Emerging Markets Equity ETF (NUEM)
The Responsible Investing Pie has the same U.S. stock ETFs as the International Responsible Investing Pie. It doesn’t include any international ETFs. The pie splits the portfolio into five “slices,” including large-cap growth and value stocks, mid-cap growth and value stocks, and small-cap stocks.
M1’s Responsible Investing Pies do not include bonds.
🔔 Read the full review of M1 Responsible Investing Pies.
Wealthfront’s SRI Portfolio invests in fewer funds by default, though you can add more from a pre-approved selection. As of October 2021, the SRI portfolio invested in U.S. stocks, developed and emerging foreign markets stocks and U.S. bonds.
Here are the funds in the Wealthfront SRI portfolio:
- U.S. stocks: iShares ESG Aware MSCI USA ETF (ESGU)
- International developed markets stocks: iShares ESG Aware MSCI EAFE ETF (ESGD)
- Emerging markets stocks: iShares ESG Aware MSCI EM ETF (ESGE)
- U.S. bonds: Vanguard Tax-Exempt Bond Index Fund ETF (VTEB) (not ESG)
Only stock investments are in ESG funds; the bond fund, VTEB, is a non-ESG option. With only four funds, the SRI portfolio is very straightforward. All SRI funds are from BlackRock, a large exchange-traded fund provider.
According to Wealthfront and based on the data from the past three to five years, the performance of the SRI Portfolio should be similar to the standard portfolio (despite slightly higher fees).
In the past, SRI Portfolios have also been less volatile than standard portfolios, despite similar returns.
🔔 Read the full review of Wealthfront’s Socially Responsible Portfolio.
Both M1 Finance and Wealthfront let you customize your portfolio, though M1 Finance has more customization options. For example, they let you easily build the entire portfolio from scratch. And it’s easy to create a portfolio that doesn’t invest in oil and gas stocks. You can’t do that with Wealthfront’s SRI Portfolio, which has some fossil fuel investments, though fewer than their standard portfolio.
Wealthfront does let you customize your portfolio to a degree. You can do that by adding new funds from a pre-approved list. For example, you can add a clean energy fund like ICLN.
Wealthfront clients with access to U.S. Direct Indexing can also exclude stocks they don’t like by putting them on the restriction list. (Only clients with over $100,000 under management are eligible for direct indexing.)
M1 Finance (International Responsible Investing) Pie vs. Wealthfront SRI Portfolio
|Robo-Advisor||Expense Ratio||With Management Fee||% of Assets in ESG Funds||% of Assets in Energy||MSCI ESG Score||Sustainalytics ESG Rating
|Wealthfront||0.18%||0.43%||94%||5.8%||7.5 / 10||3.5 / 5|
|M1 Finance||0.39%||0.39%||100%||4.0%||7.8 / 10||4.6 / 5|
Data as of 9/30/2021
We’ve compared the all-stock M1 International Responsible Investing Pie to Wealthfront’s riskiest SRI Portfolio, which is 94% invested in stocks.
As you can see, M1’s portfolio is cheaper after management fees are added. It’s also less invested in oil and gas stocks and has higher ESG scores from rating agencies Sustainalytics and MSCI.
💰 The winner: M1 Finance lets you create custom portfolios that suit your goals, but their premade Responsible Investing Pies are not bad either. You get less flexibility with Wealthfront.
M1 Finance vs. Wealthfront: Fund expenses
When you invest through a robo-advisor or a platform like M1 Finance, you need to pay the expenses of the funds in your portfolio. (They are deducted automatically.) The money goes to the fund manager, not to the robo-advisor company.
M1 Finance lets you create your own pies, so your all-in fund expense ratio will vary.
If you are interested in M1’s premade Responsible Investing Pies, the funds in those pies cost between 0.35% and 0.40%. All-in, the Responsible Investing Pie costs 0.38% ($38 annually on a $10,000 investment). The International Responsible Investing Pie costs 0.39%. These pies are more expensive than ESG portfolios from most other robo-advisors.
However, higher fund expenses are offset by no management fee from M1 Finance. All-in, M1’s Responsible Investing Pies are one of the cheapest ESG options. And, of course, nothing prevents you from designing even cheaper pies.
🔔 Read our ESG ETF guide to learn to create DIY pies.
The funds in the Wealthfront Socially Responsible Investing (SRI) Portfolio cost from 0.06% to 0.25%. The SRI Portfolio includes four funds, and their mix depends on your goals and how much risk you want to take.
As an example, an SRI Portfolio with the 8.0 Risk Score (81% stocks and 19% bonds) costs 0.16% and the SRI Portfolio with the 10.0 Risk Score (94% stocks and 6% bonds) costs 0.18%. But, once you add Wealthfront’s management fee on top, you pay between 0.41% and 0.43% for these two portfolios.
💰 The winner: M1 Finance. M1 Finance lets you choose any funds you want (you can even pick the ones in Wealthfront’s SRI Portfolio.) Even if you choose M1’s relatively expensive Responsible Investing Pies, the all-in cost will still be cheaper because M1 Finance doesn’t charge management fees.
M1 Finance vs. Wealthfront: Individual Stocks and Fractional Shares
M1 Finance lets you add individual stocks and fractional shares to your pies.
Fractional shares allow you to buy a piece of a share if buying the entire thing is more than you would like to spend. For example, one share of Tesla (TSLA) stock costs $800, but if you only want to spend $100, you can buy 1/8 of that share. Buying fractions of shares limits how much cash is sitting in your account unspent.
Wealthfront doesn’t let you buy individual stocks or fractions of them.
💰 The winner: M1 Finance.
M1 Finance vs. Wealthfront: Margin lending
Both Wealthfront and M1 Finance let you borrow against the value of your investments.
M1 Finance gives margin loans to customers with over $5,000 in their investment account. The platform charges 3.5% interest (2% for M1 Plus members), and you can borrow up to 35% of the value of your account.
Wealthfront gives margin loans to customers with at least $25,000 in their investment account. Depending on your account size, borrow rates are between 2.40% and 3.65%. You can borrow up to 30% of your account value.
💰 The winner: M1 Finance. Wealthfront’s borrow is more expensive, you can borrow less as a percentage of your account, and you need a larger account balance to qualify.
M1 Finance vs. Wealthfront: Tax-loss harvesting
Tax-loss harvesting is a tax minimization strategy that involves selling funds or stocks at a loss to offset capital gains from investments that have made money.
Wealthfront offers tax-loss harvesting to all of its customers. The robo-advisor will look for movements in ETFs to harvest more tax losses and lower your tax bill. You still benefit from tax-loss harvesting if you invest in the Socially Responsible Portfolio.
Customers with over $100,000 invested get access to stock-level tax-loss harvesting (also known as direct indexing), which is a more advanced version of tax-loss harvesting.
💰 The winner: Wealthfront. M1 Finance doesn’t offer tax-loss harvesting.
M1 Finance vs. Wealthfront: Human Financial Advisors
Neither M1 Finance nor Wealthfront offers human financial advisors.
Wealthfront’s website has financial planning tools to help you determine what house you can afford, whether you are saving enough for retirement and if you can take time off to travel.
M1 Finance vs. Wealthfront: Automatic Rebalancing
Both Wealthfront and M1 Finance automatically rebalance your portfolio. Automatic rebalancing means that the robo-advisors will buy or sell investments to get to the asset allocation that suits your goals.
Sometimes, when one asset class, like stocks, does much better than another one, like bonds, your portfolio may “drift” and become riskier (or less risky) than it should be. Automatic rebalancing solves that.
M1 Finance also lets you rebalance the portfolio when you want.
💰 The winner: Tie. Nearly all robo-advisors now offer this feature.
💰 The Overall Winner
- There is no clear winner because the two platforms are designed for different types of investors
- Best for more experienced, self-directed investors: M1 Finance. M1 Finance gives you more choices if you know how you want to invest. There are no management fees. You can add individual stocks and fractional shares. If you need to borrow, M1 Finance offers cheaper rates. If you want to invest sustainably and have specific requirements (like not owning oil and gas stocks), you can create a portfolio of fossil free ETFs
- Best for beginners: Wealthfront. Wealthfront will create a portfolio to suit your goals, but it will charge you 0.25% for the service. Wealthfront is best if you don’t know where to start and want a hands-off solution. Wealthfront’s Socially Responsible Investing Portfolio is good enough for most investors
🔔 Want to compare more options? Read our guide to ESG robo-advisors.
We compared robo-advisors with an ESG offering based on management fees, ESG portfolio expense ratios, the percentage of the ESG portfolio invested in ESG funds vs. traditional funds, ESG portfolio ratings (from Sustainalytics and MSCI), portfolio exposure to energy, transparency, features like tax-loss harvesting and automatic rebalancing, and access to human advisors.