What happened to Motif?

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Financial advisor David Hunter, whose firm had $14 million in client assets with Motif Investing, found out last month the firm was shutting its doors — one day after his clients learned about it via email.

“It was kind of a whirlwind,” he says. “Immediately we started trying to figure out what we were going to do.”

Motif, a data-driven thematic investment company, is one of a series of digital advice firms to launch after the recession that have ended up shuttering their investment platforms — including startups like LearnVest and Hedgeable.

The reason for Motif’s downfall remains elusive, even as the company has been divided up into three pieces: Schwab is buying its intellectual property and hiring more than half of its development and investment staff; Folio Financial is getting the client accounts; and Goldman Sachs Asset Management may become the index provider for the five ETFs it launched with the firm.

Hunter’s firm — Horizons Wealth Management in Asheville, North Carolina — was one of 65 RIAs notified its accounts would automatically move over to Folio Institutional on May 20 should it not opt out.

Hardeep Walia, who founded Motif in 2010, did not respond to three requests for comment for this article, nor did five of the firm’s current or former employees.

It’s unclear why the company decided to shut its doors. Walia didn’t specify a reason in the email sent out to clients April 17 and obtained by Financial Planning.

“I want to thank you for all your support in taking Motif to where it is today. We’ve come a long way since we started this journey together and there is a lot for us to be proud of,” he wrote before going on to say the company was closing.

The company had raised $126.5 million in funding since its founding and had several private equity owners, including Foundation Capital and Ignition Venture Partners, according to FINRA BrokerCheck and Crunchbase. What’s more, the firm had attracted some notable industry figures to its board, including Sallie Krawcheck, founder of Ellevest and Kelly Coffey, CEO of J.P. Morgan Private Bank.

Still, the company had made pivots in and out of the financial advisory space during its 10-year run. In 2014, it called its platform “an advisor’s best friend,” but a couple of years later it was moving in a different direction. Courtney Ranstrom, a CFP at Trailhead Planners, says Motif wasn’t taking on any more RIA clients by fall 2016, a period during which her firm was looking to use their portfolios, she says.

Three-way split
Greg Vigrass, president of Folio Institutional, says Motif reached out about selling its client accounts prior to closure.

“They were looking at what their next step would be,” he says, adding that Folio made “perfect sense” — Motif clients will have a similar experience as they can keep trading their securities in baskets and use Folio’s thematic and goal-oriented portfolios.

Clients also get to keep their portfolios as-is. Since Folio does fractional share trading for retail and RIA clients, they won’t have to sell partial positions.

But Folio wasn’t interested in Motif’s technology, according to Vigrass.

“There was just nothing necessarily new in it for us, if you will, so that part of it didn't make a lot of sense,” he says. “Certainly we welcome the opportunity to work with the customers and the advisors.”

Enter Schwab, which says it is building out direct indexing and thematic investing capabilities. The firm is buying Motif’s tech in an all-cash transaction that will close in mid-2020, according to Schwab.

In the acquisition, Schwab will get all of the company’s technology and intellectual property, including algorithms, patents and source code, according to the company, which plans to integrate the technology into its existing digital platform to complement its fractional share capabilities. Stock Slices, which launched this earlier this month, allows retail clients to trade up to 10 stocks at once. But the tech isn’t available for RIAs yet, and clients aren’t able to direct index.

The Motif acquisition will help accelerate this, according to Schwab spokeswoman Mayura Hooper, who says the purchase will speed up its development of “thematic and personalized indexing solutions” for both retail investors and RIAs, she says.

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While Hooper declined to comment on whether Schwab was interested in the client accounts that went to Folio, she said: “Our interest was in acquiring Motif’s technology and IP.”

On April 20, Goldman Sachs Asset Management said Motif would cease to serve as the index provider of underlying indices for the five ETFs it issued last year. The company said it was discussing its assumption of this role, but a spokesman declined to comment.

Price bind
RIAs using Motif had until May 12 to decide whether to stick with Folio or transfer Motif accounts to another broker-dealer or custodian ahead of the May 20 transition.

Hunter, whose firm had been using Motif since its early years, was especially concerned about price. Horizons Wealth Management was grandfathered into a $9.95 transaction fee cost at Motif. “We didn’t have a single client pay more than $60 or $70 a year,” he says, noting that other options in the marketplace weren’t “anywhere near that level.”

Other automated portfolio solutions he looked at ranged from 15 to 25 basis points for the technology and trading platform — or required a cash minimum that would end up costing the client even more when he did the math, he says.

Ultimately, he landed on Folio as the best option. The cost was higher than Motif (even with a lower rate), but he wouldn’t have to change his portfolios. He’s been “very impressed” with their communication, he says.

While Motif’s closure has been a disappointment to Hunter, “Right now I feel very at ease with it,” he says, noting that Folio’s software has “fit very nicely.”

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Motif Investing Charles Schwab Goldman Sachs Hardeep Walia Portfolio management Client acquisition M&A Client retention RIAs Fintech INVEST West 2020 Premium Access