As investors, the safety of our funds understandably is our primary concern. Since M1 Finance is a fairly new broker you might wonder how safe your funds are with them. Are they FDIC insured? And what happens when if M1 Finance goes out of business? I researched online and gathered all the information I could find right here!
Is M1 Finance safe? M1 Finance is as safe as any other broker out there. They are a registered broker with FINRA and a member of the Securities Investor Protection Corporation (SIPC) which protects against a loss of cash and securities of up to $500,000. All funds in M1 Spend and Plus accounts are FDIC insured up to $250,000. Additionally, data sent to and stored on the site is secured with 4096-bit encryption.
But let’s at those security and safety features in a bit more detail!
What is M1 Finance?
M1 Finance is a modern and innovative broker that offers commission-free trading. They have many other features that set them apart from other traditional brokers such as auto-investing, auto-rebalancing, and fractional share investing.
With auto-investing, you are able to set up a fixed amount to be invested directly from your bank account at an interval of your choice: monthly, bi-weekly, or weekly.
Auto-rebalancing allows you to set portfolio allocation percentage-wise that never changes; no matter how well certain assets develop.
With fractional share investing you will never have any ‘dead capital’ lying around since every dollar is put to work.
FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).
How safe is M1 Finance?
So, is M1 Finance really safe? I have split the answer to this question into two main sections: security and insurance.
The security section which we will look at first deals with the security of the M1 Finance app and website. This is important to prevent unauthorized access to your account and to keep your funds and data out of reach from hackers.
The insurance section is about the safety of your funds in case of loss. This could be relevant if something were to happen to M1 Finance as a company or if they go bankrupt or out of business for other reasons.
The safety and security mechanisms of the M1 Finance site are top-notch. The use a high-end military-grade 4096-bit encryption to keep your data secure and prevent anyone from sniffing out passwords or other sensitive data.
When logging in you always want to make sure the site is SSL-encrypted. You can check this by clicking the little padlock icon next to the address bar in any browser. It will tell you the current encryption status of the site.
In addition to encrypting all data transferred between you and M1 Finance, they offer two-factor authentication for every account. This means that in order to log in or conduct an important transaction (such as moving funds) you will need to confirm that transaction through a second device.
You can either use your phone to receive an SMS verification code or use an authentication app like Google Authenticator. The latter is even more secure since it cannot be hacked.
Next, we’ll look at how your funds are insured and protected from loss.
Is M1 Finance registered with FINRA?
First of all, M1 Finance is registered with the Financial Industry Regulatory Authority (FINRA). This non-profit government organization sets rules and regulations for broker firms related to business practices and transparency and checks its members for compliance with these rules.
To verify M1 Finance’s membership we can check FINRA’s website and make sure they don’t have a disciplinary record:
As we can see, M1 Finance has to entries with FINRA. One as an investment adivser firm, and one as a brokerage. If we click on the brokerage entry, we’ll even get some more detailed information regarding their registration status and history.
We can see that M1 Finance is registered as a Limited Liability Company and was approved on March 25, 2016. All of the above entries add up to make M1 Finance a safe choice.
But there is more.
Is M1 Finance a SIPC member?
M1 Finance is also a member of the Securities Investor Protection Corporation (SIPC) which protects its customer’s funds up to $500,000 with a $250,000 limit for cash holdings. However, the SIPC does not protect your funds against a loss of value (e.g. stock market crash). Its primary focus is to make sure that your funds are safe if something were to happen to M1 Finance as a broker.
It is worthwhile to point out that not all asset types are covered and protected against loss by the SIPC. The following assets are covered through the SIPC:
- Transferable shares
- Collateral trust certificates
- Evidence of indebtedness
- Security futures
- Other investment company shares
- Other registered securities
Assets that are not covered include:
- Commodities or futures
- Commodity options
- Unregistered investment contracts
- Unregistered limited partnerships
- Fixed annuity contracts
- Interests in silver and gold
For most investors, this will be sufficient coverage since it’s unlikely you will be investing in unregistered LP’s. All of your main funds invested in stocks and bonds are safe.
But as always, verification is better than belief. To check whether M1 Finance really is a SIPC member we can conduct a search on their website and see what comes up.
As the search result shows, M1 Finance is indeed a SIPC member. Your funds are safe!
Is M1 Finance FDIC insured?
Here we have to differentiate between different M1 Finance accounts. Since FDIC insurance is only possible for bank accounts, your M1 Finance brokerage account is not FDIC insured. However, M1 Spend and M1 Plus accounts are operated through Lincoln Savings Bank which is an FDIC member. Therefore, your funds held in M1 Finance Spend or Plus accounts are FDIC insured.
Typically, the Federal Deposit Insurance Corporation (FDIC) insures funds held in bank accounts. Each depositor is insured to at least $250,000 per bank. If you hold cash reserves in your M1 Finance Spend or Plus accounts you can sleep well knowing they are FDIC insured.
Once again we can verify the banks FDIC membership on the official FDIC website.
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There are two sides to the safety of a brokerage firm. One is the security of data on their platform and the other the insurance of funds.
Both are equally important. The data security protects against unauthorized access and withdrawal of your funds. The insurance makes sure your funds are not lost if the broker goes out of business.
M1 Finance has excellent security features. They have a strong encryption mechanism in place to keep your data safe. They also give you the option to enable two-factor authentication to add an extra layer of security to your account.
M1 Finance also checks all of the insurance boxes. They are registered with FINRA, SIPC, and your funds in M1 Spend, and Plus accounts are FDIC insured. FINRA makes sure that each broker is compliant with the current regulations and transparency standards. SIPC covers your investment assets up to $500,000 and cash reserves up to $250,000. FDIC protects your M1 Spend and Plus funds up to $250,000.
In summary, even though M1 Finance is a young company, they are just as safe or perhaps even safer than most other brokers out there. Click here to get started with M1 Finance today and take control of your financial freedom!
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