Wall St. darling Motif raises another $35M from JPMorgan and others for its thematic investment platform

By Michael Carney , written on May 8, 2014

From The News Desk

Not long ago, the notion of trading shares of stock electronically was a foreign concept. Today, not doing so would be considered odd. So maybe it should come as no surprise that consumers are looking beyond traditional brokerages to next-generation to financial technology startups for new and more approachable ways to manage investments.

One of the most innovative companies in this category is Motif Investing, a low-cost trading platform that supports idea- or theme-based investing. For example, using Motif, it’s possible to invest in a basket of stocks positioned to benefit from Obamacare, those capitalizing on the current robotics revolution, those inversely correlated with inflation, or those involved in 3D printing, among dozens of other concepts. The company offers a variety of these readymade motifs and also allows users to create their own, each of which can contain up to 30 individual stocks and can be purchased, and subsequently rebalanced, for a flat fee of $9.95.

With consumers and financial advisors alike flocking to the service, investors have duly taken notice. Today, the four-year-old San Mateo-based company announced a $35 million Series D round of funding led by JPMorgan Chase & Co, with participation from Wicklow Capital and Balderton Capital, as well as previous investors Goldman Sachs, Foundation Capital, Ignition Partners, and Norwest Venture Partners. The round brings the company’s total funding to date to $86 million.

The involvement of two of Wall Street’s most highly regarded investment banks means more than just cash for Motif. It means credibility and likely future business. The company is currently negotiating commercial licensing deals with both JPMorgan and Goldman Sachs, co-founder and CEO Hardeep Walia says, deals that it will likely duplicate elsewhere within the industry.

In conjunction with this financing, Motif announced plans to expand internationally, with an initial focus on the UK and Europe. Additionally, the company has introduced a new wealth management product. The Motif Advisor Platform will allow financial advisors – presumably independents – to manage the accounts of multiple clients from a single interface and under a flat-fee model of $20 to $50 per month, per client, depending on asset sizes.

“Our goal is to use software to strip away the non-value-creating parts of every advisor’s day-to-day work,” Walia says.

This will be a welcome alternative to the process of advisors creating a new consumer account for each of their clients, something that Walia says has been a common, but obviously inefficient practice. The new platform, which supports digital client on-boarding, automated portfolio rebalancing, and other efficiency-driving tools received the “Best of Show” award when debuting at last month’s FinovateSpring conference.

“On the most basic level, [Motif] saves me a staggering amount of time, and it’s very simple to use,” says Jamieson Capital Advisors investment advisor Ross Almlie. “Then you dig in and look at the level of sophistication and the associated costs savings. I view this as a ‘must have’ service.”

For those consumers who wish to manage their own portfolios, Motif has introduced a no trading commission, no advisory fee option called Horizon motifs. Users can either invest in these pre-defined asset allocations as they exist, or pay a fee of $9.95 to customize their weighting.

The next big area of innovation will be centered around risk-modeling and hedging, according to Walia. “We know that we need to do everything possible to deliver peace of mind,” Walia says.

Motif has made more progress than most companies at demystifying the stock investing process. Some have even taken to describing its platform as “Pinterest for stock picking.” The paint-by-numbers approach is certainly appealing to a wide demographic. The issue is, this appeal will only last as long as the thematic investment approach proves effective at making them money. The one sure thing is that investors will be well served by all the fees they save by choosing Motif over a traditional brokerage. Whether the company’s simplicity-focused approach can translate those savings into investment returns remains to be seen.

“We gave a fun product that people really love,” Walia says. “But underneath, what we’re actually doing is rewriting the fundamentals of the investment landscape.”

The brokerage business is worth billions of dollars. If Motif really has built a better mousetrap, then expect the profits to beat a path toward its door.