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Investing is a risky endeavor, even with the protection of FDIC and SIPC. So why would you take on additional risk by using an app that doesn’t offer this type of protection? M1 Finance is FDIC and SIPC insured, which means your money is covered in the event of insolvency.

In addition to this, they require verification – meaning there is a way to confirm if you are who you say you are. This makes it incredibly difficult for cybercriminals to steal your information and get access to your funds.

This article will look at whether M1 Finance is safe, as well as look into whether it is free and legitimate to use as your all-in-one financial management platform.

What is M1 Finance?

man investing on smartphone

M1 Finance is an all-in-one financial app used to automate your money into investment portfolios aligned with your choices.

It offers a variety of investment options and is available on both the iOS and Android platform. It is also FDIC and SIPC insured, which means your money is covered in the event M1 Finance goes bankrupt or becomes insolvent.

The app requires verification – meaning there is a way to confirm if you are who you say you are. This makes it more difficult for cybercriminals to steal your information and get access to your funds.

The app is free, but does charge a small annual subscription fee if you want the premium features offered.

Is M1 Finance Safe?

To be succinct: Yes. M1 Finance takes every precaution to safeguard your money and enforce its protection against the theft of your personally-identifiable information or financial assets stored on the platform.

This doesn’t mean your money are insured against losses due to drops in market value. That requires using financial instruments like options to protect against the downside.

What M1 Finance covers you against are losses suffered in the event M1 Finance or its custodian fail to safeguard your funds or enter bankruptcy. It does not cover against investment losses.

You will not be refunded for investment losses incurred on the platform.

What is SIPC?

SIPC is an acronym for the Securities Investor Protection Corporation. It is a member-funded, nonprofit organization that protects investors when their brokerages go bankrupt or otherwise become insolvent.

The Securities Investor Protection Corporation was founded in 1970 with the passage of the Securities Investor Protection Act.

It is funded by assessments on securities firms, which are passed along to customers as a cost in their commissions and fees.

What Does SIPC Cover?

The SIPC provides up to $500,000 in coverage per account holder at participating brokerage firms in the event the brokerage goes into bankruptcy, including up to $250,000 in cash.

Broker-dealers become a member of SIPC, which oversees brokerages to ensure that customers whose brokerages go out of business are compensated.

SIPC focuses on restoring the availability of customers’ assets, not on the recovery of investment losses.

Therefore, an investor’s account balance is from the loss of customer assets up to $500,000 per person as a result of the brokerage becoming insolvent or entering bankruptcy.

To ensure your account assets carry full insurance coverage against brokerage bankruptcy, make sure not to exceed the per account SIPC insurance limits.

In the event you exceed the allowed SIPC coverage at your broker, you may transfer the excess to a different broker-dealer.

For example, if you have $800,000 of assets in your investment account, you will need to transfer $300,000 of assets elsewhere if you wish for your entire balance to carry SIPC coverage.

Where practical, you can proceed with this transfer to another broker, such as Webull, if you have concern of not carrying sufficient coverage.

The receiving brokerage would need to have the equivalent amount of SIPC coverage for you to receive the protection against asset losses you can’t with your existing brokerage.

Is M1 Finance a SIPC Member?

man reviewing investments on smartphone

Yes. M1 Finance is SIPC member.

This is a legal requirement that all securities firms must be to provide protection for their customers’ assets. Maintaining this SIPC status is an important part of M1 Finance’s ongoing commitment to the safety and security of your investments.

SIPC cannot offer compensation for fraud on a user’s account, money lost due to an investment gone bad, or anything other than what the free stock trading app offers.

If the broker offered poor stock advice by picking stocks that failed to perform to your expectations and lost money, SIPC would not cover these losses. As of this writing, M1 Finance does not offer investment advice as part of its service offering.

However, if you believe your broker has acted negligently in their advice and it is not disputed by the SIPC, that will fall under the jurisdiction of FINRA or the SEC.

Fixed annuities, gold and silver coins, and foreign currency will not be covered by SIPC.

Brokers must keep additional security layers in place such as:

  • Customer assets need to remain segregated from the firm’s assets and cannot commingle funds
  • The brokerage must maintain a minimum level of liquid assets on hand to provide adequate liquidity to meet the ongoing needs of the business

M1 Finance is a SIPC member and must meet this requirements to serve as a registered brokerage firm.

What is FINRA?

FINRA, or the Financial Industry Regulatory Authority, is a non-profit organization that works to protect investors by supervising stockbrokers, enforcing the rules governing them and educating people about investing.

FINRA is a self-regulatory organization (SRO) for securities brokerages in the United States and was created with oversight from congress after many investor protection issues were revealed during the Great Depression.

FINRA also regulates M1 Finance while working under the supervision of the Securities and Exchange Commission (SEC). In particular, FINRA regulates brokerages by:

  • holding them accountable for compliance with federal securities laws and regulations
  • handling complaints filed by investors against brokerages
  • conducting investigations into possible violations of the law, involving disciplinary actions when appropriate
  • educating the investing public

To investigate specific brokerages, you can use FINRA’s BrokerCheck service. This allows investors to see if a broker is licensed and if there are any public customer disputes.

M1 Finance’s BrokerCheck listing shows no open complaints, investigations or violations at the time of this writing.

Does FINRA Regulate M1 Finance?

Yes. FINRA regulates M1 Finance along with other broker-dealer firms.

FINRA regulates all brokers that have a brokerage license with the SEC. Mere membership is not enough for FINRA to regulate an organization, though it does provide some benefits to members in terms of background checks and training requirements.

Maintaining clear boundaries between the two organizations is important: while both are self-regulatory organizations (SROs), one is focused on the concerns related to brokers and the other is focused on protecting investors and regulating securities markets.

What is FDIC Coverage?

The Federal Deposit Insurance Corporation (FDIC) was created in 1933 to provide a safety net for US depositors. The idea behind it is that, should anything happen to your bank and you would lose all of your money held on deposit, the FDIC would insure up to $250,000 per account holder at any one time.

Banks become members of the FDIC by paying annual insurance premiums. There is a limit to how much they can contribute, but this varies from year to year and is determined by the FDIC Board of Directors.

In general, banks with more accounts are required to pay higher fees than smaller organizations in order to maintain reserves that will be used should something happen.

So if you had $200,000 in your account and the bank went under, the FDIC would cover up to that amount.

The same is true for joint accounts: per depositor per ownership category–one person or two people with equal rights–you can have up to a total of $250,000 insured at any one time.

FDIC coverage is important for two reasons.

Firstly, it is a way to safeguard your money from being lost if the bank goes bankrupt or is otherwise compromised in some fashion.

Secondly, FDIC coverage is one of the requirements for opening an account with a broker with an associated banking service so you can invest using their brokerage service.

Does M1 Finance Carry FDIC Coverage?

investing money decisions medium

Yes. M1 Finance stores your deposits on the M1 Spend platform in a bank account. The FDIC insures these accounts and also performs the following tasks:

  • reviews the bank’s assets and sets insurance limits (by reviewing bank assets, deposits and loan activities)
  • if a bank fails to meet its obligations or is otherwise compromised in some fashion, it will pay investors their money up to $250,000 as long as they follow certain rules for depositing funds
  • manages receiverships (if a bank becomes insolvent)

In other words, the FDIC ensures that your money is safe even if M1 Finance were to shut down.

As of right now, there are no known safety issues with this app and it has been operating for years without any reported financial insolvency concerns.

Related: Best Debit Cards for Teens to Become Money Savvy

What Type of Security Protection Does M1 Finance Use?

M1 Finance keeps your data safe by using Plaid to connect with your bank to transfer funds. Plaid uses sophisticated authentication and security measures to protect the sensitive data it gathers.

These meet or exceed industry best practices and use numerous financial controls to ensure information is safe and secure.

The app also encrypts all data transmitted to their servers at a level considered the industry standard for financial institutions, using AES-256 encryption.

Further, Plaid uses multi-factor authentication (MFA) as an additional layer of security to protect your account.

This is a step up from traditional single-factor authentication (SFA) and includes the use of two out of three items: something you know, such as password; something you have, like an ATM card or mobile phone PIN number; or something in your physical possession, for example a fingerprint scan.

This added layer of protection helps to ensure that a third party cannot access your account even if they have your password or other security details.

Plaid also limits how often you can reset your MFA credentials to help prevent the risk of information being compromised.

You may only need to change it every six months, depending on whether you are enrolled in multi-factor authentication.

M1 Finance employs a monitoring system to detect unusual activity on your account, such as logins from a different IP address than is normally used.

This may indicate that someone has stolen your login details and this will be prevented by the app automatically locking down your account for you to review whether it was in error or not.

Related: Top Debit Cards for Kids

Is M1 Finance Free?

M1 Finance is free. It offers pre-built or customizable portfolio pies for free. You pay no management fees, no trading commissions nor subscription fees.

You will need to maintain a $100 investment account minimum to avoid paying any fees. Opening an account and making a minimum qualifying deposit can result in receiving a free sign up bonus.

Learn how in this article on how to get free stocks from M1 Finance and other investing apps for beginners.

Is M1 Finance Legitimate?

m1 finance sign up

M1 Finance is a commission-free online brokerage service with no minimum balances or fees. You can invest in a number of financial products like stocks and ETFs.

M1 Finance strives to provide customized portfolio opportunities with a variety of asset classes or pre-built portfolios. The app also allows fractional share investments, meaning you can purchase small fractions of stocks if you can’t afford a full share all at one time.

The app pairs with M1 Spend, which is a free checking account attached to the financial platform. M1 automatically rebalances your portfolio and accepts reinvested dividends without user input.

Diversification is when you invest in different things and not just one thing. The platform can help beginners and more experienced investors. They want to invest for the long term, which is called passive investing.

Further, M1 Finance offers the ability to use margin when trading. This practice carries added risk as you can lose more than you have invested in the security while remaining liable for the full amount.

Is M1 Finance Safe for Investors?

M1 Finance provides multiple layers of protection, both in the form of insurance coverage and cybersecurity safeguards.

The M1 Finance app is designed to be a safe place for investors. This means your funds remain insured in your M1 Spend checking account and the funds kept in your M1 Invest account remain insured against losses in the event of M1 Finance’s insolvency or bankruptcy.

This does not insure against losses experienced from market volatility or loss in investment value.

The platform integrates with Plaid to transfer funds from an outside bank account, similar to other apps like Robinhood, Webull, Acorns and the like.

This finance platform has the power of automation, so it can rebalance your portfolio and reinvest dividends without user input.

It also offers diversification as well as margin trading in order to help novice and experienced traders alike. The people behind this site want you to succeed and feel safe using their investment platform.

About the Author

Riley Adams is the Founder and CEO of WealthUp (previously Young and the Invested). He is a licensed CPA who worked at Google as a Senior Financial Analyst overseeing advertising incentive programs for the company’s largest advertising partners and agencies. Previously, he worked as a utility regulatory strategy analyst at Entergy Corporation for six years in New Orleans.

His work has appeared in major publications like Kiplinger, MarketWatch, MSN, TurboTax, Nasdaq, Yahoo! Finance, The Globe and Mail, and CNBC’s Acorns. Riley currently holds areas of expertise in investing, taxes, real estate, cryptocurrencies and personal finance where he has been cited as an authoritative source in outlets like CNBC, Time, NBC News, APM’s Marketplace, HuffPost, Business Insider, Slate, NerdWallet, Investopedia, The Balance and Fast Company.

Riley holds a Masters of Science in Applied Economics and Demography from Pennsylvania State University and a Bachelor of Arts in Economics and Bachelor of Science in Business Administration and Finance from Centenary College of Louisiana.