Just weeks after Motif Investing announced it was shutting down its platform, Charles Schwab saidthat it has entered into an asset purchase agreement to buy Motif’s technology and intellectual property in anall-cash transaction.
As of press time, terms were not disclosed. The transaction is expected toclose by the middle of 2020, subject tocustomary closing conditions, and willinclude all of Motif’s algorithms, patentsand source code. Motif focused on customized thematic portfolios to investors.
Its broker-dealer, RIA, client accountsand client assets are not included in theSchwab acquisition. Its client accountshave been sold to Folio Investments.
As part of the Motif purchase, Schwabwill be hiring a majority of Motif’s development and investment talent, includingfounder and CEO Hardeep Walia.
“We continue to see an increasing
number of clients interested in custom-
izing their investing experience to suit
their values, objectives and personal
circumstances,” said Neesha Hathi, EVP
and chief digital officer at Schwab. “We
intend to leverage Motif’s platform to
build on Schwab’s existing capabilities
and help accelerate our development
of thematic and direct indexing solu-
tions for Schwab’s retail investors and
RIA clients — all with the sophisticated
digital experience our clients expect
Motif is a fintech pioneer that has
combined breakthrough technology and
data science to deliver customized the-
matic portfolios to investors. In addition
to thematic investing, Motif’s technology
platform offers investors the flexibility to
personalize investments, supports real-
time fractional share trading and can help
enable sophisticated tax optimization
strategies within investment portfolios.
MORE FINTECH FAILURES
In late April, Motif said it was closing its trading platform and exitingits ETF indexing deal with GoldmanSachs. Other fintech firms probablywill fail as the economy weakens andthe markets bounce around, technologyconsultants say.
“This is the tip of the ‘tip of the ice-
berg’; I estimate that we’ll lose 20% of the
firms in [Michael] Kitces’ fintech map by
this time next year,” said Doug Fritz,
founder and president of F2 Strategy.
“Many will be purchased or consumed by
their equity backers. Others will close.”
According to its March filing with the
Securities and Exchange Commission,
Motif had $18.2 million in assets from
individual investors and $586.3 million
from banks. Its ETF models, launched
with Goldman Sachs, had about $264
million in assets.
The Motif shutdown is “a harbinger
of what’s to come for other small digital
players, as revenues get taken out of
the investment supply chain,” said Tim
Welsh, head of the consultancy Nexus
Strategy. “Scale means everything now,
so you have to be big to make a go of it.”
There’s also the “problem” of raising
too much capital, according to Welsh:
“Eventually, it does run out as you oper-
ate in the red for years and years.”
Plus, there are no exit or merger oppor-
tunities, because “the assets in these
digital investment platforms are really
just the technology and the end-client
accounts. But now, the technology is eas-
ily replicable for cheap; and no one wants
thousands of tiny accounts,” he added.
What makes more closures of, specifically, low-cost portfolio platformslikely? The need for healthy revenuesand capital reserves to weather a stormlike today’s, according to Fritz.
“In many cases, these businesseswere ‘built to sell’ or had models thatwere designed to aggregate eyeballsand attention, which would be usedfor future monetization. Many of thesetypes of businesses are going to be hurting right now,” he explained.
There is “hope” for fintech firmsfocused on planning and on environmental, social and governance or impactinvesting, says Fritz.
More broadly, shutdowns of morefintech players this year doesn’t “spelldisaster for innovation,” Fritz explains.“They’ll just recast the spotlight ontofirms that are both innovative and havea solid business model that can weatherdownturns like this.”
Bernice Napach is ThinkAdvisor.com’ssenior writer and can be reached firstname.lastname@example.org. Janet Levaux is editor-in-chief of Investment Advisor. She can bereached at email@example.com.
By Bernice Napach and Janet Levaux
Schwab to Purchase Some Motif Assets
The platform’s recent shutdown is seen as the ‘tip of iceberg’ for fintech firms.