As I explained in a few previous posts, I am on a quest to roll over my old 401(k) into a new account with better long-term benefits. I got sidetracked a bit on this series, but today I’m going to review online financial advisor Personal Capital.
If there’s one thing I learned from trading the markets professionally, it’s that slow and steady wins the race when it comes to retirement planning. My goal is to simplify my long-term investing strategy while lowering the fees I pay overall. That’s why online financial advisers (OFAs) are so appealing to me.
These online money management services have become one of the most popular ways to passively manage money. By capitalizing on new technologies, online financial advisors have been able to provide their clients with quality service and objective investment strategies, all with significantly lower fees.
Before we get into the nitty gritty details, let’s look at some of the key benefits that help distinguish Personal Capital from the competition:
- Personal attention, slightly higher fees: Personal Capital charges slightly higher fees than its competition. However, you do get a personal financial advisor whose goal is improving your returns and working with you to create a comprehensive investment plan that is attuned to your personal needs.
- Plenty of online security: Personal Capital uses bank-level, military-grade encryption to keep client information safe and secure.
- Plenty of free tools available – even if you don’t sign up for their paid service: Personal Capital offers a ton of free tools you can access with no commitment, including an amazing retirement fee analyzer, a net worth analysis, and goal tracker.
- Free investment checkup: Use Personal Capital to find your ideal investment allocation
- First meeting with a personal financial advisor is free: Sign up for Personal Capital and link at least $100,000 in assets in order to get your first online meeting with a personal financial advisor for free.
Personal Capital at a Glance
Personal Capital is an online financial advisor that uses automated software programs to help you manage your money. Their software provides objective investing advice which reduces inefficiencies and takes the emotion out of money management.
The automated nature of the software allows Personal Capital to charge much lower fees than many traditional wealth management firms, which is appealing to anyone who wants to pay as little in fees as possible.
Types of Accounts Supported
Personal Capital claims to support all types of investment accounts, including:
- Roth IRAs
- Joint accounts
- Taxable accounts
- Holistic approach to investing
- Automated portfolio rebalancing
- “Smart Indexing” and “Tactical Weighting” strategies to optimize returns and tax liabilities
- Mutual fund and fee analyzer tools
- Customized portfolio through “Personal Strategy” development
- Tax-loss harvesting
- Goal setting
- Choose your risk tolerance and time horizon
- Fee analyzer and investment checkup tools
- Mobile app available
- Up to $1 million invested: 0.89%
- $1 million to $3 million invested: 0.79%
- Next $2 million invested: 0.69%
- Next $5 million invested: 0.59%
- Over $10 million invested: 0.49%
Registration & Regulation
Personal Capital is an investment advisor registered with the Securities and Exchange Commission (“SEC”). Personal Capital uses Pershing Advisor Solutions (a Bank of New York Mellon Company) as its custodian. Pershing LLC is a member of FINRA, NYSE, and SIPC.
Personal Capital uses bank-level, military-grade encryption to keep client information safe and secure. The company’s CEO, Bill Harris, co-founded PassMark Security. That may not mean much to you, but PassMark Security created the authentication system which is now used by most of the major banks in the U.S.
In addition, Personal Capital teams with financial industry technology company Yodlee. In order to add an additional layer of protection, banking and brokerage credentials are stored on the Yodlee database, not Personal Capital’s.
Personal Capital Details
What is Personal Capital?
Personal Capital is an online investment advisor that believes the power of technology can make the financial services industry more affordable, accessible, and honest. They use this technology to provide objective investment advice with lower fees than most brick and mortar financial institutions.
Like most OFAs, Personal Capital also lowers fees for its clients through the use of investment vehicles known as exchange-traded funds (ETFs). ETFs act much like mutual funds, but come with a much lower expense ratio and can be traded like stocks.
Personal Capital also invests your money in a highly-diversified sample of more than 60 individual stocks. This helps to provide your portfolio with the “Tactical Weighting” and tax optimization approach preferred by the company.
Personal Capital constantly monitors your portfolio and optimizes it using:
- Automated portfolio rebalancing
- Tax optimization and tax-loss harvesting
- Developing and maintaining a “Personal Strategy”
Investments are allocated according to your personal strategy and market conditions.
Personal Capital’s Main Features
Globally Diversified Portfolio
Personal Capital invests your money into a globally diversified portfolio of ETFs and individual stocks. Their “Smart Indexing” technique helps you weather investment sector and style downturns, which are inevitable when investing over the long run.
Initially, the allocation is determined based on your “Personal Strategy” – which includes information regarding your age, time horizon, risk tolerance, and goals. Each portfolio is customized according to your needs and individual circumstances. The program accounts for things like paying for college or purchasing a house.
You will be assigned an advisor who works in conjunction with the investment committee to manage all of your assets. While the investment decisions are generally made by the committee, you have the final say. Personal Capital will customize or alter your portfolio to your liking.
Automated Portfolio Rebalancing
Over time, the investments in your account will grow and shrink, causing the investments in your account to skew out of balance with your target goals. This can add more risk to your investment profile than what you are comfortable with or should be taking.
For instance, say you want 15% of your portfolio to be invested in technology stocks. That allocation can quickly turn into a much riskier 25% chunk of your retirement if tech stocks mount a big, sustained rally and your other investments decline.
To avoid this, Personal Capital automatically rebalances your portfolio when it gets out of alignment. Personal Capital’s software monitors your portfolio on a daily basis, making changes when necessary to help you avoid unnecessary risk.
Tax Reduction Philosophy
Although you will never be able to completely avoid taxes, Personal Capital uses a multi-faceted approach to lower your tax bill as much as possible.
First, the company avoids investing in mutual funds, choosing to invest your money in more tax efficient ways instead. Second, Personal Capital utilizes individual securities in order to make use of tax-loss harvesting. Essentially, you are able to realize your losses in order to offset any investment gains, reducing your overall tax liability.
Finally, Personal Capital reduces your tax bill by properly allocating investments into the right types of accounts. This means they place fixed-income and high-yielding stocks into tax-exempt or deferred accounts, reducing or delaying your tax burden on those types of investments.
Holistic Approach to Investing
Personal Capital takes a holistic approach to investing your money. The company believes that, in order to make educated decisions about your investments, you must know where your money is coming from and going to. So, Personal Capital provides a number of free software tools to help you manage your money better at all levels.
They offer a free net-worth tracker that allows you to see all of your accounts in one place. You can use the “Cash Flow” tool to track your spending and credit card activity by category, merchant, and date.
The “Portfolio Tracker” monitors the performance of all of your holdings from one simple dashboard. These free tools provide you with an educated look at how your income and spending can affect your ability to invest.
Mutual Fund Analyzer
Over time, fees associated with your investments can cost you dearly. Personal Capital’s “Mutual Fund Analyzer” tool shows you how the performance of your mutual funds — including fees — compares to the market at large. This tool shows you the actual performance and expense ratios of thousands of the most popular mutual funds, allowing you to get a clear picture of what your mutual funds are truly earning. You’ll also get information on the tax-cost ratio of the fund, helping you make investing decisions that are more tax efficient.
You may not realize it, but most financial firms charge an administrative fee to manage your non-taxable retirement plans on top of the fees charged by the mutual funds in which your money is invested. Personal Capital provides a free “Fee Analyzer” tool which helps you uncover what those fees are.
The tool helps you calculate how those fees affect your retirement plan, allowing you to make more informed decisions about how you invest. There’s also an option where you can compare your investments to others, giving you a look at how fairly your provider is treating you and your money. Even if you don’t want to sign up for Personal Capital’s paid services, signing up the free services such as the retirement fee analyzer makes sense for anyone who is currently an investor.
- Mobile app
- Private Client Membership for portfolios of $1 million and up
- Free “Investment Checkup”
Who Might Personal Capital Be Good For?
- Long-term, passive investors: If you are the sort of investor that is looking to invest for the long haul, Personal Capital may be right for you. The company initially provides you with a personalized investment plan. At that point, you can essentially “set it and forget it.” The automated software will do all of your planning and investing for you. If anything changes, simply inform your advisor and the proper adjustments will be made.
- Do-it-yourself investors: If you’re the type who’s tired of paying high fees for your investment advice, Personal Capital may interest you. Investment advice, portfolio management, custody, and trading fees are all wrapped into one low, easy-to-understand fee. Furthermore, the automated software provides unbiased advice, helping do-it-yourself types avoid mistakes they might be prone to make without any support.
- Newbies: Investors who are new to the game are perfect for Personal Capital. After answering a simple questionnaire provided by your advisor, Personal Capital will create a personalized investing strategy customized to your unique situation. Personal Capital’s investment committee will choose and balance your investment positions for you, so knowledge of the markets is not imperative.
Who Is Personal Capital Not Good For?
If you want to have your fingers in every single investment decision you make, Personal Capital may not be the right choice for you. Although you maintain ultimate control over your investment strategy and decisions, your portfolio management is handled by Personal Capital’s investment committee.
Investors who put their faith in mutual fund managers or want unlimited investment options should also stay away. Day traders, options traders, and those who enjoy trading individual stocks should look for other options.
The other really hard thing for me to wrap my head around is the fees, which are much higher than Betterment or Wealthfront. Personal Capital seems to be targeting wealthier individuals, so if you’re looking to minimize your fees and don’t need extra benefits, I’d go with one of those other two companies.
The Personal Capital Onboarding Process
Getting started with Personal Capital is fairly simple. Just click on the “Schedule My Consultation” button. You will be asked to pick a day and time where an advisor can have a phone conversation with you.
During this conversation, your advisor will want to learn about your financial goals, time horizon, and general tolerance for risk. You’ll also discuss things like your current accounts and cash flow issues, and your current assets and liabilities.
From there, your advisor and the investment committee will analyze your financial situation and create your Personal Strategy. You’ll discuss their findings and recommendations in a virtual meeting. If you choose to move forward, they will open your custodian accounts and begin following your personal investment plan.
Personal Capital Fees
Personal Capital uses technology to create a more transparent and affordable financial services experience. While the typical mutual fund expense ratio is 1.16%, Personal Capital is able to provide investment advice, portfolio management, custody, and trading fees for one all-inclusive low fee, which varies depending on the amount of money invested with the firm.
For clients with less than $1 million invested, the fee is 0.89%, or $89 a year for every $10,000 invested. The fee structure for those who invest more than $1 million breaks down as follows:
- First $3 million invested: 0.79%
- Next $2 million invested: 0.69%
- Next $5 million invested: 0.59%
- Over $10 million invested: 0.49%
Clients investing more than $1 million also have access to Personal Capital’s “Private Client” group. Membership includes private banking services, integration of illiquid investments (like private business and real estate) into their personal plan, and more personalized service.
Most of the major wealth management companies require at least $1 million in assets in order to be accepted as a client. Personal Capital’s target threshold is $100,000, allowing them to provide wealth management services to clients of all types.
What Will I Do With My $85,000 Account?
Since my old 401(k) currently sits at around $85,000, I would pay approximately $756.50 per year for Personal Capital’s expertise in managing my accounts. Although that is slightly higher than what I would pay using Betterment or Wealthfront, I am still intrigued by the idea of Personal Capital since I would have access to a personal financial advisor in addition to all of the online tools they offer.
Regardless of where I choose to roll over my 401(k), I will definitely sign up for Personal Capital’s free online tools and net-worth analysis. Connecting all of my accounts to Personal Capital will help me gain access to unique wealth management tools such the retirement fee analyzer – and all at no cost to me. Since I want to improve my investment outlook while saving as much money as possible, I can’t think of a reason not to take advantage of these free services.