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- Rated 4.5 stars
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- Personal Capital
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Personal Capital was founded by Bill Harris, the former CEO of PayPal and Intuit. They provide a managed service that is primarily targeted towards clients with large balances. They also offer a range of free financial management tools.
Their managed approach is a blend of professionally certified human advisors combined with robo-advisors. If your account has a balance of $200,000+, then you will have the pleasure of two dedicated Financial Advisors. If your balance is between $100k-$200k, then you still get access to this support, however it is provided by a team of Financial Advisors, as opposed to dedicated and named individuals.
What Are Personal Capital’s Credentials?
With more than 1.6 million users and managed assets of more than $6.5 billion, they operate a successful business in this market.
Personal Capital delivers a host of free products, such as their investment management tools which can also be accessed via a handy app. Their free financial tracking tool is pretty good. It is quick and painless to link-up numerous accounts to this service and well worth a try. As a user of this service, you can link any existing accounts which will then allow you to keep track of your overall portfolio performance, net worth, overall retirement progress and fees. You can add bank accounts, IRA, 403(b), 401(k), taxable investments, mortgage, credit cards, and other investments such as the peer-to-peer lending services offered by Lending Club.
One of the first points to note about Personal Capital is the rather high account management fees that come with the service. They charge 0.89% annually, which is much higher than robo-advisors like Wealthfront and Betterment. It’s only when your account balance is at least $1 million do you get discounted rates.
Who Is Personal Capital Suitable For?
If you are an investor with lots of capital, Personal Capital may be a good fit. The service also lends itself to those who prefer a hands-off approach to the management of their Investments, and for those who are looking for assistance with tax optimization strategies.
On the other hand, if you are a DIY Investor who is looking for free tools to use to help you with your financial management strategy, the range of free services they offer are pretty impressive as well.
Personal Capital is suitable for high-net-worth individuals who through a large amount of invested capital, can access dedicated personal Financial Advisors. It also delivers a comprehensive range of tools to help DIY Investors analyze their own portfolios without needing to buy-in, or pay for portfolio management services.
Pros And Cons Of Personal Capital
Financial Advisors
This service is one which attracts investors with large balances. If you have $200k or more, you are provided with two Financial Advisors that will help you with every element of your financial life. Whether you want to ask questions about your mortgage, planning for retirement, refinancing or anything else that may fall into the realms of their financial capabilities, they are there to help you with all of those matters.
If your balance is between $100-$200k, you still get the same expertise. However, it is provided by a team of advisors, as opposed to dealing with the same two individuals. You can access the support from these professionals in a number of ways such as over the phone, by email, or even by a video chat for your added convenience.
Investments
As mentioned in the first point, the managed services from Personal Capital come in two different levels. The lower tier from Personal Capital covers investors who place between $100-$200k with the company. These assets are then invested into an Exchange Traded Funds portfolio which carries an average expense ratio of 0.09% that is weighted.
The upper tier covers those with $200k or more in investments. For customers in this category, they get a completely personalized portfolio that is inclusive of individual securities via a process of Smart Indexing. Essentially, the Smart Indexing process from Personal Capital will equally invest across all sectors; it will not copy an index such as the S&P 500. This approach is also used by other businesses and is otherwise referred to as smart beta.
The people at Personal Capital state that this method of Smart Indexing lessens the risk while providing larger returns for investors. Which, as we know all too well, is the ideal goal for any investor. Personal Capital conducted rigorous tests of this strategy versus the S&P 500 which resulted in demonstrable figures showing that over a single year, Smart Indexing outperformed the S&P 500 by more than 1.5%, with lesser volatility.
What we also like about Personal Capital’s method is the ability for the company to locate individual opportunities for tax-loss harvesting. Through their utilization of individual securities, they are more easily able to select and sell these as required. Another service competing with Personal Capital, Wealthfront, is also able to do this with their direct indexing service.
Security of the Service
Each time you register a new device with Personal Capital, you need to verify either by email or phone that it is genuinely you who is doing this. I rate their overall security as very efficient and more than adequate, which is exactly what you need when you consider how sensitive the data is.
All data contained within the site is fully covered by an encryption service called AES-256. They have stringent internal access controls along with two-factor authentication in place. It is also quite reassuring to know that Personal Capital uses an established company called Yodlee to store all of your brokerage login details. They are also fully governed by the Securities and Exchange Commission (SEC) and regularly undergo compliance related audits to meet with their strict regulations.
One other important point about the security is that the encryption has been independently graded with an ‘A’ rating by Qualys SSL Labs. This rating is better than most in this industry.
Free to Use Tools
Personal Capital offers a comprehensive range of tools that are free to use. They include a 401(k) analysis tool and a spending tracker. They do request that you create an account with them to use this service. However, you do not need to enroll for their paid advisor service to get access to these tools. Once you have completed the sign-up process, you are then free to link any credit cards, bank accounts, and brokerage accounts. They will then analyze your asset allocation contained within your investment accounts and advise you precisely how much cash you need to add to your holdings of specific classes of assets to align to the recommended goal. It is a great tool for DIY Investors to be able to see clearly what adjustments are needed to be made.
Similar to Mint, Personal Capital also provides a full spending analysis. This service will carefully examine your cash flow and arrange expenses conveniently into lists that account for groceries, clothing, restaurants, and healthcare. It will then track any income sources and bills that might be due to the accounts that you have linked.
The retirement planner tool will also consider your investment accounts so that it can forecast whether you will meet your pre-set goals and income requirements for your retirement. This is something which can be adjusted, as can your forecasted income from social security, along with the investment return assumptions, tax, and life expectancy statistics too. This tool from Personal Capital will take into account your daily financial activities, and it will take real-time data from within your Personal Capital Account to deliver estimates of your retirement spending based on what your spending figures are currently.
The final part of the free tools I think is well worth a mention is the Dashboard. This nifty little tool allows you to view your complete financial outlook in a single place. Cash flow, net worth, portfolio allocation, and balancing are all viewable from the Personal Capital dashboard. There is a module which specifically focuses on your holdings and shows you the performance of your investments in either overall dollars or as a percentage of your portfolio. It also clearly indicates whether they are considered to be winning or losing.
High Account Minimum
The lowest amount you need in order to open an account with Personal Capital is $100,000. Previously, this had been set at $25,000 which although a little high for some, it was competitive and reasonable. However, with the $100k minimum introduced, it is clear the type of customers that Personal Capital is after. Unfortunately, this leaves many unable to take up the wealth management services offered by Personal Capital. Luckily, many other robo-advisors like Wealthfront and Betterment are available without such high minimum balance requirements.
High Management Fee
Compared with the cost of hiring a Financial Advisor, Personal Capital is still very competitively priced. As of 2017, the average advisor would typically charge 1% of your overall managed assets. So, looking at it from this perspective, paying these higher fees and getting a Personal Financial Advisor will still work well for you.
However, when we compare Personal Capital to the competition; others such as Vanguard are much more price competitive with their management fees. Their fees are only 0.30%, regardless of the value of the investments held. However, if you place funds with Vanguard and you want a dedicated Financial Advisor, then you would first need to put up around $500k worth of investments.
If we compare Personal Capital to other robo-advisors who charge on average, around 0.25%, then you start to understand why I feel the management fees are just not competitive at all. I mentioned earlier in this review that there are discounted rates available for those uber-high investors. Well, you would need to invest at least $1 million before you see any kind of reduction from the 0.89% fees they charge.
Summary Of Personal Capital
First of all, the free services are actually quite good. For the comprehensive level of analysis you get, albeit, by a computer, it is fantastic value.
Comparatively speaking, when you compare their somewhat higher than average management costs to those of a qualified Financial Advisor, you are still getting a great deal. That said, there are other providers who can provide you with this same service at a fraction of the cost.
The tool they offer for retirement planning is great. It is easy to use, and you can play out a number of different scenarios with ease. If you are a DIY Investor, their investment checking tool is also very handy for getting high-level recommendations as well. The retirement planner is second to none; I found it very useful to perform a number of role-playing situations.
With regards to their somewhat expensive Wealth Management Services, it would probably suit those who need regular Financial Advisor Support, in order to make it worthwhile in terms of your return on investment where the fees are concerned. Looking at the robo-advisor scene alone, they are a little less competitive.
I'm constantly tweaking my investment strategies as I gain more insight and as investment options evolve. Below is my current lineup.
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