The proliferation of robo-advisors (digital wealth managers) has caused many investors to wonder exactly how they’d perform compared to traditional wealth advisors who regularly charge 1.5% – 3% of assets under management a year. The idea is that excessive fees rob investors of their retirement money or cause people to have to work longer.
By deploying sophisticated algorithms based on Modern Portfolio Theory, the robo-advisors are able to provide customized investment portfolios for each individual based on the responses they give in a short questionnaire.
Seeking to illustrate that the assumptions and algorithms that digital advice providers build into their systems vary greatly and impact investment performance, Condor Capital Management’s president Ken Schapiro opened accounts at more than a dozen robo-advisers with the goal of comparing the results.
Ken answered each digital adviser’s questions with the same profile in mind, portending to be someone with a moderate risk tolerance, in a high tax bracket, who was looking to retire in 20 to 30 years. Ken looked to build a 60% equity / 40% fixed income portfolio.
Here are the 2016 results compared to a ~10% S&P 500 performance, and +3% Aggregate Bond Market performance.
It’s great to see my favorite robo-advisor, Personal Capital return the highest results. I’ve been covering them since 2011 and have met senior management numerous times given I’m also based in San Francisco. Personal Capital is considered a hybrid robo-advisor because they have both human advisors and algorithms to help grow your wealth.
Personal Capital is also the most expensive robo-advisor, charging 0.5% – 0.89% of assets under management, depending on assets, which is still quite a bit less than traditional advisors. But given you get to talk to a human advisor about what to do during all of life’s interesting events (buying a house, investing a windfall, estate planning, etc), paying up is worth it for many clients who currently have over $3.5 billion with Personal Capital as of 2017. If your portfolio can also outperform its peers, then even better.
What’s surprising is how poorly Vanguard Personal Adviser Services did at only a 5.55% return. This goes to show that you can only go so far saving money. To build greater wealth, performance matters more. Vanguard Personal Adviser Services charges 0.3% of assets under management, which is great. But underperforming Personal Capital by 3.7% is pretty bad. Using the rule of 72, an investor would double his/her money in 19.5 years with just a 3.7% annual return.
Given Personal Capital is the best performing independent robo-advisor, let me provide more background about the company and highlight some of its free financial tools everybody can use to help growth their wealth.
Personal Capital Overview 2017
Total Equity Funding: $200.3M in 7 Rounds from 11 Investors as of 2017.
Headquarters: Redwood City, California with offices in Denver and San Francisco
Description: Personal Capital is the leading digital wealth management firm.
Founders: Bill Harris, Louie Gasparini, Rob Foregger
Categories: Financial Services, Wealth Management, Finance, FinTech
Sign up link: Personal Capital
Founded: July 1, 2009
Contact: firstname.lastname@example.org | (855) 855-8005
Employees: ~200 as of 1Q2017
Personal Capital is an online investment advisory platform that provides its clients with electronically facilitated wealth management services, objective advice, and strategies. Personal Capital’s charges are based on a percentage of assets managed by the platform, including wealth management, trade costs, and custody. Personal Capital summarizes its users’ bank accounts, credit cards, mortgages, and other financial details together in one place. The platform also highlights its users’ long-term fiscal health over month-to-month spending with tools such as a visual graph of their investment allocation and a 401(k)-fee analyzer.
Personal Capital Management
Added Mike Arnsby as CTO in 2016. Mike helped take Yodlee public in 2015.
Personal Capital Funding History
Personal Capital Latest News
I had lunch with the Director of Marketing in the beginning of 2017 to get an update. Here is some key information.
* Performing better than expected. In May 2016, Personal Capital announced a $50 million Series E funding by Canadian financial giant, IGM Financial. As part of their agreement, IGM Financial joined their board and agreed to commit an additional $25 million in capital if Personal Capital reached certain performance hurdles in 2017. It turns out that Personal Capital beat expectations and achieved those hurdles by 4Q2016, thereby receiving an additional $25 million in funding. With $75 million in new funding, Personal Capital is here to stay.
* Surge in assets under management. Assets under management have surpassed $3.5 billion in 2017, from just $2 billion at the start of 2016. In other words, their asset gathering has accelerated for those who utilize Personal Capital to manage their money. Personal Capital also tracks over $200 billion in assets (not managed) as more and more people gradually leverage their free software to track their finances.
* Key personnel hires. Personal Capital hired Mike Armbsy, ex CFO of Yodlee to be their new CFO. Mike was responsible for helping Yodlee go IPO in 2014. In addition to Mike, Personal Capital welcomed Paul Desmarais of Power Financial Corporation to their Board of Directors. Paul is intimately familiar with Personal Capital as he helped lead Power Financial’s $75 million investment in their Series E financing last year.
These two key hires portend to a potential IPO down the road. These hires contrast to other fintech companies who are losing key personnel to competitors. Total headcount has increased to 233 as of February 2017, a 25% increase from the same time last year.
* Lower minimum. For those who want to use Personal Capital to manage their money, you used to need at least $100,000 in investable assets to become a client. Personal Capital has now lowered the minimum asset hurdle to $25,000. This is great news for the millions of people out there who need low cost digital financial advice with the guidance of a human advisor.
Main Personal Capital Free Tools
1) Retirement Planner. This tool helps you to know if you’re on track to retire, and even allows you to make adjustments for major life changes, such as job/career/income changes, illness, childbirth or saving for college.
2) 401(k) Fund Analyzer. Even though Personal Capital can’t manage your employer sponsored retirement plan, they can analyze the plan and make asset allocation suggestions based on all of the investment options available in the plan.
3) Net Worth Tracker. Track your assets and liabilities so that you can quickly find your net worth at any time. This tool will help you to really know if you’re on track to reach your long-term financial goals.
4) Cash Flow Analyzer. Use this tool to create a budget, where you can track your income and expenses whatever the sources. This will help you see where you’re spending money, so that you can free up income for savings, investing, and debt payoff.
5) Investment Checkup tool. This can provide a risk assessment of your portfolio, including your retirement plan. It will make suggestions to help you improve your asset allocation plan to make it consistent with your goals and personal preferences.
All of these features are FREE for investors to use. I’ve been using Personal Capital’s financial tools since 2012 to grow my net worth to record highs. There is no rewind button in life. Therefore, it’s up to all of us to stay on top of our finances as much as possible so we can optimize.
In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $200,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies, and writing online to help others achieve financial freedom sooner, rather than later. With over 1 million organic pageviews a moth, FinancialSamurai.com is one of the largest and most trusted personal finance sites on the web since 2009.