Get A Free Financial Consultation With Personal Capital

Personal Capital Financial Advisor Over the years, a number of you have asked me to write a review about what exactly goes on with a free financial consultation with Personal Capital. Common questions include: Is the consultation really free? Is the consultation a high pressured sales call in disguise? Will I get something out of it even if I don’t sign up? Is it worth it?

The short answers to the questions are: Yes, the consultation really is free. There’s no high pressured sales tactics, just an understanding they’d like to work with you if you’ve found them helpful. You can continue to use their free Financial Dashboard if you don’t hire them. Yes, you will definitely get some good tailored advice and the opportunity to pick someone’s brain who sees and advises on multiple different types of financial situations for multiple different types of people. And yes, spending time getting a review of your finances for free is worth it since it gets you to review your financial situation at the very least.

I sat down with Patrick Dinan CFP®, a Personal Capital Financial Advisor over the course of 1.5 hours and two sessions, which I’ll now share with you in this post I spent about four hours putting together. The post shall provide transparency on the advisory service process as an insider.

My goals for the meeting were three fold: 1) To understand what a prospective client goes through during the call to advise on a better experience, 2) to understand Personal Capital’s value proposition for the 75-95 bps under management a year they charge and 3) learn what specific advice they could give me, a personal finance enthusiast who has been in the business for 15 years.

I’m sitting in a unique position given I’m very familiar with Personal Capital’s free financial tools as a DIY user for two years before I joined as a consultant to help build out their online content six months ago. I’ve gotten to know some of Personal Capital’s financial advisors and I’ve also sat in on various important meetings with the CEO, CPO, COO, and CMO to get a better understanding of the products and their desired messaging.

An important takeaway I’ve gotten from working more intimately with Personal Capital is that Personal Capital is a Registered Investment Advisor (RIA) who has a fiduciary duty to do what’s in your best interest. They are registered with the SEC, and are not a broker dealer. Broker deals only have a “suitability standard” for their clients, not a fiduciary standard, whereas RIAs have a much stricter fiduciary standard. For example, if you want to invest your entire $500,000 retirement portfolio in Apple after you dreamt Steve Jobs reincarnates, Personal Capital won’t let you because that violates your risk parameters and is not in your best interest.

A broker dealer, on the other hand, would probably also advise against such an aggressive move, but if push comes to shove, they could execute the transaction. The more a broker churns your portfolio and puts you into higher fee mutual funds, the more s/he gets paid so long as you don’t leave. But no matter how much your portfolio turns over with an RIA, the firm gets paid a fixed percentage of assets under management. The main way a RIA gets paid more is if you’re happy and your assets continue to grow. Interests are better aligned. 

The Three Jar System Of Money To Discuss Our Financial Insecurities

Three Money Jars by Colleen Kong

Three Money Jars by Colleen Kong-Savage

Greetings from London! I’ll be away until July 1. In the meantime, please enjoy the following guest post from illustrator and writer Colleen on her insecurities with money. Perhaps you have some financial insecurities as well you’d like to share in the comments section. 

I was going to write a post about kids allowances. How much do people give their kids these days? Do they tie allowances to doing household chores? Are kids allowed to spend their cash on whatever they want? That’s what I was going to write about, except I was bored before I even began typing.

When I surveyed some friends on Facebook, nobody would say what the going rate for allowance was in their household. People just ignored that first question and moved on to tell me that they don’t tie allowance to chores because they want to teach their kids the intrinsic value of pitching in to take care of the home together (a few found payment for chores more effective—you gotta admit picking up dog poo IS a nasty job worth at least 50 cents).

I wanted to know how much people paid their kids. Surely that’s not a touchy subject like asking individual ADULTS how much they make at their jobs. But the ten people who responded to my survey either did not or would not say. I figured I’d start asking my son’s friends, feeling a little sneaky about getting the answer from the horses’ mouths, but the first friend deftly dodged the question (I asked her twice), so I figured maybe it wasn’t such a great idea being a nosy body, especially when I wasn’t all that interested. I did learn about a three-jar system some folks use to teach their kids money management: a jar to keep cash for Saving, a jar of cash for Spending, and a jar of cash for Giving. I never heard of that before, so I did find THAT interesting.

Cash, dough, bread, greenbacks, cabbage, moola. All these names, but talking money is a big fat taboo. Why? I’m curious about the salaries of friends and acquaintances, but I will never ask the specific number. The question is not meant to be asked. But if we can agree that money does not define who we are, and a salary figure is only one factoid among many that describe us, then why is the subject of personal finance so loaded? Wait, let me take off these rose-colored glasses… Despite the niceties, we know society is still judgmental, and we are insecure about our self-worth. We don’t want to be judged. Not only that, we don’t want to be taken advantage of.

How do we judge thee by thy money? Let me count the ways. In fact let’s use the three-jar system for fun. I’m going to fill each jar with common hangups, neuroses, and prejudices that surround the the topics of Savings, Spending, and Giving.

The Average Savings Rates By Income (Wealth Class)

costWe all know that Americans as a whole don’t save a lot of money. The latest savings statistics for 2014 shows that the average American only saves ~4% of their income a year. 4%! In other words, it takes the average American 25 years to save just one year’s worth of living expenses. That is a disaster.

When you’re 60-something years old and only have 1.6 years worth of living expenses to buttress your declining Social Security checks, life isn’t going to be very leisurely. You’ll probably be mad at the government for lying to you and mad at yourself for not saving more when you still had a chance.

The problem with averages is that averages distort reality. For example, the average household has a net worth of approximately $710,000. You and I know that this is impossible based on common sense. But simple math doesn’t lie. Take the total household wealth in the US of $81.8 trillion (according to the Fed) and divide by 115,226,802 US households (according to the Census Bureau) and you get $710,000. (Related: How Much Should My Net Worth Be By Income?)

I’m absolutely positive more than 90% of Financial Samurai readers save more than 4%. We are personal finance enthusiasts after all. Therefore, what’s the reality behind this ~4% national savings figure? The truth is that savings rates vary by income.

The Best Way To Gain Financial Security Is To Develop Financial Buffers For Your Financial Buffers

Financial Buffer Moat around Osaka CastleLeaving my job in the spring of 2012 was not an easy decision. Even if you have all your ducks in order, it’s still a leap of faith where you hope fluffy pillows await instead of jagged rocks. One of the main reasons why I wrote my book, “How To Engineer Your Layoff” was because negotiating a severance was the key financial buffer that gave me the courage to break free.

Before figuring out how to get laid off in order to gain a severance, my only real financial buffer was my various passive income streams which equaled about $78,000 a year at the time. I did input a Blue Sky scenario of $118,000 a year gross if things worked well on the rental property front after a couple years. But Blue Sky scenarios are never to be used in important life altering decisions.

$78,000 a year in passive income might seem like a healthy figure, but I live in San Francisco where the median condo price is around $800,000 and the median single family home costs around $1 million. Food and gas are also expensive and entertainment costs can quickly spiral out of control if you let them. We’ve had a terrific 100+ comment discussion on my post wondering how people in expensive cities live a comfortable life making less than six figures a year. It’s definitely possible as the comments have suggested, but it’s not easy, especially if you’re over 30, have a family, and no longer want to live like a college student.

I didn’t want to compromise my lifestyle in early retirement by eating dog food and living in the boondocks just to have all the time in the world. Otherwise, retirement is counterproductive. When I started writing this post, I could only recall two financial buffers. But as I kept on writing, I realized there were many more.

I’m confident you’ll find more of your own financial buffers than you first realized as well. Many people I’ve professionally consulted with have asked about building alternative income streams while working so that one day they don’t have to work. This post is for all of you and a revelation that the world isn’t as scary of a place after all. 

How To Get Better Rates And Higher Service From Banks

Thumbs Up For More SavingsWeeks before Lehman Brothers went bust on September 15, 2008, I decided to spread my savings out to various banks to hedge against risk. As you may recall, Bear Sterns was taken under that Spring and Washington Mutual was also in deep trouble and eventually gobbled up by Chase.

Now that my 5-year CDs have expired with First Republic Bank, I’ve begun consolidating my assets with Citibank to make things easier to manage. I’ve been with Citibank for the past 14 years. There is now risk I will lose some of my money given the amount is above the FDIC insurance coverage of $250K/$500k for singles and married couples, but I also don’t think there’s any chance in hell Citibank goes under now, especially since tier 1 capital ratios are now much higher as mandated by law. Besides, the economy is much stronger than it was five years ago.

Another reason why I’m not worried is because concentrating this amount of savings with one bank is only temporary. I know I’ll be putting a hefty downpayment on a property this year. Furthermore, I’ll be spending a good chunk of change on remodeling, which will bring my liquid savings down to a minimal amount again.

I think it’s a good idea for everybody to shoot to have $250,000 in assets with one bank. $250,000 in assets includes savings, CDs, or investments. Based on my experience, once you’re at the $250,000 asset mark or higher, I’ve noticed banks start treating you much better. If you have significantly more assets than $250,000, then I suggest having at least one other bank for convenience and safety. For example, I hate paying $3 ATM fees, so by having money spread across two major banks, the chances of me paying ATM fees goes down significantly.