After two years of usage it’s finally time I do a unique review of Personal Capital from the perspective of an entrepreneur, an affiliate blogger, an equity shareholder and a fellow San Francisco resident. I’ve already highlighted in previous posts how I use Personal Capital to reduce portfolio fees and how to run various growth scenarios to better manage your 401(k) for retirement. Now I’d like to share with you some thoughts about the company after a two hour meeting I had with senior management.
If there’s one habit I’ve picked up working in finance since 1999, it’s the process of being as thorough as possible with every single financial related matter. One wrong move can be the difference between retiring comfortably on the beach before you’re 60, or working your tail off until the bitter end!
The main difference between Wall St. institutional investors and retail investors is access. If you’ve ever wondered where your higher fees for active fund management is going, part of it goes towards business trips to attend conferences, funding flights around the world to kick tires, and allowing analysts to meet with management wherever they may be. Index fund managers don’t have to do hardly any research except for how much to buy or sell to replicate an index to minimize tracking error.
I’ve literally sat in over 3000 one-one-one meetings with senior management of pre-IPO and publicly traded companies during my time on Wall St. Due to all the hours spent listening to some of the most critical minds asking questions, I cannot help but be critical in my analysis of my own personal investments and financial recommendations I make on Financial Samurai as well.
Why you should meet management one-on-one:
1) To observe the competence of management through the communication eloquence of their vision.
2) To observe body language that would indicate strength or weakness in the upcoming quarter or year.
3) To understand whether the CEO’s philosophies are consistent with the company’s stated philosophies and your own.
4) To see if the CEO, CFO, or COO are people you can trust with your grandmother’s hard earned savings.
5) To corroborate financial assumptions and things you hear on the street.
I’m very fortunate to live in San Francisco, the tech/internet hub of the world. So when Personal Capital invited me to drive down to Redwood City to have a chat with their CEO Bill Harris at HQ, I jumped at the chance.
MEETING WITH SENIOR MANAGEMENT OF PERSONAL CAPITAL
Bill Harris, CEO and formerly CEO of Paypal and Intuit.
Jim Del Favero, CPO
Sam Dogen, Yakezie Network and former Director on Wall St.
Total Meeting Time: Two hours
Food Served: A box of multi-colored macaroons upon request over Twitter
My goals for the meeting were: 1) To learn more about upcoming innovations by Personal Capital to share with readers, 2) To learn more about entrepreneurship culture from a Silicon Valley startup as an entrepreneur myself, 3) To make sure they are healthy and still growing given I’m a user and affiliate partner, and 4) To understand what makes someone who is already financially independent keep on going.
Their goals for the meeting were: 1) To learn how to better brand and market their product through the blogging channel, 2) To get feedback on how they can do better for affiliates, and 3) To see whether there are future collaborative initiatives.
PERSONAL CAPITAL BUSINESS UPDATE
One of my main concerns as a affiliate is the viability of the product I’m highlighting to readers. I’m inundated with product affiliate offers every day and decline 99.9% of them either because they are not value added, not well presented, or don’t have good usability. Your time and my time is valuable, so I only want to highlight the most useful products that will provide the most value.
The last thing I want is for the company I recommend to shutdown like Adaptu did in 2013 or Manilla in June 2014. Businesses fail all the time for many reasons, and it’s my goal to highlight long term product winners on Financial Samurai. To keep trading in and out of stocks (switching products) is a very suboptimal use of time and money.
Personal Capital recently celebrated its $500 million managed assets under management milestone this June 2014. The first $100 million took several years to accumulate, and the second $100 million took under one year by June 2013. Personal Capital offers free wealth management tools available for all of us, but only makes money when users elect to have at least $100,000 in assets managed by Personal Capital’s wealth advisors for 75 – 95 bps annual fee of assets. In a financial world dominated by big brand names such as Fidelity, Merrill Lynch, and Charles Schwab, Personal Capital’s biggest challenge is to answer a consumer’s question, “Why them?”
Personal Capital’s competitive advantage is that it built its company from the ground up with technology at its core. As a result, they are much more flexible in tailoring offerings to consumer demand. By implementing a work force of financial advisors across the country on top of its technology platform they can leverage their proprietary financial planning software to help customers and more easily convert existing customers to participate in managed services. In other words, they are a technology-assisted registered investment adviser (RIA).
From A Investor’s Perspective
Given my background in finance, I always automatically approach a company as a potential investor and not just as a financial writer. I’ve got a couple private equity investments that are doing well, and I’m always looking for more if they’ll have me. Personal Capital closed a $25 million Series C funding in the summer of 2013 led by Crosslink Capital with participation of asset management giant BlackRock and previous investors Venture Partners and Venrock. The total amount invested over the four year old company comes out to $52.3 million. Valuations were not disclosed.
The continued ability for a company to raise money is generally a good sign. But the most bullish point from an investor’s point of view is BlackRock’s participation since they manage over $1 trillion in assets and are not just venture capitalists. I’m sure BlackRock is figuring out ways in which they, too can leverage technology to gather more assets under management. By becoming a minority investor in Personal Capital, they are more privy to their technology. Furthermore, if Personal Capital ever decides to sell their entire company, BlackRock will surely get first dibs due to their long standing relationship.
Personal Capital currently has over 550,000 users with in excess of $60 billion assets being tracked on the platform (as of 7/4/2014). They actively manage roughly $650 million in assets under management and are growing at a 10% month over month clip. The entire wealth management market is roughly $32 trillion for individually managed investable assets in the US. The upside is huge.
If I could invest money in Personal Capital’s business, I probably would depending on valuation. It all comes down to management execution and growth as their $650 million in managed assets probably does not cover operating costs of a ~100 employee firm just yet. In Silicon Valley, it’s all about B for Billion. Who is going to create the next billion dollar+ company?
WHAT MAKES BILL HARRIS, CEO TICK?
Bill Harris is obviously financially independent after his time as CEO of both Paypal and Intuit. So I’m always curious to know what makes someone who doesn’t have to work still work so hard. I’ve asked myself these same questions before in posts such as, “Overcoming The One More Year Syndrome,” “How Does It Feel To Be Financially Independent,” and “The Cure For Financial Hoarding.” I still spend hours writing posts, visiting companies, and responding to comments on Financial Samurai despite the six figure passive income stream developed after 14 years of work.
What makes Bill tick is the desire to create something out of nothing and see things through until a successful outcome is achieved. Bill says, “Personal Capital is a culmination of my career.” Although Bill was CEO of Paypal and Intuit, he didn’t create Paypal or Intuit. As a co-founder of a company, there’s nothing more satisfying than seeing your baby grow into something meaningful. Perhaps the situation is analogous to being a biological father vs. a stepfather. You’re still proud of your child no matter what. But if you have adopted children (a company you lead, but did not found), then you’re always going to be curious what it’s like to have a biological child to raise as well.
It seems obvious to me that Bill’s main goal isn’t about making more money for himself, but about making Personal Capital the best online wealth management product possible. “Charles Schwab disrupted the wealth management industry 25 years ago. I think we can do the same with Personal Capital today,” says Bill.
NEW INVESTMENT FEATURES
Personal Capital has brought their online platform mobile with new app launches over the past 12 months lead by Jim Del Favero, CPO. The main feature that has saved me the most immediate money is Personal Capital’s Investing tab which analyzes your portfolios’ risk metrics, asset allocation, and fees.
I ran my 401(k) through Personal Capital’s 401(k) Fee Analyzer and it showed I was paying $1,750 in annual portfolio fees I had no idea I was paying thanks to a very expensive Fidelity fund. I ended up selling the fund and transferring assets into a Vanguard Large Cap fund which cut my annual portfolio fees down by 80%. I highly recommend everyone run their 401(k)s through the 401(k) Fee Analyzer as well to get an idea of how much fees are robbing you of your retirement years and portfolio performance.
Personal Capital is making their Investing tab more educational and interactive for users. Take a look at the screenshot below of my latest rollover IRA allocation. The first thing that should jump out at you is the enormous percentage I have in cash after I took profits on the majority of my holdings recently. My rollover IRA is my punt portfolio where I’m fortune hunting for multi-bagger growth stocks. Such an extreme allocation of assets serves nicely to explain the following new investment analysis charts that Personal Capital now provides.
What you’ll notice in the Allocation Comparison chart above are the new “Target Allocation,” “Historical Performance,” “Future Projections,” and “Risk & Return” tabs along with the target allocation and current allocation bar charts based on investor profile questions I’ve answered when I first signed up. You are always able to take the questionnaire again if your risk profile changes.
The above Historical Performance chart basically shows how my existing cash heavy portfolio would have performed since 1992 if I kept the allocation the same. Much less volatile, but much less money! Let’s take a look at the next chart to estimate future performance.
The above Future Projections tab shows how I am projected to have $400,000 less in retirement than projections if I keep my existing portfolio allocation. What’s interesting is that the “10% Worst Outcome At Retirement” for my Current Allocation is still WORSE than a higher risk Target Allocation. The more proper point of comparison is to compare Current Allocation with Current Allocation and Target Allocation with Target Allocation. Once you do, you can see a wider volatility. The Future Projections is based off the initial recommended asset allocation based on my own risk metrics.
The above Risk & Return chart shows where I am on the Efficient Frontier Curve. The Efficient Frontier represents the best asset class mixes. Based on historical results, it is the set of allocations which offer the highest expected returns for each level of risk. The idea is to be on the curve, and not below or above the curve. The example used in the Personal Capital video discusses an umbrella store which could improve its sales returns by adding sunscreen on its shelves during the summer. As you can see from the chart, my current allocation is below the curve.
The final chart shows the actual hard dollar target allocation amounts to be deployed on the Efficient Frontier curve. The tricky thing to figure out is which index funds to buy to achieve the best allocation for the best risk-adjusted returns over time. This is where Personal Capital’s financial advisors can hep you, or where you can do research on your own.
It’s important to realize that outputs depend on inputs. The recommended asset allocation Personal Capital spits out depends on your individual risk tolerance as determined in the initial questionnaire profile. The beauty of Personal Capital’s software is that it can make tailored recommendations for each user.
So how do you replicate the above charts for your own portfolio? Easy. All you have to do is link the portfolios you want to screen onto Personal Capital’s dashboard and then click the Investing tab in the top right and then click “Investment Checkup“. Personal capital will automatically produce the above charts and recommendations for you. You can also toggle between individual portfolios to do the same analysis e.g. 401(k), after-tax portfolio, etc.
OTHER GOOD FEATURES OF PERSONAL CAPITAL
Award Winning Technology – Personal Capital can be used on the computer, tablet, or smart phone – iOS and Android. I speak with the CPO, Jim Del Favero on a monthly basis because I’m a consultant and he keeps me in the loop. Next up is integration with Zillow for real estate valuation tracking, which will be great.
Easy To Use – All you’ve got to do is sign up, press the “+” to link all your desired accounts, fill in the respective user names and passwords and everything will get downloaded on the Personal Capital dashboard.
E-mail updates – Every week you’ll get an e-mail update of your net worth, the latest Personal Capital news, and a snapshot of the markets. You can also subscribe to Daily Capital, the Personal Capital blog to gain insights.
Tax Loss Harvesting – Personal Capital practices tax loss harvesting and tax location for their clients. Tax loss harvesting alone gains up to 1% in after tax return a year.
Smart Indexing – Smart Indexing aka Tactical Weighting is the practice of investing in equal weighted sectors or styles. In bull markets, one sector can grow to an outsized percentage, such as during the dot com bubble or the financial bubble. When the market corrected, people lost a lot of money. But if they practiced Smart Indexing, by constantly staying disciplined with equal weightings in the sectors, they would have outperformed.
RECOMMENDATIONS AND THE FUTURE
It’s really amazing how many free resources we have at our fingertips thanks to technology and the internet. Add on free content from bloggers who’ve got financial industry experience and managing your own money has never been easier. The business model of leveraging the internet to gather assets under management makes a lot of sense due to scalability. The key for Personal Capital is hiring enough financially savvy financial advisors to make a solid enough impression on the average mass affluent customer.
I’ve found that one of the biggest fears people have about managing their money is not understanding what they are doing. When I don’t fully understand a financial proposition, I do not invest. If Personal Capital can make investing as easy to understand as possible given their target is the mass affluent (those with $100,000+ in investable assets), then Personal Capital has a great chance of winning more assets down the road. They just need to continue executing and building brand awareness.
I hope after spending two years as a user of Personal Capital, highlighting various ways in which I use Personal Capital’s tools to create more wealth, and sitting down with senior management for a couple hours I’ve provided the most comprehensive Personal Capital review online.
If you’re looking for a great way to track your net worth, analyze your portfolio fees, manage your cash flow, and get a handle on your finances, I recommend signing up for Personal Capital and linking your accounts. It’s free and is empowering people to take control of their wealth.