Should I Use A Wealth Management Company Like Personal Capital?

Samurai Boat On Lake TahoePersonal Capital is a Silicon Valley digital wealth management company that launched in September, 2011 by former Intuit and PayPal CEO Bill Harris. His team’s goal is to give everyday people more control over their finances by using their technology for free while modernizing personal wealth management advice over the Internet.

I’m always intrigued by tech companies here in the Valley because I’ve got the entrepreneurial bug as well. It’s all about market disruption for the good of the consumer. Given a company needs to grow its userbase and its profits in order to survive, I’m curious to know how a company with $27 million in initial venture funding plans to grow if they are giving everything away for free.

With employees to pay, offices in Redwood City, San Francisco, and Denver to support, and technology to continuously build, revenue must flow in to counteract the cash burn. In addition, hopefully they see plenty of users sign up so that Personal Capital can raise a new round of funding with higher valuations to expand even further! This is how the process works here in the Bay Area.

TARGET USERS OF PERSONAL CAPITAL WEALTH MANAGEMENT

* Anybody who wants to get a better grasp of their entire financial situation.

* Anybody who has multiple money accounts across multiple institutions aiming to simplify.

* Hands-on types who take a proactive role in managing their finances (budgeting, net worth tracking, etc).

* Individuals who do a lot of investments in the stock market, bond market, and alternatives.

* Individuals who are seeking financial advice from registered professionals.

The average Personal Capital user has around 15 separate money accounts when they register. Some of these accounts include checking, savings, CD, mortgage, credit card, overdraft protection, and investment accounts. When you’ve got 15 separate accounts, it’s hard to get a bird’s eye view of your finances to know where you can optimize. Personal Capital securely provides users with all their information in one place.

I’ve been thinking about signing up for an online wealth management company for a long time because I have over 25 accounts across five banks (USAA, CIT Bank, Citibank, BoA, First Republic) and two online trading platforms (Etrade and Fidelity). The reason why I have money with five banks is because the FDIC limit per individual account is $250,000. I didn’t want to risk losing hundreds of thousands of dollars just in case a particular bank went under during the financial crisis. Besides, it’s very easy to move money to higher interest savings and CD accounts.

Around 15 of my accounts are optimized to provide the best passive income returns possible. However, that still leaves 10 accounts where I have to mentally track or log into separate institutions to keep on top of my money. For example, I’ve got seven high interest CDs expiring across four banks over the next four years. It’d be nice if I could track them all in one place because the plan is to deploy CD money to alternative investments with higher returns. If you do not tell your bank you plan to invest your CD money elsewhere, they will automatically lock you in for another term!

With Personal Capital, users can consolidate their mortgages, follow their credit card spending, get a historical analysis of their overall spending habits, track their net worth, and optimize their overall finances more intelligently. Personal Capital also shows your current stock allocation to allow you to make easier rebalancing decisions. Being able to combine my 401K assets and Etrade assets into one snapshot helps with investment decisions.

As you can see from my latest 401K asset allocation chart, I began legging back in after the S&P 500 hit 1,350 in mid November, 2012. The market corrected by 7.5% so I decided to risk on. The issue is, I didn’t make the same aggressive moves in my E*Trade account because I was too focused on my 401K. Personal Capital could have helped. Now that the S&P 500 is at new record highs (2,000+), I’m now using Personal Capital to help rebalance my portfolio to maintain my risk exposure.

SO HOW DOES PERSONAL CAPITAL MAKE MONEY?

Everything I’ve discussed so far is free for users, including their iPad and iPhone apps which basically mimics everything a desktop user can do on the go. Personal Capital makes money by targeting mass affluent users who have more than $100,000 aggregated in their accounts for its paid financial advisory services. Traditional wealth management companies  such as Goldman, Bank Of America Merrill, and Citibank with physical offices around the world charge around 1-2% of assets under management for financial advisors to actively manage their client’s money.

For a management fee of less than 1%, Personal Capital connects users to registered investment advisors, who then provide personalized wealth management advice online. The idea is to leverage the Internet to lower wealth management fees and capture multi-billion dollars worth of client assets in the process. Take 50 basis points (0.5%) of $100 billion dollars under management and that equals $500 million dollars worth of fees a year for example!

Here is the fee structure IF you so choose to undertake financial advice. It’s completely optional.

* First Million: 0.89%

For clients who invest $3 million or more:

* First $3 Million: 0.79%

* Next $2 Million: 0.69%

* Next $5 Million: 0.59%

* Over $10 Million: 0.49%

* Fees are up to date as of 12/4/2014

Obviously not every user on Personal Capital will want a paid financial advisor service and that’s fine. You don’t need to accept if they call and ask. The software is already built, so whether one person signs up for free or a million users sign up to get professional advice, the marginal costs are minimal. What they hope is for clients to grow their capital to the point where they would like financial advisory service.

If you talk to any of the private wealth management companies, they generally have a minimum threshold of $1 million in assets before they are willing to take you on. Citi private bank has a $3 million minimum and Goldman Sachs has a $5 million minimum for comparison. With Personal Capital, their target threshold is much lower given their lower operating costs, thereby bringing access to the mass affluent community..

FANTASTIC FREE TOOL TO HELP BUILD WEALTH

With 25+ accounts to track, Personal Capital helps me manage money easier. The analogy is akin to consolidating your student loans. There’s no cost to me, except for my setup time, but the benefits are enormous. Finances are chaotic, and Personal Capital’s free financial dashboard helps make sense of it all. If they can provide low cost financial advice while I go build my business, even better. They are headquartered right here in the San Francisco Bay Area and I’ve personally interviewed the CEO, CFO, COO, and CTO multiple times in 2014 to understand their business, and make sure they are doing great work.

If you have multiple accounts to manage from multiple organizations, want to track your net worth automatically, and ensure your spending is within budget, I highly recommend signing up for Personal Capital. It’s free, secure, and easy to use. Their best feature is their 401k Fee Analyzer / Portfolio Fee Analyzer which discovered that I was paying $1,700 a year I had no idea I was paying! You should definitely run your portfolios through the free analyzer to see how much in unnecessary fees you’re paying. The minute it takes to sign up could lead to tremendous wealth in the future.

I’m pleased to report that Personal Capital raised $50 million of new funding in a Series D round on October 29, 2014, led by Corsair, BBVA Bank, and USAA. They now track over $100 billion in assets by over 600,000 users, and actively manage over $1 billion of their clients money. The average net worth of the Personal Capital user is now over $500,000.

About the Author: Sam began investing his own money ever since he first opened a Charles Schwab brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college on Wall Street. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 35 largely due to his investments that now generate over six figures a year in passive income. Sam now spends his time playing tennis, hanging out with family, and writing online to help others achieve financial freedom.

Regards,

Sam

Photo: Red Samurai, Lake Tahoe, 2014.

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

You can sign up to receive his articles via email or by RSS. Sam also sends out a private quarterly newsletter with information on where he's investing his money and more sensitive information.

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Comments

  1. says

    Anytime you can do anything to simplify – I say go for it! If using a company like Personal Capital gives you peace of mind, why not? Personally, I stick to good old-fashioned software programs like Quicken to track and manage all of my accounts. But then again, my portfolio isn’t nearly as complicated as yours. In time, I may consider using such a service.

  2. says

    This sounds interesting. I’m currently using Mint to keep track up everything. It doesn’t follow up on all of my accounts, so I still have to keep tabs, and do some manual work. These type of tools are definitely time savers, no doubt.

  3. says

    I like Personal Capital A LOT more than Mint. I had some problem linking a few accounts in the beginning, but they worked on them and eventually I was able to add all my accounts.

  4. San Diego says

    This sounds alot like Mint. I used to use Mint years ago but then stopped using it because Mint could not follow transactions through my different accounts properly and would sometimes add double entries which would force me to do manual clean up and became very frustrating. Sam have you had any issues with Personal Capital correctly reporting transactions or has it been smooth sailing? Im curious if you have manually verified what Personal Capital reports as well.

  5. Brett says

    I just signed up with Personal Capital this summer and love it! Completely helps me manage my finances better because I can see where everything is going. I found a lot of leaks in my finances, which I’ve since plugged.

    Thanks to Personal Capital, I made a decision to asset allocate more money into stocks this summer as I saw that I was way too overweight savings and CDs. It’s free and very helpful. I totally recommend it!

  6. says

    I checked out their website. It’s really cool and definitely looks like Silicon Valley material. I also use multiple banks and actually don’t know when my CDs are expiring. Yikes! I like the idea of having everything in one place. Makes things much simpler.

    • says

      Not knowing when my seven CD accounts are coming due is seriously one of the biggest reasons why I’ve signed up. The last thing I want is for a mega CD yielding 4.15% to get locked in for another 7 years at 2%! The bank should let me know, but I want an extra alarm clock if you will!

  7. says

    This is one of the best uses of technology. The costs are low and you can gain immediate results. I see this as something for the young entrepreneurs of silicon valley because really rich people want more human interaction. This type of company is relying on less interaction so they can keep the costs low.

    • says

      The Internet has really been able to lower costs and make things more efficient with almost everything: mortgage refinancing, dating, search, etc. I’m happy to just have responsive e-mail conversation rather than phone, skype, or in person. I just need to make sure a company is operating properly and looking out for its customer’s best interests.

      • says

        Maybe I am old school, but I just see this technology as supporting the traditional resources. I prefer face to face conversations and human interaction versus using technology. I like the idea of supplementing the traditional choices, but I still prefer the traditional ones.

  8. Jon says

    Signed up today, and I’m very impressed by the interface and the dashboards. Being able to visually see the different accounts and allocations both on a broad and detailed level is very helpful. I’m definitely interested in seeing the data after using it a while and changing my allocations as necessary.

    Only issues I have seen are that I cannot connect to my Betterment account (something that I was trying out for fun) or one of my 401K accounts through JP Morgan. There seems to be a bug with the JP Morgan connection, which I E-mailed PC about so hopefully it will be resolved in the near future.

      • Jon says

        Got a note back from Personal Capital today with step-by-step instructions on adding in my JP Morgan 401K account. Apparently they had a bug where things were mis-labeled so I had to select a different option.

        They do not have any ETA on whether they will have connectivity to Betterment available in the near future. Since they are somewhat considered competitors, I don’t find that surprising.

        • Jon says

          Wanted to follow up on this topic because Personal Capital has added Betterment connectivity. They even E-mailed me to let me know about it last weekend, since I had opened a help ticket in December when I joined. Definitely good customer service.

  9. says

    I was intrigued when I saw Joe’s review at RB40, and now I think I have to try it out. I have had issues with Mint as mentioned above and really don’t use it at all right now. It is a real time suck to have to log into every account manually. I love simple.

  10. Cosmic says

    Love this!! Really brings it all together..your bank accounts, credit cards, bills, 401ks, IRAs and mortagage. I really send lots of time towards the year end tweaking my plan for the future and this makes it really easy. Also like the 401K option where it calculations your annual costs trending across time. Really will need to streamline my funds aroudn 40 to minimize costs.

  11. Mike says

    Some simplification is always good. Plus it’s good to make sure that you have a few ways to be able to really make sure that you are able focus on trying to at least keep some of your money in the event that something goes sour.

  12. Patrick says

    A key point for me and potential many others in my situation is that this hopefully starts a trend to attract younger individuals with less than a $1 million dollars into caring about their money and savings.

    I know that if you take my mortgage out of the equation then I have more savings than debt, but if you add in the mortgage then I am $200k in the hole. What I interesting in finding is a tool that will allow me to visually display my balances and offer a pay when needed option.

    • says

      Personal Capital is definitely a channel to bring wealth management to the masses. It’s all about disrupting the status quo and using technology to reach more people.

      At the end of the day, how many people, young or old have $1 million dollars in savings and investments? Not many! Hence, PC has to broaden the rich if they want to grow and be successful. Nobody needs the big bucks to properly manage their money anymore thanks to PC. You should give it a shot as it only takes about a minute to register and then depending on how many accounts you have to link.

  13. says

    I have been toying with the idea of becoming a registered investment advisor. But the amount of the time I will need to invest for the test/certifications, incorporation, and red tape is something that’s very daunting. Is anyone a RIA? If so what was your start up experience like?

  14. Joshua says

    Thanks for sharing. I signed up for Personal Capital due to their Amazon gift card promotion. I took a closer look today thanks to your post and really like what I see!

    I’m a big user of financial aggregator sites like Yodlee, SigFig/Wikinvest, CakeFinance, and Mint. Personal Capital combines the transaction management capabilities of Yodlee with a clean UI and the portfolio management and analysis capabilities of Wikinvest/SigFig/Cake. The Android app is a big plus too! I’m interested to see how the personal advisor service will turn out, I just received an introduction from mine :)

    I think Personal Capital also uses Yodlee like Mint… If only there were a way to import my years of transaction history from Yodlee…

  15. New Reader says

    Sam – maybe you can consider writing an article about identity theft protection at some point. With all your info now aggregated in one place, it’s an even greater risk.

    Identity Guard (what I use), LifeLock, etc…

  16. says

    Hey Sam,

    I took the plunge with Personal Capital a few months ago and don’t regret it. I even interviewed their CEO Bill Harris about his company’s philosophy and services and came away impressed (which is hard to do with personal finance resources).

    Would you consider doing a follow up article about the website functionality and mobile app performance? I’d enjoy your perspective and I’m sure it would be a great supplement to the write-up I did on Personal Capital over at Value of Simple. Check it out if you think it would be helpful in researching another post on them: http://valueofsimple.com/personal-capital-review/

  17. Its Only Money says

    Been with PC for 8+ months. 100K+ nonqualified & 2 roths = steady gains and market fluctuations are mere hiccups; seriously, we don’t even concern ourselves with such drivel. Bill has built a winning team and Craig’s investment team and their strategies are solid. One note – when you give them the reins they manage your portfolio; don’t be thinking you’ll call and buy a couple of shares of this or that – not gonna happen. If you want to dabble and risk then you’ll need an account with E-trade or similar – PC’s business case is strategic and purposeful. Will post this on other boards as well – checked the web to see where the feedback was. Seems many are “curious and wondering” well enough of that – you are missing opportunities.

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