Personal 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 user base and its profits in order to survive, I’m curious to know how a company with now over $120 million in venture funding, most recently led by USAA, BBVA, and Corsair in October, 2014, plan to continue their growth path.
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. The great thing is that Personal Capital reached a terrific milestone of managing over $1 billion in assets at the end of 2014, and has now over $1.4 billion in assets as of 2Q 2015. Their growth rate looks to be accelerating as the become the leading digital wealth manager today.
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 financial accounts across five banks (USAA, CIT Bank, Citibank, BoA, First Republic) and two online trading platforms (E*trade 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+) in 2015, I’m now using Personal Capital to help rebalance my portfolio to maintain my risk exposure.
Another fantastic feature Personal Capital has is its Portfolio Fee Analyzer tool. After running my 401k through the tool, I discovered I was paying $1,700 a year in fees I had no idea I was paying. As a result, I got out of poorly run actively managed funds like the Fidelity Tech Fund, and bought similar Vanguard funds with 80% less cost. I would have ended up paying well over $50,000 in fees by the time I was 60.
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 0.89% and less, 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 4/7/2015
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 at $100,000 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 and 2015 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. 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.
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 34 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.
Photo: Red Samurai, Lake Tahoe. Updated for 2015 and beyond.