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 2017 results compared to a ~10% S&P 500 performance, and +3% Aggregate Bond Market performance. I don’t have the performance for 2020 yet.
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
Total Equity Funding: $220.3M in 7 Rounds from 11 Investors as of 2018.
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: email@example.com | (855) 855-8005
Employees: ~300 as of 4Q2018
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
Personal Capital Funding History
Personal Capital Latest News
I had lunch with the Chief Marketing Officer, Eric Weiss, and their Vice Chairman, Mark Goines in the summer of 2018 to get an update. Here is some key information.
* Performing better than expected. They currently have over 1.6 million registered users tracking over $500 billion in assets.
* Surge in assets under management. Assets under management went from $3.5B in 2017 to over $7.5B in 2H2018.
* New app features. They are rolling out new retirement planning, investment analysis, and cash flow analysis features.
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.