Your Guide to Finding the Best Financial Professionals for You
If simply reading these questions makes you feel uneasy, you’re not alone. There are few...
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Personal Capital: Personal Capital is wealth management for investing in 2020 and beyond. Their online platform combines digital technology with highly personalized service to provide a holistic view to a unique financial picture.
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Signing up with Personal Capital was super easy. I was asked for my email address (serves as the User ID), a password, and a phone number (for identity verification).
Next, the site asks some questions to help tailor their advice to my situation. This includes name, age, planned retirement age, and how much I’ve already saved and/or invested (excluding property value).
Next, I was asked about my goals – how I manage my investments (on my own), how I’d change how my money is managed (I wouldn’t, but that’s not an available option so I picked “invest in lower-cost funds”), and how a financial advisor and Personal Capital’s tools be most valuable to me (I’m not sure yet, but am open to seeing what’s available; some things that might be useful include a Monte Carlo simulator that allows me to personalize the inputs and assumptions).
Next, I’m told, “Level Up. You’ve earned a free session with a Personal Capital advisor. Whatever you’re saving for, we can help you achieve your goals. A financial advisor of ours will call you to take in your situation, and then present a comprehensive recommendation. Everything is yours to keep, and completely free.”
I’m offered several dates and times, and once I choose one, I’m asked to confirm my email and phone number, and given the opportunity to send any notes I wish to the advisor.
Conveniently, I can click to add the call appointment to my calendar (Google, Apple, or Outlook). I’d already entered it in my calendar, so I skip this.
To add my assets and liabilities, Personal Capital makes it convenient to set up automated downloads by providing all your financial accounts’ credentials. Color me cautious, as I’m reluctant to provide that sort of access to anyone. This, despite the fact that Personal Capital is well regarded and appears to not keep this sort of information on their own servers, using instead a third party.
After looking in vain for a way to enter the information manually (without providing account numbers, IDs, and/or passwords), I email Brett, the rep who’s scheduled to talk with me in a few days. He quickly replies and says there is indeed a way to do so. Turns out it’s hidden until you start typing something (anything) into the “Link Your Account” search field. I type in “aaa” which brings up several potential matches. Since that’s not really the start of any of my financial institutions’ names, I concentrate on this at the bottom of the form: “Can’t find your account? Link it manually or submit request to get support for your financial institution.” and more importantly, the “Add Manual Account” button below. This is a laborious method, but it does let me enter whatever I want without disclosing any credentials.
Next, I start with the retirement planner. This is a bit less intuitive, though the question prompts from the system help. Some defaults are offered, for example what you should expect from Social Security. However, it’s better to get those numbers directly from the Social Security Administration (and adjust downward by 23% in case changes to Social Security lead to benefit cuts rather than payroll tax increases). For some reason, Personal Capital underestimated my projected benefits, so I corrected those.
Since I don’t want to let Personal Capital link to my actual accounts, and since entering each transaction manually would be impractical, I can’t take advantage of tools such as Cashflow, Bills, Budgeting, and their Retirement Fee Analyzer (ominously, this claims that 53% of earnings are lost to fees!).
They offer a nifty portfolio allocation visualizer, which breaks down my investments by asset class.
Personal Capital offers to let me open a savings account with 1.55% Annual Percentage Yield (APY). This is much better than typical bank accounts. Bank of America, for example, currently offers 0.03%!
Personal Capital also offers to build for me a tailored portfolio of ETFs and a security basket in place of the (low-cost) mutual funds I’m currently invested in. They estimate that by retirement, this could save me $130,000! Considering that my average fund charges about 0.8% per year, this sound plausible at first blush.
The only problems are:
(a) the ETFs they recommend would need to outperform my current mutual funds
(b) I’d face a hefty tax bill when selling my current taxable holdings to move the money into their recommended mix, and most importantly
(d) Personal Capital charges their own advisory fee of 0.89% for Investment Services & Wealth Management Clients, or for Private Clients 0.79% for the first $3M, 0.69% for the next $2M, 0.59% for the next $5M, and 0.49% after that.
Given all that, I’m entirely unconvinced. I plan to ask Brett.
They also estimate a tax savings of $3500-$8200 a year. I’m skeptical of this last too, since I didn’t see anyplace to identify my retirement accounts as being tax-advantaged (possibly because I entered them manually).
At this point, I’ll reserve further judgment until after my free 30-minute phone call with Brett.
After my first conversation with Brett, I have more information.
First, I asked about the expected reduction in fees and mentioned that my current investments cost less per year than Personal Capital’s 0.89% fee for Investment Services & Wealth Management Client (if you let Personal Capital manage assets under $1M), and just about the same as their first tier for Private Clients with between $1M and $3M. Brett agreed that in my case, fee reduction would not be significant until my portfolio grows above $3M.
However, he did point out that my current investment in mutual funds suffers from the fact that funds are required to hold some cash on hand to enable them to pay investors who redeem shares. This makes mutual funds a less efficient investment than being 100% invested (in ETFs and stocks). Additionally, mutual funds are required by law to annually distribute to their investors any interest, dividends, and capital gains. If the funds are held in a taxable portfolio, you have to pay taxes each year on these distributions. Personal Capital, by comparison, would have my money invested in ETFs and a basket of selected individual stocks.
Until and unless I sell an investment, the only taxable events would be getting dividend payments from stocks or stock ETFs, and/or interest payments from bond ETFs. If the ETF and/or stocks increase in value, that would not be taxable until I sell those positions, making this direction more tax efficient. Another benefit Brett mentions is that Personal Capital rebalances advisory clients’ portfolios in a tax-efficient manner, harvesting losses to offset gains. This should make the portfolio less risky over time, with lower taxes owed than being invested in mutual funds.
Here are a couple of interesting resources on how Personal Capital works and how well they’ve done for their clients:
After my follow-up call with Brett, I’m more impressed, but still not planning to move my portfolio to their management. On the positive side, a lot of what they do for their clients makes abundant sense. They suggest equal-weighting among the different stock sectors, rather than following the S&P 500, which is currently over-weighted in e.g. tech stocks. Their research shows that following this strategy since 1990 (when sector performance data became widely available), it would have outperformed the S&P 500 by a significant margin.
Their method of managing clients’ investments by rebalancing from stocks that have outperformed into ones that have lagged also makes a lot of sense, especially when done with an eye on tax implications.
Still, the bottom line for me personally is that I currently pay a composite fee that’s not much different from what they would have charged, and that my personal rate of return is better than what they’ve accomplished for their clients since 2012. That’s why, for now at least, I’m going to keep managing my own investments. However, I will probably revisit some of my own asset allocations to make sure I’m not taking on more risk than is justified by the returns.
There are many free, powerful tools, including simulated retirement planning results. This lets you figure out how much you need to save each year vs. how much you can expect to withdraw safely from your retirement portfolio once you retire. If you’re less wary than me (which may be fine according to SmartMoneyNation.com), you’ll be able to use Personal Capital as your single financial gateway. In fact, it could be argued that only ever using your Personal Capital credentials to check on your accounts may be safer than routinely accessing each of your financial institutions’ websites.
Also, having a human being to discuss things with is a good way of at least getting feedback on my investment ideas; and potentially getting better advice than what I can think of or research on my own, seeing that I’m not an investment professional.
Overall, I’d rate Personal Capital’s ease of use at 4.5 stars. The reason I don’t give it 5 stars is that their website has a lot of tools and information, and finding all of it takes time and diligence. If you work with one of their advisors, things become much easier, since he or she can point you to whatever you’re looking for. Also, if you’re willing to give them access to all your financial accounts, it makes it very easy to see and control your finances from a single portal.
Clearly, Personal Capital is in this for the money (and no shame in that). For me personally, given that I’ve been doing fine managing our money on my own, I’m not convinced that I need to hire them for the job. This is especially so given that their fees are not much better than what I can do on my own, and as much as triple their competitors’ fees. Having said that, those competitors do not provide the depth and breadth of services provided by Personal Capital, which makes that comparison somewhat unfair if you would use all of Personal Capital’s services to good advantage.
Regarding fees and minimum investment, Nerdwallet gives Personal Capital 4 stars, ranking both Betterment and Wealthfront at 5 stars, due to fees (0.25% each vs. 0.49% to 0.89% for Personal Capital), as well as much lower minimum balances ($0 and $500 respectively, vs. $100,000 for Personal Capital).
On our initial call, I told Brett on the phone that because I like to be transparent and honest with people I deal with, I have to tell him that he’s facing an uphill slog in convincing me to sign on for Personal Capital’s advisory service. I haven’t decided definitively that I won’t work with them. However, he’ll need to convince me that after accounting for their fees, my results with them are likely to be better than if I went with a lower-fee competitor, or if I continued managing my own investments.
On our second call, I became even more impressed with Personal Capital, to the point that if I wasn’t doing better on my own, I would likely give them a shot.
I liked his response, that he appreciates the transparency and if I’m up for it, we can continue the conversation; so we set up another call for next week.
On our second call, as mentioned above, I became even more impressed with Personal Capital, to the point that if I wasn’t doing better on my own, I would likely give them a shot.
Overall, I’d rate Personal Capital as 4.5 stars. If their long-term results were better than what I’ve achieved on my own, I’d give them the 5th star.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.