The main benefit from the rapid technological development and its adoption in the financial world was easier access and lower prices for professional money management services. The development of robo-advisory solutions has brought financial markets closer to everyone.
Personal Capital remains true to its business model – to combine the best of the world of human- and robo-advisors. Even in a world of ever-decreasing costs where individuals can have their capital managed even for free and with the little-to-none minimum capital requirement to increase the net worth.
The following Personal Capital review will explore the pros and cons of one of the leading businesses in the sector and let you know whether its higher fees are worth it. Let's find out of this robo-advisory focused app is one of the best investment apps.
What is Personal Capital?
Currently, the financial world is split into two parts – robo-advisors and professional financial advisors. This differentiation can also be referred to as passive and active money management as well.
While the first sit on the cheap end of the financial services spectrum, the latter are the more expensive option. What Personal Capital Wealth Management does is combine the best parts of both worlds by offering a hybrid model based on algorithms and human advisors.
The company targets $100 000+ individuals which makes it a more niche solution, when compared to the more accessible Wealthfront, Betterment, WiseBanyan or M1 Finance.
Personal Capital Investment Strategy
The company believes in the power of technology to reshape the industry and aims to combine it with the personal touch of traditional financial advising services.
The delegated assets are managed by Personal Capital’s Investment Committee which is supported by the company’s research staff. Personal financial advisors take care of separate portfolios by monitoring the way they are managed and whether the investment performs in accordance with the individual’s goal.
The advisors are also responsible for ensuring periodical communication with clients and presenting them with a relevant information about the performance of their portfolios. Personal Capital’s investment strategy is based on maintaining even exposure to various sectors and styles, thus further improving traditional indexing.
The “even weighting” principle that the company applies aims to build an optimal portfolio of individual stocks and ETFs. It ensures efficient risk management and maximizes diversification way better, when compared to the common investible indexes.
The company states that its methodology has proved to outperform the S&P 500 by more than 1.5% on an annual basis, while at the same time maintaining lower volatility levels.
Personal Capital offers the following asset classes:
- U.S. stocks
- Foreign stocks
- U.S. bonds
- Foreign bonds
- Alternative investments (REITs and commodities)
The company’s investment strategy includes also comprehensive tax optimization as they say it is capable of increasing the net returns by up to 1% per year. Through tax-loss harvesting, tax allocation and efficiency, Personal Capital tries to further optimize the performance of the portfolios of its clients.
Personal Capital relies heavily on a well-tailored rebalancing strategy as well. That way, the advisor is capable of keeping clients’ portfolios on track with their goals and enhance their risk-adjusted returns.
More detailed information about Personal Capital’s investment strategy is available in this whitepaper. If you want to track the performance of their strategies, check here.
Personal Capital Fee Structure
If you are expecting to see financial terms, similar to those of robo-advising services like M1 Finance or WiseBanyan, then you might be disappointed. The fact that Personal Capital relies so heavily on the personal approach leads to increased costs for their services.
Personal Capital charges a percentage of the assets they manage for you. You are not required to pay additional custody or trade fees – everything is included in one fee that is billed on a monthly basis.
The fee structure is as follows:
- Up to $1 million - 0.89%
- First $3 million – 0.79%
- Next $2 million – 0.69%
- Next $5 million – 0.59%
- $10 million or more – 0.49%
The fees may seem excessively high when compared to free-of-charge solutions or the 0.25% Betterment and Wealthfront charge their clients. However, this is not the only notable difference between the robo-advisors on the market.
In fact, it is the minimum account requirement that makes the service pretty irrelevant for millennials, beginners or investors with low capital. Personal Capital requires its clients to deposit at least $100 000 in order to start using their services.
Who is Personal Capital Best for?
Personal Capital is used by more than 2 million people to increase the net worth. However, the clients of Personal Capital are approximately 22,000 with a notable assets under management of $12.3 Billion.
The rest take advantage of the company’s free financial management platforms, fee analyzer, available online, including budgeting features, cash flow analyzer, retirement planner, investment checkup functionalities, net worth calculator, etc.
Is It Worth It?
When it comes to wealth management, Personal Capital is a popular solution among two types of investors:
- High-net-worth individuals
- Individuals who prefer a more personal approach
Personal Capital offers a wide variety of accounts, including joint and taxable investment accounts, trusts, IRAs (traditional, Roth and SEP), advice-only on 529 college saving and 401(k) plans. You can manage many fianance aspects from one place. Even a credit card is offered to be used along your investment portfolio. Your credit cards can be managed within the Credit Cards section in your account.
The customer service is ready whenever you have a question about your Personal Capital account, they offer free tools on their site and new clients may receive investment management and management services in a perfect shape.
How to Create an Account with Personal Capital?
The procedure for starting with Personal Capital is pretty straightforward and starts with a common financial advisor questionnaire. By answering the provided questions, you will let the company know as much as possible about your financial situation, lifestyle and long-term goals.
This will also help the advisors to estimate more accurately how much growth of your investment do you need in order to reach these goals. Once Personal Capital becomes familiar with you, it will proceed with the following 3 steps:
- The investment team will develop a personal financial strategy, tailored to your needs and long-term goals. The strategy will reflect your risk tolerance and the return that you target.
- After you approve the investment plan, Personal Finance’s advisors will open an account for you at the custodian they work with – Pershing Advisor Solutions, a Bank of New York Mellon company. You will be required to fund your account with either cash or securities.
- Next, Personal Capital will start applying the individually-tailored strategy and periodically rebalance your portfolio, while at the same time keeping an eye on taxes.
Personal Capital Alternatives
When it comes to its competitors, it is worth noting that Personal Capital Wealth Management is a reasonable choice only for individuals who prefer a more advanced and personal approach to their capital.
When it comes to fees, however, Personal Capital falls short when compared to M1 Finance, Betterment, WiseBanyan and Wealthfront.
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Personal Capital Wealth Management Review Summary
Personal Capital’s free financial planning dashboard and retirement planner is a great choice for all individuals. However, when it comes to Personal Capital, the truth is that it is a strictly tailored solution for investors with more assets at their disposal.
If you are bothered by the hefty fees, do not forget that, according to the company’s performance charts and the steady returns over time, it clearly is a solution worth trying.
Yet, if you are more of a mainstream investor, a passive-investing-believer or even someone that falls into the $100,000 - $200,000 gap, it is worth noting that you can get a service with similar quality with some of Personal Capital’s competitors. And on top of that - you won’t be paying this much.
- Free financial dashboard
- Good returns
- Access to in-person financial advising services
- Tax optimization
- No tax-loss harvesting
- Not suitable for active traders
Personal Capital enables you to control your finances with high-end financial management tools with great asset allocation features. They are a Forbes' 2019 "FinTech 50" Honoree.
About the Author
Alexander is an investor, trader, and founder of daytradingz.com. After devoting many years to educating himself on powerful day trading techniques and effective investment styles, he started trading and investing more actively. In the past 20 years, he has executed thousands of trades. In 2015, he began writing articles about trading, investing, and personal finance. He is very passionate about sharing his knowledge and strives for success in himself and others. Alexander has been featured on Benzinga, Rockstar Finance, and ESI Money.