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Personal Capital Review – Online Financial Advisor & Account Aggregation

By Jason Van Steenwyk

personal capital logoThese days, many American families have a bewildering array of financial accounts. Between checking and savings accounts, credit card accounts, insurance companies, money market accountsIRA accounts, mutual funds, and a Section 529 plan, it’s easy to lose sight of the big picture. Just checking your balance once a month with so many different companies can be a very time-consuming process.

Personal Capital seeks to streamline that process. Billing itself as an “aggregator,” the site helps you tame the many-headed beast. At the same time, the site purports to give you access to unbiased advice from its network of personal financial planners. So now that you can get a handle on all your different financial accounts, theoretically you’ll know what to do with them.

Yes, it’s not the only robust financial account aggregator out there. Mint.com offers an excellent product, but it’s designed more for debt reduction and bank account tracking. If you have some savings, and you’ve been able to invest, Personal Capital picks up where Mint leaves off. It places less emphasis on the basic transactional stuff and credit card tracking, while providing substantially better functionality for tracking investments and facilitating more advanced financial planning concepts, such as asset allocation, income tax planning, and tax harvesting.

How It Works

You have to put in some time inputting your financial information at the beginning of the process. You must enter your personal account information and passwords into Personal Capital’s site, and while this may make some uncomfortable, the site is secure. Each night, Personal Capital’s servers log into all your accounts and download your latest balance.

The site’s web-based software then aggregates all the information into a handy series of charts and graphs to help you make sense of your savings and investments, and to help you gauge your position against market performance.

The site collects your data and organizes it into a number of helpful charts:

  • Balances and asset allocation
  • Investment return information
  • Spending reports
  • Asset allocation
  • Projected fees

Best of all, it’s free.

Your Personal Fund

Unlike most financial aggregators, you get a bit of help developing your “personal strategy,” as well as creating what Personal Capital calls your “personal fund.” Your personal strategy is a basic asset allocation based on a brief interview in which an advisor talks to you about your financial situation, goals, risk tolerance, and time horizon, and then creates a model portfolio for you. For example, you may input your age and answer a few questions about your risk tolerance, and a computer will create a generic recommendation of, say, 40% stocks, 40% bonds, and 20% cash.

Your “personal fund” refers to the portfolio you create, with Personal Capital’s assistance, to help you reach your financial goals. That said, you can still take advantage of the aggregation, even if you don’t use the recommendations.

Optional Advisory Services

What’s the catch? Well, none, exactly. Personal Capital is a registered financial advisor providing this free service, essentially, as a loss leader in order to attract more affluent site users – those with investable assets of at least $100,000 – and get them to use, and pay for, financial advisory services. Personal Capital gets its money by taking a percentage of assets under management, or AUM.

For example, if you entrust $1 million to a financial planner who works on an AUM fee of 1% of assets, you must pay $10,000 per year to the planner to take charge of your portfolio. A 1% fee, or just under it, is fairly typical of AUM arrangements on large accounts over $100,000 or so.

You don’t have to pay anything to Personal Capital for setting up your profile and keying in your financial information, though. You only pay if you actually elect to have Personal Capital manage your portfolio for you. In exchange for the AUM fee, you get the services of a certified financial planner.

But using the company’s wealth management service is strictly voluntary. If you prefer to do things yourself, or if you have another wealth manager you prefer, you can continue using the data aggregation and reporting services absolutely free, holding your money wherever you like.

personal capital dashboard screenshot

Key Features

  • The Universal Checkbook. Personal Capital sells this feature as “the only checkbook you’ll ever need.” While that might be a bit of an exaggeration, the Universal Checkbook is a tremendously useful tool. It’s an online application that makes it easy for you to transfer money between any of your accounts. You enter your directions into your iPhone app, and Personal Capital transfers the money to your payee - free of charge.
  • Solid Security. In an age where hacking and online identity theft is a major concern, security is always important for any financial website. The security on the Personal Capital website is as good as it gets. A number of company executives cut their teeth in the computer security, encryption, and related industries. They’ve built the best security features in the industry right into the site. But remember – the strength of your password is crucial, so don’t make it easy to guess, and don’t keep it written on a post-it note taped to your laptop.
  • Stock Option Tracker. There is life beyond bank balances, credit card accounts, brokerage accounts, and retirement funds. Personal Capital realizes this, and includes a powerful application to help you track the value of any options you own. If you get options from work (for example, as incentive stock options), or if you buy your own options as a speculator on the open market, Personal Finance helps you track them. Whether they’re in-the-money, out-of-the-money, or at-the-money, the tracker helps you make informed decisions on when and if to exercise those stock options. The “what if” calculator helps walk you through difference scenarios, such as what happens if you wait until your options are more completely vested, and what your profits might be if you exercise your options at given price points.
  • Tax Optimization. Personal Capital provides a number of online tools to help you minimize your capital gains tax exposure by alerting you to imbedded capital losses in your portfolio. This lets you take advantage of tax loss harvesting strategies. Tax loss harvesting means you cancel out taxable capital gains elsewhere in your portfolio by selling off losing assets. Your losers offset your winners, directly reducing your capital gains tax bill. If you have extra losers, you can also sell them to offset as much as $3,000 in personal income in any given year. If you have more than $3,000 in losses, you can carry those losses to future years, offsetting capital gains and then as much as $3,000 in income per year until your capital losses are exhausted. Just be aware of “wash sale rules”: If you sell an asset and claim a capital loss on it, you cannot buy the same security back – or a substantially identical one – for 30 days after you sell.

personal capital accounts

Advantages

  1. Ease of Use. Signing up for Personal Capital is a snap. Simply visit the home page, enter your email address (which is your new username) and a phone number (for verification purposes only), and create a password. The next step is to enter your financial accounts information, which can be tedious. However, the more accounts you have, the more likely it is that you will benefit from this financial aggregation site.
  2. Competent Advice. Personal Capital is one of the few financial websites that actually connects you on the phone with a financial planner this early in the process. This is valuable because a sharp advisor can do a lot to help you avoid needlessly risky investments and other common investing mistakes. The hope, of course, is that enough customers with $100,000 or more to invest will like their planners enough to become paying clients.
  3. Fiduciary Responsibility. Most stockbrokers, insurance agents, and others selling themselves as financial advisors are only held to a standard of “suitability.” That means they don’t have to make the best possible recommendations for you – just ones that are suitable. Well, French’s mustard is “suitable” for a pastrami sandwich – but maybe you want really good deli mustard. If the stockbroker or insurance company only sells French’s, that’s all they’ll tell you about. In contrast, Personal Capital is a registered investment advisor. As such, they are held to a much higher legal standard, called the “fiduciary standard.” This means that it’s not enough that their recommendations be suitable – if you choose to retain their investment advisory services, they must handle your account, and make recommendations with the clients’ best interest as the only factor. The usual broker frequently makes recommendations that will line his or her pocket the most while still being “suitable.” The fiduciary will, if he or she is doing the job right, make the best possible recommendation for your own situation, without regard to commissions or hidden “revenue sharing” arrangements.
  4. Clarity on Fees. Most people are unaware of exactly how much they pay in commissions, fees, expense ratios, statement fees, and other outlays for their financial accounts. Personal Capital does a great job of aggregating not only your investment information and asset allocation, but providing clarity on exactly what fees you’re paying for your financial accounts. You may find that the money you pay in fees doing it yourself is greater than the amount you would pay in asset-under-management fees with Personal Capital.
  5. Reasonable Cost Structure. Of course, it’s tough to beat free. But even if you take advantage of Personal Capital’s wealth management services, the AUM fees of 0.75% to 0.95% each year, while not rock-bottom, are pretty reasonable. Consider these fees in the context of actively managed mutual funds, where annual expense ratios average as much as 1.25%. If Personal Capital helps you out of expensive funds and brings you into index funds with expense ratios of only a fraction of those of actively managed funds, that will save you a large portion of your fees right there. You may wind up getting the benefit of Personal Capital’s other services – tax planning advice, risk management, retirement planning, and even life insurance advice and input – for practically nothing.
  6. iPad Compatibility. Personal Capital has one of the more robust applications available for users of the popular tablet.

Disadvantages

  1. Sophistication. This isn’t a major disadvantage – but if you just don’t have much to put aside, you don’t have anything in the way of investments, and your primary purpose is controlling expenses, budgeting, and getting out of debt, the Personal Capital solution might be premature. You may be better off with Mint.com, which focuses more on budgeting, expense reports, and debt reduction. But if you diligently apply yourself with Mint.com, you’ll soon be a great candidate for Personal Capital.

personal capital cash manager

Suitability

Financial planners that hook up with these kinds of free services tend to be new in their practices, and looking to build up clientele. They can do a fantastic job for upper middle-class, bread-and-butter clients with fairly common issues. But if you have significant tax planning, estate tax, cross-generational planning, international planning, or business succession planning and valuation services, you will probably need someone in person. Actually, you’ll probably want to engage a cross-disciplinary team of legal, insurance, tax, and financial experts.

But if you’ve graduated from Mint.com and have pretty straightforward retirement planning, Social Security, income tax, and college planning issues, Personal Capital is an excellent step up. There’s no reason that their planners can’t point you in the right direction with portfolios in the $100,000 to $5,000,000 range, especially if you would rather be doing something besides trying to pick stocks, bonds, and funds yourself. What’s more, they do manage to bring unbiased advice from a fiduciary to the table, and do so at a very reasonable cost.

Final Word

If you don’t make the $100,000 investable asset threshold required to retain Personal Capital’s money management services, you can still benefit quite a bit just from their free help setting up your asset allocation at the outset. Studies show that as much as 90% of your investment returns are determined by asset allocation, not stock selection. So if you’re lost in the woods, getting even this basic level of help can go a long way in helping you reach your financial goals.

Do you use an aggregation site like Personal Capital? What do you like or dislike about it?

Jason Van Steenwyk
Jason Van Steenwyk has been writing professionally about finance, insurance, economics, and investing since 2000. He got his start in journalism with Mutual Funds magazine. Since then, he has published feature articles for financial professionals and consumers alike in Registered Rep., Wealth & Retirement Planner, Senior Market Advisor, The Annuity Selling Guide, The Honolulu Advertiser, and many more. He is also a former insurance agent, where he worked with individuals and small business owners on planning their life insurance, health insurance, long term care and retirement needs. An avid musician, Jason is also a semiprofessional guitarist and fiddler, and proud member of the Army National Guard for 20 years. He lives in Fort Lauderdale, Florida.

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Comments

  • http://twitter.com/HiPlaneDrifter High Plane Drifter

    Thanks, this is helpful.

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