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Personal Capital Review – Personal Capital Advisors – Part 3

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Personal Capital Advisors Dedicated to You

So far we’ve covered the rich offerings of the Personal Capital technology-assisted platform. From cash flow, investing, and retirement there are a wealth of free resources. The easy setup and robust dashboard make this robo-advisor a must for your financial and investment management-whether you use Quicken, Mint or another system. Next, learn how the dedicated Personal Capital Advisors work for you.

For a deep look at the sign-up and overview, check out Part 1 of this series. Part 2 dives into the specifics of the net worth, cash flow, and investing tools.

Part 3 summarizes my meeting with the personal financial advisor. Although, I haven’t signed up for the paid Personal Capital, as I manage my own investments, I rely on the Personal Capital  complimentary investment management tools. This article explains what to expect if you engage Personal Capital to manage some or all of your assets. You’ll also learn about the fee structure and corporate investment philosophy.

Sign Up for Personal Capital

How Much Does it Cost to Use the Paid Version of Personal Capital?

Personal Capital will manage your assets with a minimum investable balance of $100,000. The Personal Capital fee structure is as follows:

Assets Managed by Personal Capital Fee per Assets Under Management (AUM)
$25,000 - $1,000,0000.89%
First $3,000,0000.79%
Next $2,000,00000.69%
Next $5,000,0000.59%
Over $10,000,0000.49%

The fees paid to Personal Capital include advisory services as well as execution fees of securities transactions including any brokerage or third party management costs. Personal Capital is a Registered Investment Advisory firm and operates under a fiduciary standard which upholds the company to put your interests above their own.

Personal Capital Advisors – Personalized Investment Strategy

After inputting all of my accounts, and rooting around the Personal Capital site myself, I had an introductory conversation with a financial advisor who gave me a brief overview of the company and answered any of my questions.

I told my advisor that I was exploring the site to give a thorough and comprehensive review of Personal Capital as well as the Personal Capital advisors. My advisor was cordial, helpful, and knowledgeable. He asked if I would like him to prepare a Personalized Investment Strategy for my portfolio. This drill down by the top investment committee of Personal Capital does not obligate you to sign up for the paid service but gives you an idea of what to expect if you were to employ Personal Capital to manage all or part of your investment portfolio.

Let’s go through the Personal Investment Strategy so you can understand the company’s philosophy as well as what you can expect from the paid advisory service.

This screen shows asset allocation, diversification across market capitalization or size of the companies in my investment portfolio, geographical location of assets as well as the percentages in each sector.

Personal Capital advisors-Personal Capital analysis of a conservative investment portfolio by asset class, market cap, geography + sector

The advisor commented on this view of my asset allocation, sector, geography and market capitalization weightings. The following analysis of my current portfolio will give you an idea of the Personal Capital philosophy.

The Personal Capital advisor recommended that the sectors be more evenly distributed. He didn’t like my existing portfolios over allocation to cash and he recommended adding alternative asset classes.

Personal Capital believes in a tactical asset allocation which equal-weights all sectors. The back-testing of this strategy supposed an annualized 10-year return of 8.6% for an equal weight sector portfolio in comparison an annualized 10-year return of 7.7% for the S&P 500.

Personal Capital’s annual returns last year were in the top tier. 

Personal Capital recommended a riskier optimal asset allocation for me than the existing one which owns a conservative 40%+ in bonds and cash. 

Following is the Personal Capital advisors recommended asset allocation:

Personal Capital advisors optimal asset allocation recommendation for a conservative investor.

Notice that Personal Capital recommends only 26% fixed assets; 25% bonds and 1% cash. That’s much more aggressive than I prefer-given my indication of a moderate risk tolerance. Although, the dedicated financial advisor would adhere to my preferred asset allocation. 

Following are the types of investments Personal Capital recommends in each asset class.

The Stock Asset Class includes:

  • U .S. Stocks
  • Developed International Stocks
  • Emerging Markets International Stocks

The Bond Asset Class includes:

  • Corporate Bonds
  • Inflation Protected Bonds
  • International Bonds

The Alternatives Class includes:

  • Real Estate
  • Gold
  • International Real Estate
  • Energy
  • Food
  • Metals

Personal Capital buys individual stocks on the client’s behalf for the U.S. stock portion of the portfolio. All other assets are populated with ETFs.

Take me directly to free investment management dashboard, retirement planner, investment check up, cash flow and budgeting tools sign up.

Personal Capital Tactical Sector Weighting versus the S&P 500

personal capital advisors tactical sector weighting approach to asset allocation

This is one way which Personal Capital differs from other robo-advisors. The company back-tested this theory and assumes that the tactical equal sector weight portfolio will outperform the weighting in the S&P 500.

Final Wrap Up for the Private Client

If you engage Personal Capital for their private client services, here’s what you can expect:

Personal Capital advisors private client services

Personal Capital Advisors Pros

The sector weight approach is an interesting approach to allocate investment assets.

Their fees are competitive, when compared with other financial advisors. Actually, most financial advisors charge greater than 1.0% of AUM and often times up to 1.75%.

The purchasing of individual stocks within the portfolio provides greater opportunities for tax loss harvesting which might lower your income taxes. 

My advisor listened well, confirmed my investing and retirement goals, prepared the Personalized Investment Strategy, all for no charge. He was not overly pushy or sale-oriented. 

Sign Up for Personal Capital

Personal Capital Advisors Cons

You need $100,000 of investable assets to use the Personal Capital advisors paid advisory service. The plat form is designed for the mass affluent client.

The asset allocation recommendation for someone 10 years from retirement seemed aggressive with 26% allocated to bonds and cash and 74% in stock assets.

I’m unsure of the research that supports the thesis that an equal sector weight portfolio outperforms the market capitalization weighting of the S&P 500. Additionally, there are flaws with back-testing a theory, and it doesn’t guarantee that the results will play out accordingly in the future. Well-regarded endowment fund manager, Ben Carlson, CFA wrote about his concerns with this approach on his blog, A Wealth of Common Sense in “The Equal-Weighted Sector S&P 500”.

There are other robo-advisors, with access to personal financial advisors with lower fees. Betterment Premium charges o.40% and includes financial advisor access. Vanguard Personal Advisors requires a $50,000 minimum investment, offers advisors and charges a 0.30% AUM fee.

Bonus: Five Robo-Advisors with the Human Touch

Personal Capital Summary

There’s no doubt that the Personal Capital dashboard, cash flow, retirement planner, investment checkup and investment analyses are invaluable tools for the consumer. For the investor looking for a financial planner, the fees are reasonable. There are no future return guarantees for any investment approach and only time will tell if Personal Capital’s tactical asset allocation plan beats a more conventional market-weighted investment approach. In fact, no robo-advisors have proven their worth during a down market.

We recommend signing up for the free service, speaking with the investment advisor and deciding whether the paid service fits in with your personal investing needs.

Read: Personal Capital Review – Why You Must Sign Up for Personal Capital – Part 1-for an overview and drill down into the easy set up. Learn about the model from Bill Harris, the founder.

Read: Personal Capital Review-Comprehensive Financial Management-Part 2 – to find out everything you need to know about Personal Capital cash flow and investing tools.

Read: Best Personal Capital Review – Personal Capital Advisors – Part 3 – to uncover the fee structure, advisory services and investment philosophy.

Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t personally believe is valuable.

 

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Barbara A. Friedberg, MBA, MS

Barbara A. Friedberg, MBA, MS

2 Comments

  1. Andreas Mai
    May 7, 2018 at 11:51 am — Reply

    Entrusting Personal Capital with our nest egg cost us years of retirement savings!

    You may say that it was our own fault not to catch Personal Capital’s abysmal investment performance earlier. However, allow me to share our costly lessons to help prevent others from losing money with Personal Capital:

    • Over the last 3 years, Personal Capital’s “smart portfolio management strategy” performed 60% worse than market.
    • Personal Capital’s “tax optimization” produced higher returns on our taxed account and lower returns on our tax deferred IRA account.
    • Personal Capital’s “lower fees” consumed 18% of the returns they delivered.

    During a turbulent time of job changes, founding our own company and multiple family health emergencies, we decided to entrust Personal Capital to manage our money. Personal Capital advertised a good story with a convincing webpage: “We act in your best financial interest and optimize risk & return on your behalf. We do this through our smart portfolio management strategy and Smart Weighting™ approach.”

    Our experience was much different and cost us dearly. From 2015 until we canceled our accounts in 2018, the portfolio Personal Capital managed for us earned 4.9% annually. This is significantly lower than the risk adjusted “moderate historic” ROI target of 8.3% Personal Capital advertised and even worse in one of the best bull markets for a long time that easily returned more than 12% each year during the same period.

    When we confronted Personal Capital with this significant performance gap, they responded that our “claim was without merit: As written in our “Client Agreement” [..], it is explicitly stated that you understand that (a) investment results cannot be guaranteed, (b) past performance may not be indicative of future results, and (c) your investment decisions on my behalf may be different than I or other investment managers would have made under the circumstances”.

    The objective observer may realize the irony of this response in one of the most bullish markets we had in years.

    In retrospect, we made another peculiar observation, the consequence of which we only now understand too well. Overall, Personal Capital has great analysis tools and a nice user interface. However, the key analysis tool that is standard with any other broker we worked with, is suspiciously missing on Personal Capital’s webpage: The portfolio performance compared to generally accepted benchmarks.

    After Personal Capital unduly delayed the immediate liquidation of our accounts we had requested, we transferred our accounts to another institution. As a result, we had to liquidate nearly 100 micro-positions ourselves, a time consuming and costly affair. Noteworthy, but in line with our overall experience, Personal Capital refused to reimburse us for the related transaction fees.

    However, our losses with Personal Capital did not end there. Personal Capital claims: “Tax optimization – We do this by applying tax loss harvesting, reallocating assets to tax-deferred accounts, and helping you realize higher yields in your retirement account”

    When we liquidated our underperforming IRA and taxed investment accounts, we realized that in addition to the abysmal underperformance, the gains had actually accumulated mostly on our taxed accounts, while the performance on the tax deferred accounts was even worse. Hence, in addition to losing years of retirement savings, we now have to bear the cost of Personal Capital’s failure to optimize and reduce tax.

    Adding insult to injury, we paid Personal Capital sizable fees for their abysmal investment performance. Personal Capital advertises: “We have much lower fees than traditional brokers”.

    18 Percent of the total return Personal Capital made for us was consumed by the fees Personal Capital charged us over the years. Bottom line, Personal Capital has a one-sided business model: They can invest their customer’s money anyway they like. They do not hold themselves accountable for their advertising and for the results of their investment strategy. They refuse and obfuscate any comparison of their investment performance with generally accepted investment benchmarks. Independent of investment performance, Personal Capital claims sizable service fees. Good deal for Personal Capital, an abysmally bad deal, at least for us!

    Our recommendation: Check the performance of your holdings with Personal Capital against the relevant market benchmarks today! Otherwise, you may end up losing like us.

    • May 15, 2018 at 11:49 am — Reply

      Dear Andreas,

      We are so sorry to hear of your poor experience with Personal Capital. I certainly agree with your final statement, to check the performance of your investments against relevant benchmarks. It’s unfortunate that the returns weren’t what you expected and the taxable gains were mostly in your non-retirement account. There is an excellent resource that compares all of the actual returns of many robo-advisors and you can subscribe here: https://theroboreport.com/.

      How are you investing your money now?

      We wish you better returns going forward.

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