Personal Capital Review: Investment Services Pitch

Personal Capital has been getting some buzz around the personal finance blogosphere because of its identity as a technology company (and because it pays high commissions to bloggers for leads). If you sign up for free and link your account information, Personal Capital provides a tool for visualizing investments as well as tracking your spending. It is similar to Mint but way better on the investment displays and such. So that is all great and free, but Personal Capital is also an investment advisory firm. If you link up over $100k in investments, one of their advisors will pitch their services to you.

 

PC pitch

 

Kyle and I mistakenly made it past Personal Capital’s $100k cutoff, so we took a few meetings with our pitch person/advisor, Brian. And I have to say, he did a good job. I went from being sure we wouldn’t sign up to excited about their services and really considering it. I’ll tell you about a few aspects of their service that we took note of – because we liked or didn’t like them – and, at the end of the post, whether we decided to invest through Personal Capital. Remember that they were pitching a specific investment formula to us based on our age and risk tolerance (4/5) and this review is based on my memory and some provided materials.

 

Either way, though, I think that you should sign up for the Personal Capital dashboard (if you have investments) and let them pitch you (if you’re eligible and you are capable of saying no). (Yes, if you have more than $100k in investments and you go through a link in this post I will get a commission, and I thank you if you decide to use it! Click Here to Join Personal Capital Now! ) It was really interesting to get their opinion on our current investment strategy, beyond the dashboard evaluation tools, and hear about how they would invest our money. It was a little financial lesson that really got Kyle and I talking over some investing nuances afterward, which was great!

 

What we like about Personal Capital’s pitch for us:

 

We get unlimited access to two advisors, and they will talk with us about anything about our finances, not just the money we have invested with them. For instance, I asked Brian if he thought we should pay off my lower-interest student loans, and he gave his recommendation. I like that our account will be handed by two people because of the possibility for turnover. Also, since they are following a specific investment algorithm, all the advisors are giving consistent advice (no lone wolves).

 

While our current portfolio is not grossly misaligned with their recommendations, I did agree with the areas that they suggested tweaking. Really, it was the dashboard that helped me see that our current investments are a bit more conservative than we would like. They wanted us heavier into small- and mid-cap stocks, which we also agree with.

 

They coordinate across your accounts. Kyle and I are considered a unit, so they don’t have to create identical allocations under my name and his separately (and in fact wouldn’t because we don’t have $100k individually). We don’t at the moment have any money in workplace-based retirement plans (which they can’t manage), but when we do they will advise us on what to choose and compensate within what they do manage to make the whole portfolio align with their plan as best as possible. They also take in to account what investments should be in Roth vs. traditional pieces of the portfolio as well as taxable and non-taxable. Kyle and I haven’t gotten to the stage where we need that kind of analysis, but when we do I’m not sure we’ll be up for doing it ourselves.

 

What we don’t like about Personal Capital’s pitch for us:

 

Their investment model within the US equities segment is a bit strange and unfamiliar to us. They buy single stocks in each of ten sub-asset class, about seven in each for our size of portfolio. This is a big reason for their account size minimum. The sub-asset classes are all equally weighted, which means that they are skewed away from the hot market segments of the given moment. That part I like fine, but I wasn’t convinced of the theory behind just equally weighting these classes as opposed to any other weighting, and I wasn’t clear on how they decided on these ten sub-asset classes and not some other ones (#11?). This equal weighting strategy has been back-tested over a couple decades and apparently does well, though. It’s more empirical than theoretical, I suppose.

 

I’m not convinced they are passively investing. When we told Brian that we ascribe to a passive investing strategy, he assured us that Personal Capital passively invests. But when describing their stock selection and monitoring process, I definitely got a whiff of an active strategy. It may just be that I need to better understand how active vs. passive investing actually plays out… More on that in a future post, perhaps.

 

They want us 10% in alternatives, which seemed high to me. Particularly alarming was having 1.6% in gold. I just don’t know very much about alternatives but from what I have read 10% is about the ceiling.

 

Because they buy single stocks, we can’t invest small amounts of money throughout the month like we do now with our index funds. Basically, we would probably only buy into the market once per month instead of 4-6 times like now.

 

Because they have this minimum account size for applying their methodology, the recommendation is not very personalized, at least not until we have multiples of $100k that we want to invest in different ways. There were two areas where that disappointed us: 1) Kyle’s risk tolerance is a 4 and mine is a 5, and there is no option to split the difference. 2) We can’t have different time horizons for our money, so we can’t invest our retirement money under one strategy and our mid-term money (student loan payoff and house down payment) under another strategy.

 

Lastly, and neither in the like or dislike column, is their fee, which for a small account is 0.85% plus the ETF fees (low – hundredths of a percent). That is low for the type of service we would get (assets under management, access to advising) but obviously much higher than what we pay now.

 

In the end, we decided not to sign up with Personal Capital’s investment services – for now. (We will continue to use the dashboard.) The main immediate reason is that we want to keep our student loan payoff money invested more conservatively than our retirement money, and without that chunk of our investments we don’t meet Personal Capital’s $100k minimum. The less immediate reason is that I’m not too enamored with their US stock investing strategy; I think it would take a lot more research on my part to convince me of its virtues (if ever) over those of index funds.

 

I am really glad we heard Personal Capital’s pitch, though, for two reasons: 1) I can use some of what we leaned about their investing strategy to improve our DIY approach. 2) We are now interested in seeing what other tech-savvy advisory firms with low minimums would do if we invested through them, so we are considering hearing some other pitches! Stay tuned for news on that front. It is possible that we will circle back around to Personal Capital in 6 or 12 months when we meet their $100k minimum in our retirement accounts if we don’t find another firm that better aligns with our desired strategy.

 

I hope you all enjoyed this review! I’m not trying to sell Personal Capital (though I will gladly accept referral commissions) so that’s why it is my personal take on the pitch we received instead of more general research. Our thought process in evaluating this pitch may be of interest to some, either to learn from or to criticize! I do encourage you to check out what Personal Capital has to offer, as long as you can withstand (mild) sales pressure.

 

 

Have you heard sales pitches from one or more financial/investment advisors? Have you found an advisor or firm that manages your money in a way that pleases you? What do you think about equally weighting various classes of US stocks with only about seven stocks per category?

 

Written by

Filed under: investing · Tags: ,

17 Responses to "Personal Capital Review: Investment Services Pitch"

  1. Mrs. PoP says:

    Yeah, I think we’re one of the only pf blogs without a Personal Capital referral link on our site and that’s because we weren’t big fans of the software or the sales pitch. Maybe it’s gotten better from when we tried it over a year ago, but I wasn’t really impressed. =/
    Mrs. PoP recently posted..The 80/20 Rule At Work In Our Kitchen

    1. Emily says:

      I doubt it’s changed much in that short time. Care to share more details in your experience? Did you pick up on the same things I did or different ones?

  2. Fiby says:

    I don’t quite get their domestic strategy either. There only buy 70 stocks? And 10% in alternatives? The Boglehead in me is shaking his head.

    And their fee is 0.85%? That’s not worth it for something that you can and have been managing yourself. Assuming an overall expense ratio of 0.90%, and an annual return of 8%, in 25 years you will have kept 76.5% of the raw return. Instead, with an overall expense ratio of 0.05%, and the same annual return, in 25 years you will have kept 98.5% of the raw return. That’s a $22,500 difference for an initial $100k. And the cost will only get worse as more money is invested with an expense ratio of 0.90%, and as you extend the time horizon.

    1. Emily says:

      The 70 stocks overall didn’t bother me as much as having only 7 in each category. I didn’t deeply look into it, though.

      I don’t mind paying a fee if I’m sure I’m getting something I can’t do myself. But since I do feel I have some level of competence, it might be a bit difficult for an advisor to convince me she can do better, especially since we’re likely to stick with index funds. I figured that we would be paying about $1,000 per year for some of the fringe benefits like access to an advisor and across-accounts coordination, which we can probably just pay for a la carte from a fee-only advisor if we want.

  3. I’m also good with Bogleheads.. Honestly if I want to pay any sort of passive-investing fee for an algorithm, I will just stick with a Vanguard target-date fund. They’ll rebalance for me and everything and I never have to talk with anybody or think about anything again until it is time for me to start withdrawing money.
    nicoleandmaggie recently posted..My sister should buy a new washing machine

    1. Emily says:

      We are in target date funds for retirement right now, which we’re not entirely happy with. But yeah, there is a big jump in fee from a target date fund to an investment advisor! I like having our investments on autopilot, though.

  4. This was really interesting. I think I’m a passive Vanguard investor forever, but I’m curious about how other people do things and the thought process, and you brought up several things that I wouldn’t have thought of — the 10% in alternatives, especially, sounds sexy as a potentially “safer” alternative to stocks but also more interesting than boring old bonds; but actually it is not very practical, I think.

    1. Emily says:

      I’m sure we didn’t pick up on everything noteworthy in the pitch, which is why I’d like to hear from others who have gotten into the process. I don’t mind the idea of alternatives generally, but that much gold in particular was kind of a red flag to me, and the overall portion was on the high side. It is an area that I’d like to look more into. I think they are using it as another asset class that is uncorrelated with stocks, but as you said not as low-performing as bonds.

  5. Leigh says:

    I spent this whole post hoping that you guys didn’t decide to go with them and then sighed out of relief when it turned out that you didn’t. Stock picking? Really? If I was to pay an investment service, it would probably be something like Betterment that is essentially a customized target date fund. Like you guys, I also really like being able to invest however much or little I want at any given time. I also like not needing to do research and wait on things to be able to invest each time, which is what is nice about index funds and having a plan.

    I avoided all of their calls and did not respond to Personal Capital’s sales pitch at all. I’m happy with my index funds.

    1. Emily says:

      Lol tell me how you really feel! I’m glad we dug in a bit into the domestic equities strategy with our questions. There are aspects of it that seem passive, but not completely. Hearing their description of what they do and that they called it passive really made me start thinking about what is active vs. passive investing. Hearing you use the term ‘stock picking’ really doesn’t seem right to me, but I can’t put my finger on why! That alone is a reason not to go with PC, though, if I don’t fully understand what they are doing, and of course it is somewhat proprietary.

      Even though we decided against investing with them, I do think it was good for us to hear what they had to say. Kyle is not involved with this subject matter as heavily as I am, at least not recently, so it sparked a lot of discussions between us that were really interesting and fruitful.

  6. I’m interested in their dashboard evaluation tools, where you can see all your finances in one place. That would be helpful to gain insight into how your money is spread out. Might just check it out.
    Brian @ Luke1428 recently posted..Would You Use Cheap Toilet Paper For a Penny?

    1. Emily says:

      Yes, I found those tools really insightful, especially as we are managing across a few funds for some different goals.

  7. Liz S says:

    I was also relieved you didn’t go with PC! I spent a lot of time last year reading books that take a deeper dive into the math of investments (Benjamin Graham’s “The Intelligent Investor” and William Bernstein’s “The Intelligent Asset Allocator” were really useful).

    At some point last year, I set up my accounts in PC to give the site a try and was surprised to see the “efficient frontier” diagram for my investments. The concept is theoretically correct – maximizing returns for any given risk profile that you decide is acceptable – but impossible to chart in practice, unless you assume that past performance will predict future returns. Both of these books covered this exact fallacy in great detail, which really made me reconsider everything PC suggests.

    This is the same reason why backtesting any weighted mutual fund that you can imagine against the past 10 years of returns is problematic. If you take 10 years of data and design an algorithm that performs well based on that data, of course it performs well when backtested with the same data. The real problem is that nobody knows which asset classes (including alternatives like gold and commodities) will be relative winners and losers in the future. Also, comparing an equal-weighted sector index against the S&P 500 is not a fair comparison because the S&P 500, by definition, is only large-cap stocks. So if you use years where small-cap and mid-cap stocks outperformed large-cap (such as the past 10 years), you’ll see that trend. But nobody can predict whether that will hold true over the next ten years, and claiming otherwise is market-timing, in my opinion.

    Also, the equal-weighted (vs. market cap-weighted) index fund idea is not new: http://www.spindices.com/indices/equity/sp-500-equal-weighted. Some years indices like this outperform the S&P, other years they don’t.

    A couple more points: PC says they need a $100k minimum because of buying individual stocks. That doesn’t quite make sense because you can buy fractional shares of stock at almost any brokerage (although due to per-trade fees, this is more expensive for smaller purchases). My much more cynical observation is that .95% of $100k is $950, which must be near the break-even point where PC earns more money than it spends advising you that year. 1% in fees might sound small but it’s actually pretty significant over a lifetime of investing: https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-cost

    Sorry for the long comment, just had lots of thoughts to share!

    1. Emily says:

      Thanks for those book recommendations! I haven’t read an investing book in quite some time so I’m sure it’s time for a refresher.

      I was also suspicious of the backtesting strategy and questioned Brian about it quite a bit. I feel more comfortable with testing a model against the whole history of the stock market instead of a few decades (future != past), but Brian’s answer to that was that the 10 categories would have changed before that point. I also questioned how the model might evolve in the future, and his answer was basically that it probably won’t but it’s possible.

      I definitely am a fan of low-cost investing, but am open to paying fees if it really means that the return will be better or I’m getting a good price for the extra services (advising). In this case with PC I just wasn’t convinced of that – and I’m not sure if I can be convinced since I’m such a fan of index investing!

      Thanks for your great comment!

  8. Emily, I have a question on personal capital. How soon can I get access to my money if I need it? And, honestly I wanna know what your investment philosophy is.
    Jayson @ Monster Piggy Bank recently posted..Having Work Experience Matters

    1. Emily says:

      Good question and I don’t know the answer to it! I would think it would be quite fast – a few days? – but I’m not sure.

  9. […] mind and wants to keep the payoff money invested. No small part of this change of mind came from a conversation with a Personal Capital advisor; we have been considering using their investment management services. When we asked what he would […]

Leave a Reply to 3… 2… 1… WE’RE STILL IN DEBT! - Evolving Personal Finance | Evolving Personal Finance Cancel reply

*

CommentLuv badge