Founded in 2009, Personal Capital is based in San Carlos, California, in the Bay Area. You can think of the business as the equivalent of investing in a nightclub that allows you to get into anyone, but to get into the VIP section, you need cash (at least $100,000).
Personal Capital offers free and respected financial planning tools for anyone who wants to get their financial accounts in sync. However, the company tries to sell its financial and investment advice services to people who use its tools.
Personal Capital lists Harry Markowitz on its website as a "Portfolio Strategy Specialist." Markowitz won the Nobel Prize in 1990 for his Modern Portfolio Theory (MPT).
Used by many leading robot advisors, MPT attempts to minimize risk while maximizing return.
How does Personal Capital work?
Whether you use Personal Capital's free financial planning tools or decide to invest with the company, setting up your account involves the same initial steps.
The site will attempt to set you up with a financial adviser whether or not you plan to invest, the start of what some consider to be difficult sales tactics.
Digital businesses that involve money (insurance, banking, investments) often make integration as easy and fast as possible. But you need to spend some time setting up personal capital.
To get the most out of its free tools, you'll need to connect each of your financial accounts one at a time, including checking, savings, credit cards, loans, and investments.
Here are the steps you should take during the onboarding process, whether you're interested in free planning tools, investment and financial advisory services, or both:
- Submit your email and phone number and create an account password.
- Enter your name, age, retirement age and the amount of money you have saved for retirement.
- Synchronize all your external financial accounts.
- Make an appointment with a financial advisor. It is possible to avoid it, but Personal Capital is pressing you.
- If you are considering investing, there are additional steps:
- Check your identity.
- Link the bank account you will use to fund your personal capital account.
- Transfer titles from other platforms if necessary.
- Fill out a questionnaire about your risk tolerance, investment objectives and time horizon.
- Host a web conference with an advisor to discuss your responses and obtain additional information that Personal Capital will use to suggest a portfolio allocation for you.
Free financial planning tools at Personal Capital
For most of their clients, and probably most of the people reading this Personal Capital review, this is the right thing to do.
Once you sync all of your financial accounts with the Personal Capital website, you'll get a free dashboard that's a visual data lover's dream.
Non-paying Personal Capital clients have access to a suite of free financial planning tools.
Let's take a look at some of the individual components of this dashboard and the tools that Personal Capital offers.
1. Fairness
In a way, this is an empty statistic: how much money am I worth right now today? It is also an indicator of your financial health, especially when you have followed it for long periods of time.
Personal Capital takes your assets (bank accounts, investments, real estate) and debts (mortgages, credit card debt, student loans, and car loans) and gives you a solid estimate of your current net worth, presented in graph form.
Ideally, this tool can encourage you to pay off your debts. But its accuracy depends on connecting all the accounts you have in Personal Capital. And it can drive you crazy to review daily, especially if you have a lot of money tied up in variable assets like stocks.
2. Retirement Planner
Personal Capital's retirement planner helps you stay on top of your monthly savings goals.
It's up to you to decide what specific retirement goals, like how old you'll be when you stop working and how much money you want to spend each month in retirement.
However, once you've set your goals, Personal Capital's retirement planner can do a great job of keeping you on track and monitoring your progress.
Personal capital will tell you how likely you are to achieve your goals (expressed as a percentage), including retirement age, retirement expenses, and even things like buying or renovating a home.
The tool incorporates predicted future income events such as starting Social Security, collecting a pension, and downsizing. It makes assumptions about your taxes, life expectancy, and investment returns, although it can adjust for these factors.
You can even play Personal Capital's recession simulator, which shows the impact of historical recessions on your portfolio.
Overview: Personal Capital's retirement planner helps you understand if your current savings rate matches your long-term goals.
3. Investment/portfolio review
This tool sorts your entire portfolio, including any external accounts you've linked, by asset class. And then tells you if your current portfolio differs from Personal Capitals' recommended allocation.
For example, if you have 1% of your portfolio in bonds and Personal Capital recommends 15%, it will suggest reallocating to include better ones. You can also get these numbers in dollars (ie "increase US stocks by $14,200").
If you prefer to manage your own investment portfolio, this can be especially powerful as a free tool. You can take Personal Capital's automated recommendations literally or use them to rethink or revise parts of your strategy.
4. Investment Rate Analyzer
As I mentioned at the start of this Personal Capital review, Empower Retirement, which acquired Personal Capital last year, has positioned the brand as a landing spot for people making their 401(k)s.
This tool is an extension of that brand. It looks at your current job-sponsored retirement plan or portfolio that your financial advisor created for you and shows the following:
- Your annual fees.
- Your annual employer correspondence.
- The annual growth of your plan.
- The fees (expense commissions) that you pay annually.
Number 4 seems to be the focal point of that tool. Personal Capital calculates the actual dollar amount you pay in fees each year for each mutual fund and ETF you invest in.
It also tells you how much you'll pay in installments over decades and how many years of retirement income it will cost you. Of course, part of Personal Capital's message is that you could probably save money by investing with them.
5. Cash flow
Classifying your expenses has become the norm for financial institutions. For example, my bank and several of my credit cards offer similar online tools.
The key to making Personal Capital's cash flow tool more useful is to link each of your financial accounts. This can make tracking your spending through Personal Capital more interesting.
Your bank or credit card also offers it, but you can only use this account for bills or restaurants (because you can claim rewards).
The Personal Capital tool has its limits. If you pay something with cash or through an account that you're not logged in to, you won't be able to capture this information. So if you care about counting every dollar, you might be better off doing it in a spreadsheet or accounting software.
6. Budget
Full disclosure: I did not personally create a monthly budget with the Personal Capital budget tool.
But I keep reading and hearing the same criticisms: 1) some features don't apply for use on mobile devices and 2) there is no built-in bill payment feature.
Personal capital focuses on investment and retirement. But if you want to use it to identify key spending issues (win on food delivery since the start of COVID-19?), it's useful this way.
What does the paid version add?
We've established that Personal Capital's free financial planning tools are comprehensive. So is there anything additional to the tools if you become a paying customer?
Yes. If you invest through Personal Capital, you'll get additional resources, including tracking or help with:
- college savings
- Warranty
- real estate financing
- Stock options and compensation
- private banking services
- Construction of the succession/inheritance portfolio
How much does personal capital cost?
Advisory fee Weighted average expense fee Minimum deposit Annual return account type
0.89% 0.10%* $100,000 9.06%* Tax, retirement, trust
It's free if you just want to use Personal Capital's financial planning tools. However, if you want to invest, you'll need at least $100,000 to get started.
Personal Capital does not like to be associated with robotic advisors, which would make them look crazy with an annual fee of 0.89%. That's right, because Personal Capital is what we call a "hybrid financial advisor" (this includes access to full-service human financial advisors).
When it comes to investing, Vanguard's personal advisory services are more of a competitor to Personal Capital than a pure robotic advisor like Wealthfront. If you compare the 0.89% rate to a typical human consultant (typically 1% or a little less), this is cheap. However, even compared to other hybrid advisors, personal capital is quite expensive.
Vanguard's PAS charges just 0.30% with almost exactly the same five-year annualized return (9.00% for Vanguard vs. 9.06% for personal capital).
In addition, Personal Capital's $100,000 minimum investment requirement is not enough to give you access to many of the basic functions of the business. There are three levels of service:
Investment Services ($100,000-$200,000): Exchange-Traded Funds (ETFs) only. It includes access to financial advisers, but you don't always work with the same person.
Wealth Management ($200,000 to $1,000,000): Access to two dedicated financial advisors. Opportunity to invest in individual shares. Free consultations with experts on topics such as real estate and stock options.
Private client (over US$1 million): access to invest in private equity funds and hedge funds. Possibility of investing in individual bonds. In-depth personalized advice on topics such as estate and estate planning.
The annual fee decreases as your investment level increases. This is the commission structure for large accounts:
- 1-3 million dollars: 0.79%
- 3-5 million dollars: 0.69%
- 5-10 million dollars: 0.59%
- $10 million or more: 0.49%
Personal Capital Review: Where It Shines
Personal Capital Review: Free financial planning tools and portfolio customization are two of Personal Capital's strengths.
After reviewing Personal Capital, here are some of its strengths:
Great free financial planning tools. The vast majority of Personal Capital users are non-paying customers. The company's free, visual, step-by-step financial planning tools are some of the best you'll find.
The services of financial advisors go far beyond investment. The firm's advisors can help you with retirement, tax and estate planning, refinancing and even obtaining a mortgage. In this way, Personal Capital is more like a full-service financial advisor.
Useful to monitor/optimize retirement investments. Personal Capital's free financial planning tools are effective at guiding you toward your retirement goals by tracking your progress.
Their payment advisory services allow you to get even more personalized advice on how to optimize your retirement strategy.
Extraordinarily customizable portfolios . Personal Capital's portfolio options are much more customizable than the average robotic advisor and even the average hybrid financial advisor. Clients can even invest in individual stocks and bonds at certain investment levels.
Personal Capital Review: Where It's Not Enough
Personal Equity Review: With a minimum of $100,000 and an annual fee of 0.89%, Personal Equity can be considered expensive.
After reviewing Personal Capital, here are some of the drawbacks I found:
Relatively expensive administration fees. Personal capital charges 0.89% per year. It's a good price compared to full-service financial advisors, but expensive compared to other hybrid financial advisors (automated digital investing with access to human financial advice).
Important minimum deposit . You will need to invest at least $100,000 to become a customer. You will need to increase this number to $200,000 and then $1 million to unlock important features.
Frequent request reputation. Personal Capital has a reputation for using your personal information to contact you for the purpose of offering its investment products and financial advice. And there are user complaints that are most often directed at high-value people.
Low-interest cash management accounts. If you're a paying customer, you can earn 0.10% APY through Personal Capital's cash management account. This is 25% of what Betterment currently offers. If you are not a customer, you will receive an APY of 0.05%.
Personal Capital also does not offer debit cards or bill payment features.
The budget tool is not the most powerful . Personal Capital's financial planning tools deserve high praise. I will give even more in the next section of this article.
However, its budgeting tool has been criticized for not being as powerful as Mint and others, and also because some of its features aren't available on mobile.
Extra and additional features provided by Personal Capital
When I reviewed Personal Capital, I found that the company offers its users the following additional features and extras. Keep in mind that you will only benefit from some of them if you are a paying customer.
1. Advantageous tax strategy
Personal Capital uses direct indexing: buying individual securities instead of indices. This allows you to sell losers to offset tax liabilities.
The company also distinguishes between assets it wants to include in IRA portfolios (such as mutual funds) and taxable portfolios (such as ETFs) based on tax implications.
2. Line of credit
Personal capital allows paying customers to apply for loans against their accounts.
As you might expect, larger accounts earn better interest rates. But the typical interest rate ranges from 1.5% to 3.5%.
Money expert Clark Howard tells people to save before investing. This way, he can pay for unexpected expenses with his emergency fund instead of borrowing money.
However, if you need to borrow money, paying less than 4% interest is better than the rate you'd get on a high-interest credit card.
3. Cash management account
Personal capital allows anyone to earn interest and perform certain banking activities. However, it only pays 0.05% interest to clients who do not invest and 0.10% to clients who invest with Personal Capital.
It offers $1.5 million in FDIC coverage, which is much more than the regular checking or savings account.
4. Educational content
This is way down the list of features that Personal Capital offers. Most of the top reviews don't even mention it. But Personal Capital publishes a blog with useful and educational investment content.
Some of its content is complex and higher level. But if you have enough patience to pass it, there are good things.
5. Home Buying Tips
As someone who has just started thinking about buying a home, this is one of my favorite features. It's also one of the things that differentiates the personal capital and wealth front when it comes to financial planning tools.
Personal capital will help you determine how much you can afford to spend on a home. You can even get financing through Personal Capital partners Pershing and Bank of New York Mellon.
However, Wealthfront goes a step further than personal capital by including data from real estate sites Redfin and Zillow to identify home prices and available properties in your area that you can afford.
Portfolio Strategy and Options
If you've looked at entry-level robo-advisors, you probably know that their "menu options" are often limited when it comes to investing in predefined portfolios. You'll get something that suits your situation pretty well but you're not usually allowed to customize.
This is certainly not the case at Personal Capital. The company offers 12 different portfolio allocations. And you can make almost unlimited changes to these options. If you deposit $200,000 or more, you can add individual shares.
With $1 million or more, you can add individual bonuses. You can also get help customizing your portfolio by talking to your financial advisors.
Personal Capital's portfolio options include socially responsible investing (SRI). Most of the best robo-advisors offer SRI in one form or another, but it's hard to do when you're investing via ETFs. Personal Capital's SRI strategy reaches the level of individual stocks.
The biggest thing about Personal Capital is "intelligent weighting," investing equally across sectors rather than following the S&P 500. The company claims it reduces risk and increases returns, which is essentially the Holy Grail of investing. .
When Personal Capital tested this strategy between 1990 and 2012, it produced returns 1.5% higher than the S&P 500. This is an extension of Markowitz's modern portfolio theory, which I mentioned earlier in this article.
Who should use personal capital?
If you're interested in free financial planning tools that specifically help you prepare for retirement, personal equity is a fantastic option.
The same is true if you have a lot of money to invest and you like the idea of getting financial advice integrated into this same set of world-class financial planning tools.
The fees are high, but if you have $1 million or more to invest, you'll get additional features and cheaper prices that can turn the cost/benefit analysis in your favor.
Personal Capital Alternatives to Consider
If you want complex financial advice from a human - advice that goes beyond investing - Vanguard's Personal Advisory Services (PAS) is Clark's preferred recommendation.
The PAS model, digital investing with unlimited access to full-service financial advisors, is very similar to Personal Capital. However, the PAS charges 0.30% per year instead of 0.89%. The PAS requires a minimum deposit of $50,000 versus $100,000 for personal capital.
With PAS, get a dedicated advisor when you deposit at least $500,000, but almost all advisors are certified financial planners. At Personal Capital, get two dedicated advisors for $200,000, but you must request a certified financial planner.
If you like a set of free, detailed, helpful financial planning tools and just want help with investing, Wealthfront is a fantastic choice. Their free planning tools rival those of Personal Capital. Their robot advisor only costs 0.25% per annum and the minimum investment is only $500.
If your primary goal is to hire a human advisor to help you achieve a wide range of complex financial goals, you may want to hire a traditional, full-service financial advisor. Just make sure that person is a quota administrator.
Conclusion of Personal Capital
Personal capital is a fantastic solution if you are not afraid of a bit of selling pressure and want to easily control your finances for free.
If you have at least $1 million to invest and want to take advantage of multiple dedicated advisors and additional customization of your portfolio, Personal Capital may also be right for you.
However, if you are simply looking for a hybrid consultant or robotic consultant, there are several much cheaper options available.