Personal Capital at a glance
Pros: Where Personal Capital stands out
Three tiers of high-touch service
Personal Capital offers three (somewhat confusingly named) tiers of service, depending on how much you bring to the table, with a lower management fee and more perks at each level. Here are some of the highlights at each tier:
- Investment Service – The entry-level plan includes access to a team of financial advisors that can aid with financial planning and review your investments. You’ll receive a personalized portfolio using only ETFs, tax optimization (more below) and rebalancing. For accounts from $100,000-$200,000.
- Wealth Management – In addition to the features in the first tier, the middle tier substitutes two dedicated advisors for the team of advisors and gives you access to specialists who can help with further decisions (such as insurance, stock options and compensation). Your portfolio can also include some individual stocks in place of ETFs. For accounts from $200,000-$1 million.
- Private Client – Besides the features in prior tiers, you’ll have access to further wealth planning services (such as for estate and tax issues), access to private banking, and may have your portfolio constructed with individual bonds and private equity investments, subject to enough assets. For accounts starting at $1 million and up.
This range of services, especially at the high end, is typically not offered at other robo-advisors. In fact, not very many robo-advisors offer access to human advisors as part of their standard package. But that’s part of the reason they’re called robo-advisors. They also don’t usually have such a large minimum to get started, and more typically require zero or just a few hundred dollars.
Sophisticated portfolio construction
Personal Capital constructs portfolios using ETFs, its own selection of individual stocks, and at higher service tiers, bonds and private equity investments. The access to private equity is restricted to portfolios with more than $5 million in them, however, and it’s a novel feature among robo-advisors.
Regardless of which tier you’re in, you’ll get access to what Personal Capital calls Smart Weighting. Think of this feature as a way to re-weight the holdings in your portfolio so that they deliver more return without taking on more risk. For example, in many traditional ETFs, the largest companies are weighted heavily, while small or medium companies are weighted less. This means you may be “over-indexed” (i.e. overexposed) to the largest stocks in the fund.
So Personal Capital re-weights your portfolio to eliminate some of this overexposure that may not drive higher returns. It looks at your holdings by industry, style (growth vs. value investing, for example) and the size of the companies in the portfolio. Smart Weighting more equally weights these three factors to deliver better risk-adjusted returns, says Personal Capital.
Personal Capital creates socially responsible portfolios using the same methodology, too, and avoids the relatively pricey ETFs offering similar products. To create them, the robo-advisor analyzes rankings on ESG factors (environmental, social and governance) from third-party evaluator Sustainalytics. It picks the top scorers and then weights them according to its proprietary methodology, and then this basket is used for a portion of the U.S. stocks allocation.
A range of useful tools
Personal Capital offers a large selection of tools to help you analyze your portfolio, see how much you might need in the future for a given expense, figure your net worth and many more. It’s great for anyone to check out, because even if you don’t become a client, you can use many of the tools, though Personal Capital does offer other tools exclusively to clients.
Some of the tools available include a net worth calculator, which pulls in data from your linked financial accounts, as well as a savings planner and a budgeting tool. You’ll also have tools for retirement planning, education expenses, and calculating fees on your mutual funds.
If you’re a client, you’ll have a few extras, including a financial roadmap and personal strategy tools. You’ll also be able to analyze your employer-sponsored plan such as a 401(k) to see how it aligns with your personal strategy developed by the robo-advisor.
Access to human financial advisors
One of Personal Capital’s strongest selling points is the access to financial advisors, and here you’ll have a team or two dedicated advisors (depending on your service tier). Together, you’ll develop a personalized financial plan, with the advisor acting as your ongoing point of contact, answering your routine and not-so-routine questions.
A financial advisor is valuable, in particular, for two major reasons: the ability to answer those non-routine questions and concerns, and the ability to get you to stick to your financial plan when times get tough in the market. And these are the issues that Personal Capital focuses on. In fact, its advisors are trained in behavioral coaching to help you maintain your discipline.
If a real coach can keep you to your plan during the hard times – when many investors sell their investments to avoid further loss and ultimately cost themselves gains later – then you may make back Personal Capital’s hefty management fee and then some.
Multi-pronged tax strategy
Personal Capital uses three strategies to maximize your total returns: asset location, tax-loss harvesting and using tax-efficient securities.
By placing assets in the most tax-efficient location – taxable accounts versus tax-advantaged accounts such as an IRA – Personal Capital estimates that it might increase returns about 0.3 percent annually through this strategy.
Tax-loss harvesting is the practice of selling losing investments to offset the gains in others. It’s a smart way to lower your tax bill, and Personal Capital estimates that you could add 0.2 - 0.4 percent to your annual returns.
Personal Capital also uses more tax-efficient securities, with ETFs instead of mutual funds. That’s not novel among robo-advisors, but what is notable is that Personal Capital may use at least dozens of individual stocks in portfolios at its higher service tiers. The use of stocks allows tax-loss harvesting to generate more savings, or what’s called stock-level tax-loss harvesting.
Stock-level tax-loss harvesting is a prominent feature of Wealthfront’s robo-advisor service, too.
Personal Capital brings a lot to investors – sophisticated portfolio construction, optimized tax-loss harvesting, and high-touch access to advisors. The question is whether the fees are worth those benefits. One of the biggest differentiators here is the access to qualified human advisors, so if that’s a real perk for you, Personal Capital may be a good fit.
But if you’re looking for access to advisors, you should also look at Schwab Intelligent Portfolios, which offers unlimited access to human advisors for a flat monthly fee. Betterment offers access to advisors as part of its premium tier of service, or you can buy à la carte access when you need it. Ellevest also offers a flat monthly rate with à la carte pricing for human advisors.
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