Investing

Personal Capital Review: Finance Software for Wealth Management

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Personal Capital is an interesting platform that could do a lot to simplify your financial life. Like many new software platforms, Personal Capital uses a freemium model that allows you to use parts of it for free, while others will require that you apply for the service, and have a substantial amount of money on-hand to invest.

If you are looking for a way to keep track of all your bills, spending, and investment accounts, Personal Capital is probably the best choice you have. The platform is great, and it offers all the tools you need for zero cost.

For people that don’t mind making their own investments, learning more Personal Capital is probably a very good idea. Personal Capital takes the ideas that earlier platforms like Quicken developed, and takes them to a whole different level.

If you are fairly well-off, Personal Capital has other services that you might find interesting. While the vast majority of Personal Capital’s tools are free to use, its Wealth Management service will require a minimum deposit of $100,000 USD.

Don’t let that big number scare you off, because anyone who saves and invests can take advantage of a very deep feature set that Personal Capital offers people for free. You will have to connect your accounts to its platform to use it, but once everything is connected, Personal Capital makes managing your money simple.

Visit Personal Capital

Personal Capital Offers People a Lot for Free

Personal Capital has grown rapidly to manage more than $8 billion USD. That doesn’t include all the people who use their platform for free and manage their money with a super easy to use platform.

Personal Capital Website

Before we jump into how to set up an account, or what the company’s Wealth Management service is all about, let’s look at all the features that Personal Capital will let anyone access for absolutely no money.

  • Budgeting  Personal Capital offers some amazing budgeting tools that will help you keep track of where your money is going on a near-real-time basis. The Cash Flow Analyzer Spending tool is only available on the free app, but it will give you a comprehensive view of how you spend money every day.
  • Education Planner If you are planning to pursue higher education, Personal Capital can help you compare the cost of education at numerous universities across the USA. It will help you to save enough money to meet your educational goals so that you have sufficient funds while you attend a university that you can afford.
  • Retirement Planner If you are wondering if you are on track to meet your retirement goals, the Personal Capital retirement planner can help you a lot. The retirement planner is available on the website interface, as well as the iPad app. The planner takes into account numerous factors, so you have a good idea if you are doing the right things to retire on-time.
  • Retirement Paycheck Once you have your retirement accounts together, you will need to withdraw the money in the most tax-efficient way possible. Personal Capital created the Retirement Paycheck tool so that you can find the best way to withdraw money from your retirement accounts, and meet your financial needs.
  • 401(k) Fee Analyzer While most of the features that Personal Capital gives you are free, your 401(k) plan will almost certainly have fees attached to it. If you want to know how much the fees charged by your 401(k) provider are costing you, the 401(k) Fee Analyzer will be a big help. For people that have complex 401(k) plans, this tool is a great way to make sure your retirement savings grow as efficiently as possible.
  • Investment Checkup If you want to make sure that your investments fit your risk preferences, the Investment Checkup tool from Personal Capital will help you find the right mix of risk for your portfolio. The Investment Checkup tool will learn about your investment goals and then look through your portfolio. If it finds that your investments don’t fit your risk profile, it will let you know!
  • Asset Allocation Target The Asset Allocation Target tool from Personal Capital will analyze all of your equity holdings, and make sure that you aren’t over or underweight a category that could compromise your risk profile. This tool is really handy for people who have a wide range of equity holdings, and can’t keep track of them all at once.
  • Upcoming Bills Personal Capital will let you know about any bills that have to be paid so that you can set some money aside for them. It can be difficult to stay on top of all the spending you do on a monthly basis, and this tool will give you some time to prepare for regular expenses.
  • Email Notifications You can elect to have Personal Capital send you email updates about your portfolio on a daily or weekly basis. Super handy if you want to keep an eye on how your portfolio is performing.
  • Exclude From Advice As we will explain below, Personal Capital needs to be synced with any account that it keeps an eye on. After you add accounts, they will be used in all the features listed here. If you don’t want the platform to use an account in its analysis, you can shut it off with Exclude From Advice, which is a nice option to have.
  • Personal Capital Cash Personal Capital offers its users an FDIC insured savings account that will yield 2.25% per year. There are no fees, no limits, and no minimum deposit. The FDIC insures this account to $1.25 million USD, which is more than most bank accounts. If you are looking to park some cash in a safe place, this account is worth considering.

Ok, So How do I use Personal Capital?

The great part about using Personal Capital is that it is so simple to download and setup. All you have to do is choose a device & download the platform, and start linking accounts.

You can link all of your retirement, investment accounts, checking, savings, mortgage, and credit cards so that the platform can create a detailed view of your financial life.

The free version is 100% free and provides a range of tools that can help you become your own financial planner. These tools are geared toward people that have been saving for a while, but they can be useful for younger people who want to start saving for their future as well.

Personal Capital Signup
Signup for an account for free

Syncing accounts with the platform is very easy, and most accounts will be automatically populated within the platform. If you have any questions about how to do it, Personal Capital has created extensive support information, but it is unlikely you will encounter any problems.

Great Tools for Lifetime Financial Planning

No matter where you are in your financial life, Personal Capital has tools that can help. The platform is especially good for people that have a more developed portfolio, and need to think about how to optimize it for the long haul.

The fees that retirement investment companies charge can eat up a lot of your potential to gain over time, and it is important to pay attention to how much you are spending on investment management. Most people are too busy making the money they need for their retirement, which is one of the reasons why many people pay too much for their tax-efficient investments.

The 401(k) plan replaced the pension for most people, but the way that a 401(k) is managed varies from company to company. Unlike a pension, the amount that you will receive from a 401(k) when you retire will vary based on not only the performance of your assets, but also how much you pay for plan management.

Link your Accounts

My 401(k) Costs How Much…?

Recent research has shown that in many cases, a 401(k) plan can actually lag behind regular brokerage accounts, even though they can grow without taxes. The reason for this is simple, the fees that 401(k) managers charge seriously erode returns over time.

The amount of money that US investors have in 401(k) and 403(b) plans has risen by around 75% over the last 11 years. There is more than 5 trillion USD sitting in these plans, but a third of plan holders don’t think they are paying any fees on their investments whatsoever.

Sorry to say, but there are certainly fees being charged on any 401(k) and 403(b) plan. These fees can cost you as much as a third (or maybe more) of the money that your retirement plan could have earned, and you won’t understand how this works unless you take a deep dive into how fees are charged on retirement accounts.

Taking Your Money off The Table

Personal Capital can help you to understand how much you are paying for your retirement accounts, and the potential losses these fees create over time. The fees that plan managers charge can be broken down into three categories, but you will need to check on your individual plan to make sure there aren’t any extra fees.

Investment Fees

It might seem strange, but all 401(k) and 403(b) plans will charge you an investment fee. The fees will generally break down into sales loads, expense ratios, and additional costs, but your plan manager can charge just about anything they want, so be sure to keep an eye on the bottom line.

Passive funds tend to be cheaper than active management, although both are generally more expensive than low-cost ETFs. In most cases these fees will be charged on a percentage basis, so if you have a lot of money in your retirement plan, the overall cost of these fees may be substantial.

Retirement Planning

Plan Administration Fees

In addition to the investment fees that you pay to whatever financial institution manages your retirement account, it will charge you for accounting, record-keeping, trustee and legal services in the form of plan administration fees.

Plan administration fees are often charged as a percentage of your total holdings, so the more you have, the more you pay.

Investment management institutions say that these fees help to supply clients with educational seminars, customer service representatives, and electronic access to plan information, the reality that that plan administration fees are a gold mine for the companies.

Individual Service Fees

If you decide to tap into any additional services from your 401(k) or 403(b) provider, such as a loan from your account, financial advisory services, or rolling 401(k) investments over to an IRA, you will be hit with individual service fees.

Individual service fees are dependent on what you want from your investment manager, but rest assured, they will be tacking on a fee for anything they possibly can.

Personal Capital Fees

So…How Much is This Costing Me?

Most of the fees that your 401(k) or 403(b) provider charges you are based on the amount you have in the account, so tacking down a specific figure is impossible.

Research suggests that an American with a median income will pay around $135,000 USD in fees to their 401(k) or 403(b) provider, which is around a third of the overall returns (assuming there were no fees).

Over a lifetime of savings into a 401(k) or 403(b) a person can expect to gain around 7% on their investments, with gains compounded as they grow. The problem is that fees suck up an average of 2.2% of these gains, with some plans eating up as much as 5%.

If you would like to remove some or all of the fees that you are currently paying to an investment manager, using a platform like Personal Capital can help you save a substantial amount of money. Instead of giving away more than $100,000 to a 401(k) or 403(b) management company, you could use that money to finance your retirement instead.

Using a Platform Like Personal Capital Can Help

How much difference can 1% in fees make in a retirement account?

How important is a decade of your retirement?

Recent research undertaken by Tom Zgainer shows that a 1% difference in fees roughly equates to a decade of your retirement. For someone who invests $100,000 when they are 25 years old, that same 1% is worth around $140,000 when they retire.

Said differently, if you are paying 1% in fees, you will have around $280,000 more than you retire than someone who is paying 3% over the term of their working life, and even more, if they are able to start with a larger amount of money.

Modern retirement planning is based on two assumptions: first, tax-efficient accounts will lead to higher amounts of money when you retire, and second, modern portfolio theory (MPT) is the way to save over the long-haul.

MPT has been doing well for savers over the last few decades, but the assumption that managed tax-efficient accounts may be wrong. The problem is that once your money is locked-up in a managed account, the fees could be doing more damage to your financial health than the taxes you would be paying.

Additionally, a 401(k) or 403(b) may not the ideal structure for retirement planning, as IRA or normal brokerage accounts have some advantages, especially when it comes to fees. If you work for a company that will spend a pile on matching your 401(k) contributions that is great, but those deals are increasingly rare.

A platform like Personal Capital can help you to see where your money is really going, and take advantage of the low-fee ETFs that exist today. Many of these ETFs are able to track the performance of major equity indices, and at a cost of well under 0.5% per year.

You will have to do marginally more work to stay on top of your portfolio and shift funds around as needed, but the difference in your portfolio’s value when you retire is well worth the effort.

For people that are nearing retirement Personal Capital’s free platform is also worthwhile, as it will help you withdraw money from your retirement accounts in the best way possible. Your 401(k) management company will likely do the same, for a small fee, of course.

Plans offered

Personal Capital Wealth Management

If you have $100,000 USD or more, you can opt to apply for Personal Capital’s Wealth Management service. The service is somewhere between a robo advisor and a financial planner, and it is worth learning more about if you have some savings that you don’t want to manage yourself.

Like many of the automated investment platforms that have hit the market, Personal Capital Wealth Management will start by assessing your risk tolerance. Once the service understands your financial goals, you will be given a number of investment recommendations.

Personal Capital uses the following asset classes for its wealth management clients:

  • Cash
  • U.S. Government Debt
  • International Bonds
  • Equities in Both International and US Market
  • Alternative investments, like real estate investment trusts (REITs) and commodities

The equity investments that Personal Capital makes will be spread across numerous individual companies or made via a low-fee ETFs. It also features ‘Tactical Weighting’ which has been shown to outperform the S&P500 by 1.5% per year via backtesting.

While Personal Capital doesn’t overweight a single company in your equity holdings, it does buy shares, so that tax-loss selling is possible.

Buying stocks on an individual basis is part of its tax-optimized equity strategy, which also includes holding ETFs that won’t generate high capital gains, as well as dividing asset classes between tax-efficient and regular accounts to limit taxation the greatest degree possible.

Personal Capital Wealth Management—The Rundown

If you have a minimum investment of $100,000, you can opt to invest with Personal Capital Wealth Management. It offers its clients low fees, especially on large amounts of invested capital, as well as a high degree of human management.

All funds will be held by custodian Pershing Advisor Solutions, which acts as a custodian to more than $1 trillion USD in wealth. Accounts are covered by deposit guarantees up to $500,000 USD for stocks and cash, with an FDIC guarantee covering $250,000 USD in cash.

Personal Capital also breaks down the range from $100,000 USD to $1 million USD into 4 groups, all of which offer increasing access to human wealth managers, as well as some other benefits. The big gains in service start at $1 million in assets on deposit, with the “Private Client’ level.

Fee Structure

  • Up to $1 million USD – 0.89% per year
  • First $3 million USD – 0.79% per year
  • Next $2 million USD – 0.69% per year
  • Next $5 million USD – 0.59% per year
  • Over $10 million USD – 0.49% per year

Personal Capital Wealth Management has a broad range of investment options, and the human advisers who are available to any client with more than $200,000 USD invested with the company are a great asset.

One of the biggest things to consider is how important access to human advisers is, as there are many other services out there that are essentially free to investors who deposit millions of USD.

Other Options to Consider

Personal Capital is a great platform, but it does have some limitations. Part of what makes it difficult to analyze is its two-tiered platform, as the free program fills a very different niche from its wealth management service.

Depending on what you are looking for, one of the other platforms listed below could be a better fit. Especially for people that want to use an automated investment platform and don’t have $100,000 USD allocate to an account.

Best Robo Advisors

Read: What are Robo Advisors & Which are The Best Ones?

Quicken

If you are looking for a budget planning platform that offers a lot of useful extras, Quicken is still one of the best ones around. Quicken isn’t an investment management solution, but it can easily be compared to Personal Capital’s free platform.

Unlike Personal Capital’s free platform, Quicken is made for creating budgets and offers clients a wide range of financial planning tools. It has some features that Personal Capital lacks, such as a bill payment service, and access to a credit score that is similar to a FICO score.

The only downside real to Quicken is that it isn’t free.

Quicken’s starter package will cost you $34.99 USD per year, and more advanced plans can cost as much as $89.99 USD per year. You will be able to shuffle a lot of financial data with Quicken, and it may be a better platform than Personal Capital if budgeting and financial planning are what you are looking for.

Wealthfront

Wealthfront is one of the most popular automated investment platforms (robo advisor) out there for a good reason. While the platform doesn’t offer any sort of budgeting or analysis tools, it has a low minimum investment, as well as super-low management fees.

Like most robos, Wealthfront will assess your investment goals and risk tolerance, and then help you invest your capital across a range of asset classes. You can open an account with the company with a $500 minimum investment, and receive access to its automated investment service.

In addition to creating solid returns for its clients, Wealthfront offers its services for just 0.25% per year. ETF fees tack on an additional 0.09% per year, which leaves you with an overall fee structure of less than 0.40% of assets invested per year.

Clearly, Wealthfront is a good company to learn more about for people who don’t have a huge amount of money saved up and want to start investing with the help of professional investment planners. Wealthfront also offers planning assistance for major life expenses, like houses, higher education, and retirement.

Betterment

If you haven’t heard of Betterment, it is one of the most popular robo advisor platforms out there. With no minimum deposit and low management fees, it has quickly established itself as a leader in the automated investment sector.

Like most robos, Betterment uses a mix of low-cost assets to create a diversified portfolio that is based on your risk tolerances. There isn’t much in the way of human support with the base plans at the company, but it does offer consultation packages for an additional fee.

Betterment’s management fees start at 0.25% per year, and rise to 0.40% if you want premium services, and have larger amounts of money to invest (minimum is $100,000 USD). It is a great platform for younger people who don’t want to actively manage their portfolio or anyone who wants to gain access to managed investments with ultra-low fees.

Is Personal Capital Right for You?

Personal Capital’s free platform is unparalleled in the world of personal finance. Its Wealth Management service is attractive, but there are many other platforms out there that are cheaper and require a far lower minimum investment.

If you want to start managing your money with some help from a top-of-the-range digital assistant, Personal Capital’s free platform is probably your best free option. The Wealth Management platform needs to be looked at on a per-case basis, as high net worth investors should be aware that there are more cost-effective options in the market.

Overall, Personal Capital brings a lot to the market, and can really help you get your finances under control. It is probably worth taking the time to learn more about how it can help you save money, and keep track of the fees that your current investment management companies are charging you.

Visit Personal Capital

Personal Capital

8.4

Ease of Use

9.0/10

Fees

8.0/10

Reputation

9.0/10

Customer Support

8.0/10

Design

8.0/10

Pros

  • Advanced retirement planning
  • Free to use
  • Good money management tools
  • Complete View of Your Finances
  • Cheaper than traditional advisors

Cons

  • $100,000 minimum Investment
  • Higher Fees than other Roboadvisors
Avatar

Nicholas Say grew up in Ann Arbor, Michigan with a father that would read him the Wall St. Journal along side of other bed-time fare. He has traveled extensively, and been lucky enough to study a changing global economy in person. Nicholas spent many years in the Southern Cone of South America, sometimes in the middle of the countryside where livestock starts its journey to all points of the globe. Today he is thoroughly bemused with the stance that Central Banks have taken in the wake of the 2008 meltdown. There is no telling what will come out of the global financial system next, but he is glad that he lives somewhere that gold can be bought and sold readily! nick@moneycheck.com


Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank or credit card issuer and have not been reviewed, approved or otherwise endorsed by any of these entities.


Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.


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