The Modest Wallet is a free digital publication delivering its readers simple personal finance solutions. We regularly partner with brands that have products and services that will help our readers. Some of the links in this post are from our partners. How we make money.
Personal Capital is a California-based online financial advisory firm that provides wealth management, cash management, and other financial solutions to over 1 million people in the United States. Currently, the company oversees over $13bn in assets.
Personal Capital is led by Founder and Chief Executive Bill Harris, and the company relies on the support of a team of seasoned financial professionals, including former SEC Commissioner Luis Aguilar; former Chair of the CFP® Board, Karen Schaeffer, and the father of Modern Portfolio Theory (MPT), Harry Markowitz, Ph.D.
on Personal Capital’s website
Quick Summary: Personal Capital is an online financial advisory firm that provides wealth management, cash management, and other financial solutions. They offer a free suite of personal finance tools that help users track their net worth and investments.
What is Personal Capital?
Founded in 2009, Personal Capital was initially known as SafeCorp Financial Corp until the year 2010. The company is registered as an investment advisor with the Securities and Exchange Commission (SEC) of the United States. The company offers money management advice to customers across the country through a time-tested investment philosophy that relies on long-term holding periods and broad diversification to deliver steady returns over time.
The company’s products and services include wealth management and cash management solutions, and they offer a set of technological tools to assist clients in managing their finances.
One of the perks of Personal Capital is that it offers both free and paid features, which makes it different from traditional online advisors that offer plain-vanilla investment management solutions that charge a percentage of the account balance per year.
How Does Personal Capital Work?
Personal Capital offers three different types of services for its clients to assist them in managing their money:
Cash Management Services
Personal Capital offers a zero-fee bank account provided by UMB Bank NA, called the Personal Capital Cash™ account.
This offering allows users to keep all their money in a single account, providing them with an Annual Percentage Yield (APY) of 0.05% (as of August 2020).
However, the yield goes up to 0.10% for clients who have enrolled in Personal Capital’s investment management services.
This account does not require a minimum daily balance and offers an unlimited number of monthly transfers, with a maximum withdrawal limit of $100,000 per day.
The account is insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor, and up to $1.5 million per account. However, this account does not offer a debit card or a bill pay feature as of this writing.
What often attracts clients to the services offered by Personal Capital are the company’s free financial and money management tools, designed to help individuals track the evolution of their net worth, while also letting them monitor their income, expenses, investments, and other aspects of their personal finances.
The tools made available by Personal Capital to individuals in the United States, as of this writing, include:
- Net Worth Calculator
- Budgeting Tool
- Cash Flow Management Tool
- Retirement Planner
- Fee Analyzer
- Education Planner.
All of these tools are available through Personal Capital’s platform, which allows users to manage their money via one single solution after linking their retirement accounts, credit cards, bank accounts, and brokerage accounts.
Wealth Management Solutions
Personal Capital provides financial advice to clients with over $100,000 in investable assets through three different programs:
- Investment Services: For clients with $100,000 to $200,000 in assets, Personal Capital will build a broadly diversified portfolio consisting of a wide range of asset classes incorporated via exchange-traded funds (ETFs), and offer unlimited investment advice from the company’s team of Certified Financial Planners (CFPs®).
- Wealth Management: Clients with assets between $200,000 and $1M will have their portfolios monitored by two dedicated financial advisors, and they have the opportunity to take advantage of the tax-optimization strategies offered by Personal Capital.
- Private Client: For wealthy individuals with assets over $1M, Personal Capital will offer two financial advisors to oversee the client’s portfolio, while also extending priority access to the company’s Investment Committee members who can provide in-depth specialist support for both retirement and wealth planning. (Private equity alternatives are also available).
Opening an Account
The process of signing up for Personal Capital’s services starts with providing a preferred email, a password, and a phone number to create an account. Signup can be completed via the company’s official website or through Personal Capital’s Android or iOS mobile app.
To access the free financial tools offered by Personal Capital, users can link all their bank, retirement, and investment accounts for the software to analyze. Then, a dashboard is created — and this dashboard can be used to monitor and track the way money is spent and how investments perform over time.
To sign up for one of the company’s investment management services, Personal Capital’s terms and conditions (which include rolling over any existing account or securities to the firm and acknowledging the fees resulting from the service) must be agreed to.
After agreeing to the service’s terms and conditions, Personal Capital will ask several questions to assess the client’s financial situation before their portfolio is set up.
Personal Capital Free Personal Finance Features
Next, let’s dive into the free personal finance tools and features Personal Capital offers its clients.
|Net Worth Tracker||Calculates every significant thing you own (i.e. assets) minus what you owe (i.e. liabilities).|
|Savings Planner||Shows you how much you’re saving, and how much you should be saving.|
|Budgeting||Easily track income, expenses, and individual transactions over time.|
|Cash Flow||Analyzes how money is spent during a certain period by categorizing expenses and transactions accordingly.|
|Retirement Planner||See if you're on track, and what you can do to improve your retirement target.|
|Fee Analyzer||Find out how hidden fees in your mutual funds and retirement accounts impact your portfolio performance.|
|Education Planner||A retirement planning feature to help parents and future students set aside money to cover college tuition.|
|Investment Checkup||An assessment tool that helps users determine their ideal portfolio allocation.|
Net Worth Tracker
The net worth calculator is one of the free tools offered by Personal Capital, and it estimates the value of an individual’s equity by accessing the information from his/her financial accounts (including bank, retirement, and investment accounts) along with the value of any other hard assets reported to the platform (such as real estate, vehicles, art, or collectibles).
Additionally, liabilities are deducted from the value of the assets, including any mortgages, credit card, and loan balances currently owed by the account holder.
After gathering and analyzing this information, Personal Capital’s software provides an in-depth analysis of the account holder’s net worth structure, and can track its evolution over time — the user’s accounts remain linked to the net worth calculator, and the net worth figure will adjust as the value of each of the linked accounts fluctuates.
The Savings Planner is a tool designed to help individuals in achieving their financial goals, whether their goals are related to their retirement, a vacation, building an emergency fund, or saving for their kids’ college tuition.
Using the account holder’s financial account information, the tool analyzes how much the account holder is saving and how much has to be saved to achieve their savings goals.
For Personal Capital investment management clients, the tool also allows the setup of monthly withdrawals to make sure clients stay on track with their contributions
The Savings Planner also includes a debt management and tracking tool, allowing visibility into how credit accounts have evolved and the progress toward reaching certain debt-reduction goals over time.
A budget is one of the centerpieces of a sound money management strategy. Personal Capital has developed a solution that allows users to easily track their income, expenses, and individual transactions over time, using the information provided from the financial accounts they have linked to the platform.
This solution lets customers monitor their spending, savings, and other similar goals.
The cash flow feature is related to the budgeting tool described above, though it analyzes how money is spent during a certain period by categorizing expenses and transactions accordingly.
This information is included in Personal Capital’s dashboard, and it allows users to track transactions within different time frames.
Planning for retirement requires discipline, and a commitment to making regular contributions to meet personal financial goals.
To help users stay on track, Personal Capital has designed a retirement planning tool that uses the information provided by the customer — including retirement age, target monthly income once retired, etc. — to identify not just how much the customer needs to contribute, or the average return the portfolio has to earn, but also view how the progress towards their retirement goals will be impacted by various decisions and scenarios.
With the retirement planning tool, users can model the retirement portfolio to incorporate the impact of different economic scenarios, such as a recession or a stock market meltdown — offering a percentage of probability indicating the likelihood of reaching a desired retirement goal.
The tool also estimates the impact of certain financial decisions, including modifications in monthly contributions, withdrawals associated with college expenses or real estate purchases, and income events such as additional sources of income or windfalls.
The fee analyzer studies how the fees charged by mutual funds, pension funds, and other financial providers impact returns.
The feature works by using the information from the 401(k) account linked to the platform. Once the data is in the system, an overview of how these funds are performing is provided, along with a classification of the 401(k) funds that are charging higher-than-average fees.
Understanding the financial impact that fees can have on returns makes timely and informed decisions easier (such as which funds someone may want to withdraw their money from to take advantage of cheaper alternatives in the market).
The Education Planner is a tool designed within the Retirement Planning feature to help parents and future students set aside money to cover college tuition.
The education planner will analyze the cost of a college education based on average costs for public in-state colleges, out-of-state colleges, and private institutions (depending on the user’s preference) and will determine how much needs to be set aside every month to cover the cost of attending those institutions once the future student reaches a certain age.
Additionally, the tool also determines how much needs to be poured into the account to reach that goal in the future — and progress can be tracked in real time to make sure things are going as planned.
The Investment Checkup feature offered by Personal Capital is an assessment tool that helps users in determining the ideal portfolio allocation that minimizes risks and maximizes the return of their investment account over time.
This checkup relies on modern portfolio theory (MPT), an approach that combines various asset classes and their corresponding risks and returns to determine the optimal percentage of assets that should be allocated in each asset class to achieve the highest return for a certain level of risk.
The feature also analyzes the user’s current portfolio allocation mix to determine if it’s time to rebalance based on the percentage currently being allocated to each asset class, and whether those percentages have deviated from the target portfolio allocation set by the system.
Personal Capital Wealth Management Features
A look into their investment and robo-advisor services shows that Personal Capital actually has lots to offer.
|Fees||0.49% to 0.89%|
|Account Types||Traditional IRA, Roth IRA, SEP IRA, 401(k) rollover, Taxable account (individual, joint and trust)|
|Platform||Mobile (iOS / Android) and Website|
|Assets Under Management||Over $13 billion|
|Socially Responsible Investing|
|Support||Phone and Email|
The Smart Weighting feature is part of Personal Capital’s investment philosophy — and it provides a unique approach to diversification compared to what’s offered by broad-market indexes such as the S&P 500.
Personal Capital believes that its portfolios can achieve higher returns — as shown by their back-tests — by giving different sectors an equal weight in the portfolio, apart from what the S&P 500 index does. The weight assigned to each sector increases for outperforming sectors, and this benchmark is market-cap weighted.
Personal Capital’s research shows that its Smart Weighted portfolios would have outperformed the S&P 500 by 0.7% during the 30-year period between 1991 and 2019, resulting in roughly $1.8 million in additional gains for a portfolio of $500,000.
The Smart Weighting feature also aims to reduce volatility, and the company’s back-test shows that it would have achieved a 16.8% standard deviation during the same 30-year period compared to a 17.6% standard deviation shown by the S&P 500.
Personal Capital offers a tax-optimization feature that achieves tax-efficient returns by following these three approaches:
- Tax-Sensitive Asset Location
- Tax-Loss Harvesting
- Tax Efficiency
The tax-sensitive asset location uses the client’s tax-deferred accounts (401(k)s, IRAs) and taxable accounts and allocates investments within the accounts that can increase the tax efficiency of the portfolio.
This is achieved, for example, by putting high-yield investments in tax-deferred accounts, while tax-exempt securities are allocated in taxable accounts. (Personal Capital estimates that it can save around 0.30% per year for its clients by doing this.)
The tax-loss harvesting feature focuses on liquidating investments that are producing a capital gain loss to offset the capital gains the client has realized during a given year, allowing them to reduce their tax bill to then reinvest those saved funds into other securities.
This strategy can yield an extra 0.2% and 0.4% to the portfolio’s annual returns.
Finally, Personal Capital builds its portfolios by investing in exchange-traded funds (ETFs) instead of mutual funds. They believe mutual funds generate higher taxes as a result of higher portfolio turnover ratios.
Personal Capital periodically rebalances its clients’ portfolios to maintain their asset allocation mix in line with the targets set for clients when the portfolio was built.
They perform this rebalancing in a tax-efficient way — meaning that they will buy and sell securities by taking into account the taxable impact of transactions, while also achieving the rebalancing’s objective.
Dynamic Portfolio Allocation
Personal Capital gathers and periodically analyzes the client’s financial situation to suggest potential changes to their portfolio based on their financial goals, stage of life, , marital status, net worth, income, tax laws, risk tolerance, and other various elements that may change over time.
Personal Capital uses the information provided by the client, within the platform, and analyzes it by using Monte Carlo simulations and other similar tools to provide timely recommendations that can ultimately assist the client in achieving his/her goals.
Socially Responsible Investing
At the client’s request, Personal Capital can build a Socially Responsible portfolio that focuses on ESG securities — Environmental, Social, and Corporate Governance — as a way to respond to growing demand from investors seeking to make an impact in the world with their funds.
Personal Capital claims to achieve this by partnering with a firm called Sustainalytics, which researches and ranks firms based on their social impact. They also use certain filters to exclude and include different sectors within the portfolio.
For example, Personal Capital excludes firms in the energy, tobacco, and gambling sectors for its socially-responsible portfolios, while it includes firms that provide access to basic services or data privacy and security solutions, among others. This portfolio contains all the features offered for the Personal Strategy® portfolio, including tax-optimization and Smart Weighting.™
Personal Capital currently offers the following types of accounts:
- Taxable accounts – individual, joint, trusts
- Traditional IRA accounts
- Roth IRA accounts
- SEP IRA accounts
- IRA transfers
- 401(k) rollovers
- High-interest cash accounts.
Personal Capital Mobile Apps
Personal Capital has developed a mobile app, available for both Android and iOS, that allows users to keep track of the evolution of their finances through a user-friendly dashboard.
This app provides access to all the features offered by Personal Capital, including the cash account, investment account, retirement account, and all the rest of the tools described above.
Personal Capital Pricing & Fees
Personal Capital charges a percentage fee for their Wealth Management services that varies depending on the amount of funds invested by the client.
This is a breakdown of the percentages charged per bracket:
- First $1 million – 0.89%
- First $3 million – 0.79%
- Next $2 million – 0.69%
- Next $5 million – 0.59%
- Over $10 million – 0.49%
The company’s fees are lower than the industry average of 1%, while their financial tools, such as the net worth calculator and budgeting app, are entirely free.
Personal Capital Pros
- Personal Capital is a highly reputable financial advisory firm managed by world-class industry professionals.
- Personal Capital is regulated by the Securities and Exchange Commission (SEC), and is registered as a certified investment advisor.
- Personal Capital follows a time-tested investment philosophy that aims to provide steady returns with little downside risk over a long-term investment horizon.
- The company provides free tools for individuals seeking to manage their money more wisely.
- Personal Capital’s Wealth Management solutions include interesting features like tax-optimization and Smart Weighting.™
- The company charges a flat percentage fee that is lower than the industry average.
- The Personal Capital Cash Account provides higher-than-average interest rates and does not charge any fees.
- The company relies on technology, but provides advice through certified human advisors.
Personal Capital Cons
- The percentage fees charged by Personal Capital are higher than those charged by robo-advisors.
- There’s a required minimum investment of $100,000 to be eligible for their Wealth Management service.
- The company’s cash account does not provide a debit card as of this writing.
- No borrowing alternatives are offered for Wealth Management clients.
Personal Capital Alternatives
In order to compare apples to apples, let’s compare the best alternatives to Personal Capital for their free personal finance tools, as well as the best alternatives for robo-advisor services.
Mint is a budgeting and personal finance tool that allows users to keep track of their expenses, income, and transactions by linking their bank accounts to the app.
While Mint offers some of the free tools that Personal Capital incorporates into its dashboard, Mint does not provide the insightful investment management advice and retirement planning advice that Personal Capital delivers, making it more of a budgeting tool than an investment management tool.
Betterment is a robo-advisor. This means that the company builds its clients’ portfolios by using algorithms and computer systems, although it relies on a similar investment philosophy.
In addition, Betterment is significantly cheaper than Personal Capital, as the company charges 0.25% on the assets invested and 0.40% for its premium clients. Those lower percentages charged by Betterment could end up resulting in large savings over time.
On the other hand, Betterment offers most of the features available from Personal Capital, except, perhaps, the free financial calculators and tools that Personal Capital provides.
Plus, the cash account offered by Betterment comes with a debit card, and there’s no minimum balance required to open an investment account, which is advantageous for Betterment users compared to the $100,000 minimum required by Personal Capital.
That said, the Smart Weighting™ feature offered by Personal Capital is an interesting approach to broad diversification that could provide an edge over Betterment, although it is a bit hard to assess if that offsets the impact of higher fees.
The differences between Personal Capital and M1 Finance are essentially the same when compared with Betterment, except for the fact that M1 Finance has a bigger advantage — even ahead of Betterment — because the M1 Finance robo-advisor does not charge any fees for managing its investment accounts.
But there is a disadvantage: They do not offer any of the advanced features provided by Personal Capital, such as tax-optimization or dynamic portfolio allocation.
Who Should Get/Avoid Personal Capital?
Personal Capital is probably a better alternative for individuals with a sizable $100,000+ investment or retirement account, because the company provides human advice — although it also relies on technology to monitor and keep track of clients’ progress in the path towards achieving their financial goals.
Additionally, Personal Capital investment management features such as the net worth calculator, budgeting tool, and retirement planner tool are useful, and they deliver key insights that will help clients in determining the best course of action for their financial lives.
Moreover, Personal Capital’s Smart Weighting™ approach is very interesting, and could be one of the best reasons why investors should consider this firm, because research suggests that returns obtained by using this approach are significantly higher than returns obtained from investing directly in generic broad-market indexes.
However, it should be noted that the percentage fees charged by Personal Capital (although lower than the industry average) are higher than those charged by most robo-advisors, which is a disadvantage, especially when considering their impact over a long-term investment horizon.
Personal Capital FAQ
We’ve found some of the most frequently asked questions about Personal Capital, here are our answers.
Is Personal Capital Legitimate?
Yes. Personal Capital is a US-based investment advisory firm registered with the Securities and Exchange Commission (SEC).
Is Personal Capital Worth the Fee?
That depends. Most of the features offered by Personal Capital are available at a fraction of the cost of some of the most popular robo-advisors. However, if you prefer human advisors over algorithms to manage your investments, you may want to go with Personal Capital.
Is Personal Capital Free?
Yes and no. While Personal Capital offers certain free features for its users, such as a net worth calculator and a retirement planning tool, their Wealth Management solutions are only available for clients with more than $100,000 in assets, and the company charges an annual percentage fee for managing its investment accounts.
Is Personal Capital Safe?
The cash account offered by Personal Capital is insured by the FDIC for up to $250,000 per depositor and $1.5 million per account.
As a disclaimer, investment accounts are subject to market risk, as financial securities can fluctuate in value over time, and there is no protection for market downturns.
With that said, investing with Personal Capital is as safe as investing with any other registered and licensed financial advisory firm.
How Does Personal Capital Make Money?
Personal Capital makes money from the percentage fee it charges on the balance of the investment accounts it manages, and by collecting compensation from the banks that support the cash account they currently offer.
Personal Finance is an interesting alternative for wealthy individuals who prefer a human (over a cold algorithm) to manage their investments.
Personal Capital is backed by world-class financial professionals, and they currently oversee more than $13bn in assets. Their investment philosophy relies on time-tested strategies, and they offer certain compelling advanced features that should significantly boost the returns of their clients’ portfolios over time.
Although the company charges higher percentage fees compared to some of its competitors, the advanced strategies and insightful human expertise Personal Capital brings to the table may be worth the extra money.
Get our free Stock Market Playbook to learn how to invest your first $500 in the stock market.
Plus our best money tips delivered straight to your inbox.
Alejandro is a financial writer with 7 years of experience in financial management and financial analysis. He writes technical content about economics, finance, investments, and real estate and has also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis.