This retirement-centric company helps you track and optimize your retirement planning with free tools. It also combines automated investing with access to financial advisors. Find out more in my Personal Capital review.
Table of Contents
- Personal Capital Review: Quick Look
- What Is Personal Capital?
- How Does Personal Capital Work?
- Free Financial Planning Tools at Personal Capital
- How Much Does Personal Capital Cost?
- Personal Capital Review: Where It Shines
- Personal Capital Review: Where It Falls Short
- Additional Resources and Extras Personal Capital Provides
- Portfolio Strategy and Options
- Who Should Use Personal Capital
- Personal Capital Alternatives To Consider
Personal Capital Review: Quick Look
|Company Name||Personal Capital|
|Company Type||Investment and financial services company|
|Key Features||Free financial planning tools, access to financial advisors|
|Downsides||High account minimum, expensive annual fees|
|Best For||People interested in free retirement financial planning tools, people who want full-service financial advisors|
What Is Personal Capital?
Founded in 2009, Personal Capital is headquartered in San Carlos, California, in the Bay Area.
You can think of the company as the investing equivalent of a nightclub that lets anyone in the front door, but to get to the VIP section, you need serious cash (at least $100,000).
Personal Capital offers well-respected, free financial planning tools to anyone willing to sync their financial accounts. But the company then tries to sell its investing and financial advisory services to people using its tools.
Empower Retirement, the second-largest retirement planning provider in the United States, acquired Personal Capital for approximately $1 billion in June 2020.
According to Backend Benchmarking, Empower is “positioning Personal Capital as a destination for clients leaving an employer-sponsored plan.” That makes things simpler for departing employees who want to roll their old 401(k)s into IRAs, and Empower gets to keep that money in its ecosystem by pointing customers toward Personal Capital.
Personal Capital lists Harry Markowitz on its website as “Portfolio Strategy Expert.” Markowitz won a Nobel Prize in 1990 for his Modern Portfolio Theory (MPT). Used by many of the top robo-advisors, MPT attempts to minimize risk while maximizing return.
How Does Personal Capital Work?
Whether you’re using Personal Capital’s free financial planning tools or you decide to invest with the company, setting up your account involves the same initial steps.
The website will try to get you to schedule an appointment with a financial advisor whether or not you’re planning to invest — the start of what some consider to be aggressive sales tactics.
Digital companies involving money (insurance, banking, investing) tend to make onboarding as simple and fast as possible. But you have to commit some time to get set up with Personal Capital. In order to get the most benefit from its free tools, you’ll need to connect each of your financial accounts, one by one, including checking, savings, credit cards, loans and investments.
Here are the steps you have to take during the onboarding process whether you’re interested in the free planning tools, investing 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’ve saved for retirement.
- Sync all of your outside financial accounts.
- Schedule an appointment with a financial advisor. It’s possible to avoid this but Personal Capital pushes for it.
If you’re planning to invest, there are additional steps:
- Verify your identity.
- Link the bank account you’re going to use to fund your Personal Capital account.
- Transfer securities from other platforms if needed.
- Fill out a questionnaire about your risk tolerance, investment goals and time horizon.
- Hold a web conference with an advisor to discuss your answers and get further input that Personal Capital will use to suggest a portfolio allocation for you.
Free Financial Planning Tools at Personal Capital
For the majority of its customers — and probably the majority of people reading this Personal Capital review — this is the good stuff.
Once you sync all your financial accounts to Personal Capital’s site, you get a free dashboard that’s a visual data lover’s dream.
Let’s take a look at some of the individual components of that dashboard and the tools Personal Capital offers.
1. Net Worth
In some ways, this is a vanity statistic: How much money am I worth, right now, today?
It’s also an indicator of your financial health, especially when you track it over longer time frames.
Personal Capital takes your assets (bank accounts, investments, real estate holdings) and debts (mortgage, credit card debt, student and car loans) and provides you with a strong estimate for your current net worth, presented in graph form.
Ideally, this tool can inspire you to pay off debt. But its accuracy relies on you connecting every account you have to Personal Capital. And you can drive yourself nuts if you check it daily, especially if you have plenty of money invested in variable assets such as stocks.
2. Retirement Planner
It’s up to you to decide on specific retirement goals such as how old you’ll be when you stop working and how much money you want to spend per 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 the likelihood that you’ll meet your goals (expressed as a percentage) including retirement age, retirement spending and even things like buying or upgrading a house.
The tool incorporates planned future income events such as starting social security, getting a pension and downsizing your house. It makes assumptions about your taxes, life expectancy and investment returns, although you can adjust those factors.
You can even mess with Personal Capital’s recession simulator, which shows you how historical recessions would impact your portfolio.
The big picture: Personal Capital’s retirement planner helps you understand whether your current savings rate matches your stated long-term goals.
3. Investment/Portfolio Checkup
This tool sorts your entire portfolio, including any outside accounts you’ve linked, by asset class. And then it tells you whether your current portfolio differs from Personal Capitals recommended allocation.
For example, if you’re holding 1% of your portfolio in bonds and Personal Capital recommends 15%, it will suggest that you reallocate to include more bonds. You can also get those figures in dollars (i.e. “increase $14,200 in U.S. stocks”).
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 verbatim or you can use them to make you re-think or examine parts of your strategy.
If you’re curious, asset classes that Personal Capital measures include:
- International bonds
- U.S. bonds
- International stocks
- U.S. stocks
- Alternatives (cryptocurrency, for example)
The portfolio checkup tool also includes a feature that Personal Capital has dubbed the “YouIndex.” It compares the performance of your portfolio against traditional indexes such as the S&P 500.
Instead of tuning in to a major cable network and reading the numbers in the corner of the screen to see what the overall market is doing, you can sign in to your Personal Capital account and see whether your portfolio is up or down, by how much, and how that compares to major indexes.
4. Investment Fee Analyzer
As I mentioned early in this Personal Capital review, Empower Retirement, which acquired Personal Capital last year, has positioned the brand as a landing spot for people rolling over their 401(k)s.
This tool is an extension of that branding. It analyzes your current work-sponsored retirement plan or the portfolio that your financial advisor has built for you and displays the following:
- Your annual contributions.
- Your annual employer match.
- The annual growth of your plan.
- The fees (expense ratios) you pay annually.
No. 4 seems like the focal point of this tool. Personal Capital calculates the real dollar amount you’re paying in fees every year for every mutual fund and ETF in which you’re invested.
It also shows you how much you’ll pay in fees over decades and how many years of retirement income that will cost you. Of course, part of Personal Capital’s message is that you could probably save money if you invested with them.
5. Cash Flow
Categorizing your spending has become standard for financial institutions. For example, my bank and several of my credit cards provide similar online tools.
The key to making Personal Capital’s cash flow tool into something more useful is linking every single one of your financial accounts to it. That may make tracking your spending via Personal Capital more interesting.
Perhaps your bank or credit card offers it as well, but you may use that account only for bills or for restaurants (so you can get the rewards).
Personal Capital’s tool does have limitations. If you pay for something in cash or through an account that you haven’t connected, it won’t be able to capture that information. So if you’re hardcore about accounting for every dollar, it may be better to do it in a spreadsheet or in accounting software.
Full disclosure: I haven’t personally created a monthly budget by using Personal Capital’s budgeting tool.
But I do keep reading and hearing the same couple of criticisms: 1) some of the functionality doesn’t carry over to mobile device use, and 2) there’s no built-in bill paying function.
Personal Capital is focused on investing and retirement. But if you want to use it to identify major spending issues (splurging on food delivery since COVID-19 arrived?), it’s helpful in that way.
What Does the Paid Version Add?
We’ve established that Personal Capital’s free financial planning tools are extensive. So is there anything extra you get within the tools if you become a paying customer?
Yes. If you invest through Personal Capital, you’ll get additional features including tracking for or help with:
- College savings
- Home financing
- Stock options and compensation
- Private banking services
- Estate/legacy portfolio construction
How Much Does Personal Capital Cost?
|Advisory Fees||Weighted Average Expense Ratio||Minimum Deposit||Annualized Return||Account Types|
|0.89%||0.10%*||$100,000||9.06%*||Taxable, Retirement, Trust|
It’s free if you only want to use Personal Capital’s financial planning tools. However, if you want to invest, you’ll need at least $100,000 to start.
Personal Capital doesn’t like to be associated with robo-advisors, which would make it look crazy expensive with a 0.89% annual fee. That’s fair, as Personal Capital is what’s known as a “hybrid financial advisor” (those include access to full-service human financial advisors).
As far as investing goes, Vanguard’s Personal Advisor Services is more of a Personal Capital competitor than a pure robo-advisor such as Wealthfront. If you compare the 0.89% fee to a typical human advisor (usually 1% or slightly less), it’s inexpensive. However, even compared to other hybrid advisors, Personal Capital is on the expensive side.
Vanguard’s PAS charges just 0.30% with almost the exact same five-year annualized return (9.00% for Vanguard vs. 9.06% for Personal Capital).
Also, Personal Capital’s $100,000 minimum investment requirement isn’t enough to get you access to many of the company’s key features. There are three service tiers:
- Investment Services ($100K to $200K): Exchange-traded funds (ETFs) only. Includes access to financial advisors, but you don’t get to work with the same person each time.
- Wealth Management ($200K to $1 million): Access to two dedicated financial advisors. Ability to invest in individual stocks. Free consultations with specialists for topics such as real estate and stock options.
- Private Client ($1 million+): Access to invest in private equity and hedge funds. Ability to invest in individual bonds. More in-depth personal advice on topics such as estate and legacy planning.
The annual fees go down as your level of investment goes up. Here is the fee structure for larger account sizes:
- $1 to $3 million: 0.79%
- $3 to $5 million: 0.69%
- $5 to $10 million: 0.59%
- $10 million+: 0.49%
Personal Capital Review: Where It Shines
After reviewing Personal Capital, here are some of what I believe to be its strong points:
- Excellent free financial planning tools. The large majority of Personal Capital’s users aren’t paying customers. The firm’s free, visual and detailed financial planning tools are among the best you can find.
- Financial advisors’ services go well beyond investing. The company’s advisors can help with retirement, estate and tax planning, refinancing and even getting a mortgage. In that way, Personal Capital more closely resembles a full-service financial advisor.
- Helpful for monitoring/optimizing retirement investing. Personal Capital’s free financial planning tools are good at guiding you toward your retirement goals by monitoring your progress. Its paid advisory services get you even more custom tips on how to optimize your retirement strategy.
- Unusually customizable portfolios. Personal Capital’s portfolio options are much more customizable than the average robo-advisor and even the average hybrid financial advisor. Customers can even invest in individual stocks and bonds at certain investment levels.
Personal Capital Review: Where It Falls Short
After reviewing Personal Capital, here are some of the downsides I found:
- Relatively expensive management fee. Personal Capital charges 0.89% per year. That’s a good price compared to full-service financial advisors, but it’s expensive relative to other hybrid financial advisors (automated digital investing with access to human financial advice).
- Significant minimum deposit. You’ll need to invest at least $100,000 in order to become a customer. You’ll need to increase that number to $200,000 and then $1 million to unlock significant features.
- Reputation for frequent solicitation. Personal Capital has a reputation for using your personal information to contact you to pitch its investing and financial advising products. And there are complaints from users that it targets high-worth folks more frequently. (Remember that Personal Capital’s tools estimate your net worth after you’ve given it access to your outside accounts.)
- Low interest from cash management accounts. If you’re a paying customer, you can generate 0.10% APY through Personal Capital’s cash management account. That’s 25% of what Betterment currently offers. If you aren’t a customer, you’ll get 0.05% APY. Personal Capital also doesn’t offer debit cards or bill payment capabilities.
- Budgeting tool not the strongest. Personal Capital’s financial planning tools deserve plenty of praise. I’ll give it even more in the next section of this article. However, its budgeting tool has gotten some criticism for not being as strong as those of Mint and others — and also because some of its features aren’t available on mobile.
Additional Resources and Extras Personal Capital Provides
While reviewing Personal Capital, I found that the company gives its users the following additional resources and extras.
It’s worth noting that you’ll benefit from some of these only if you’re a paying customer.
1. Advantageous Tax Strategy
Personal Capital uses direct indexing: buying individual securities rather than indexes. This allows it to sell losers to offset tax obligations.
The company also distinguishes between assets it wants to include in IRA portfolios (such as mutual funds) and in taxable portfolios (such as ETFs) based on the tax implications.
2. Line of Credit
Personal Capital allows paying clients to borrow against their accounts.
As you’d expect, larger account sizes get better interest rates. But the typical interest rate ranges from about 1.5% to 3.5%.
However, if you do need to borrow money, paying less than 4% interest is better than the rate you’d get from a high-interest credit card.
3. Cash Management Account
Personal Capital allows anyone to earn interest and carry out some banking activities. However, it pays just 0.05% interest to non-investment customers and 0.10% to customers who invest with Personal Capital.
It does offer $1.5 million in FDIC coverage, which is far more than the normal checking or savings account.
4. Educational Content
It’s far down the list of features that Personal Capital offers. Many of the most popular reviews don’t even mention it. But Personal Capital publishes a blog with helpful, educational investing content.
Some of the content is complex and next-level. But if you’re patient enough to wade through it, there’s some good stuff in there.
5. Home Buying Guidance
As someone who has started to think about buying a house, this is one of my personal favorite features. It’s also one of the things that sets apart Personal Capital and Wealthfront in terms of financial planning tools.
Personal Capital will help you figure out how much you can afford to spend on a house. You can even secure financing through Personal Capital partners Pershing and Bank of New York Mellon.
However, Wealthfront takes this one step further than Personal Capital by including data from real estate sites Redfin and Zillow to pinpoint home prices and available properties in your area that you can afford.
Portfolio Strategy and Options
If you’ve looked into entry-level robo-advisors, you’re probably aware that your “menu options” are usually limited when it comes to investing in pre-built portfolios. You’ll get something that matches your circumstances pretty well, but you usually aren’t allowed to customize.
That’s definitely not the case at Personal Capital. The company offers 12 different portfolio allocations. And you can make nearly unlimited modifications to those options. If you deposit $200,000 or more, you can add individual stocks. At $1 million or more, you can add individual bonds. You can also get help customizing your portfolio through discussions with your financial advisor(s).
The portfolio options at Personal Capital include Socially Responsible Investing (SRI). Most of the top robo-advisors offer SRI in some form, but it’s difficult to do while investing through ETFs. Personal Capital’s SRI strategy reaches the individual stock level.
Personal Capital’s big thing is “Smart Weighting,” which invests equally in all sectors rather than tracking the S&P 500. The company says it lowers risk and increases returns, which is basically the Holy Grail of investing. When Personal Capital back-tested this strategy from 1990 to 2012, it produced returns that were 1.5% better than the S&P 500.
This is an extension of Markowitz’ 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 will especially help you work toward retirement, Personal Capital is a great choice.
The same is true if you have plenty of money to invest and you like the idea of getting financial advice that’s integrated with that same suite of top-notch financial planning tools.
The fees are expensive, but if you have $1 million or more to invest, you get additional features and cheaper rates that may change the cost/benefit analysis in your favor.
Personal Capital Alternatives To Consider
If you’re interested in getting complex financial advice from a human (advice that goes beyond investing), Vanguard’s Personal Advisor Services (PAS) is Clark’s favorite recommendation.
The PAS model, digital investing while providing unlimited access to full-service financial advisors, is very similar to Personal Capital. However, PAS charges 0.30% annually instead of 0.89%. PAS requires a $50,000 minimum deposit compared to $100,000 for Personal Capital.
With PAS, you get one dedicated advisor when you deposit at least $500,000, but almost all of the advisors are Certified Financial Planners. At Personal Capital, you get two dedicated advisors at $200,000, but you must request a Certified Financial Planner.
If you love getting a suite of helpful, detailed, free financial planning tools and you want help just with investing, Wealthfront is an excellent choice. Its free planning tools rival the ones at Personal Capital. Its robo-advisor costs just 0.25% annually and the minimum investment is only $500.
If your main objective is to hire a human advisor to help with a full scope of complex financial goals, you may want to hire a traditional full-service financial advisor. Just make sure that person is a fee-only fiduciary.
Personal Capital is a great solution if you aren’t afraid of a little sales pressure and you’re interested in easily tracking your finances for free.
If you have at least $1 million to invest and you want to take advantage of multiple dedicated advisors and additional portfolio customization, Personal Capital may be for you as well.
However, if you’re simply looking for a hybrid advisor or a robo-advisor, there are several much less expensive options available.