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Off the Hook

Michael Flack, 12:43 am ET

ONLINE INVESTMENT advisor Personal Capital offered me a $25 Amazon gift card to open an account and then link it to one of my existing financial accounts worth more than $1,000. As a bonus, it also offered a complimentary financial checkup.

I duly signed up and linked one financial account. I then dodged the complimentary checkup and subsequently used my newfound wealth to purchase a portion of a good-enough HP computer.

I thought I was home free until I inadvertently answered a phone call from a member of my “Personal Capital team,” who again offered me the complimentary financial checkup. I couldn’t bring myself to hang up, so we made pecuniary small talk until I’d made an appointment.

As soon as I hung up, I realized that I had just chatted with staff. Apparently, “Mr. Big,” the actual financial advisor, was too important a fisherman to cast his own lines.

Mr. Big called a few days later and asked a few perfunctory questions. He then assured me that Personal Capital would use “sector and style weighting, risk minimization, and tax optimization [to] build a personalized portfolio based on your unique situation and goals” that would return more than the S&P 500 and with less risk.

I agreed to update my financial dashboard at Personal Capital with all my financial accounts, and we agreed to meet again in a couple of weeks to discuss great things.

Mr. Big, or Blake to use his given name, called me at the duly appointed time and introduced his colleague, who was either included to provide specific analysis of my unique financial needs or help sink the hook into this medium-sized fish. For the next hour, we spoke freely about a variety of investment topics, highlighted as follows:

  • Personal Capital does not use S&P 500 or other market-weighted index funds. Instead, it creates a “smart weighting” (that’s trademarked, by the way) that uses tactical allocations based on historical risk-return ratios to minimize stock-specific risk, maximize return and achieve the desired factor weightings.
  • As an investor slides into retirement, it’s important to have a tax strategy.
  • Clients can access quarterly investment committee conference calls where various macro and microeconomic trends are discussed.
  • Marketing was offering six months of free wealth management if I signed up before the offer ended in five days—and paid a fee of 0.89% of assets thereafter.

They did provide a detailed analysis of my portfolio. I needed more international stocks, more U.S. bonds, more international bonds, more alternatives and a skosh less cash. I also needed to start thinking about the net unrealized appreciation ramifications of the company stock in my 401(k) and maybe a consultation with a CPA was in order regarding my tax strategy going forward.

I wasn’t a fan of the “smart weighting” special sauce. To me, it seemed like they had data-mined back to 1990 to find a specific portfolio that outperformed the S&P 500.

The quarterly investment committee conference calls also had no allure. I used to find all that stuff fascinating but—now that I’m retired—I just can’t be bothered. Also, the “buy now, while supplies last” had a QVC vibe and was “not cool,” and I specifically told Blake so.

We agreed that “marketing was sometimes not that helpful.” He tried to set up a followup appointment, but I wriggled off the hook.

It wasn’t a complete waste of time, though. A benefit of these calls is that it forces you to compile all your assets, review your financial plan, make the necessary updates—and hopefully provides the inspiration to act.

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AnthonyClan
AnthonyClan
2 months ago

Agree on the AUM feed structure. Makes no sense (unless one is a FA). Carryover from the days when they were primarily investment advisors. All of our other professionals are hired by the hour/task (lawyers, CPAs, etc.). Arguably the work of a CPA is as difficult or more so than a FA (the qualifications to practice are higher), and they are legally responsible (as a signature to your tax return) vs. a FA who may only be a fiduciary. But we pay them less!

mjflack
mjflack
2 months ago
Reply to  AnthonyClan

AnthonyClan, you make a very valid point. Imagine hiring a CPA to file your taxes: In order to get an estimate of how much it will cost, you start to explain your specific tax situation, then the CPA cuts you off and says “no need to, I just charge a percentage of your assets.”

Ram Suntha
Ram Suntha
2 months ago

So far, I have avoided the calls to chat and I give them credit for not being intrusive. I use the PC to marvel at how much money I am not throwing away by paying an AUM advisor. PC is a fantastic tool to aggregate your expenses effortlessly. I might take their counsel to see what they offer, but refuse to support any and all AUM fee structure which in my mind is anti fiduciary practice. Thanks for the article.

Carl Book
Carl Book
2 months ago
Reply to  Ram Suntha

How is it anti-fiduciary,Ram?

mjflack
mjflack
2 months ago
Reply to  Carl Book

Carl Book, I think it is unethical to charge a customer twice as much because their portfolio is twice as large. Is managing a $4 million portfolio twice as costly as managing a portfolio of $2 million?

mjflack
mjflack
2 months ago
Reply to  Ram Suntha

Ram Suntha, thanks for the comments. I agree with you about the AUM fee structure being “anti-fiduciary”.

Bruce Sunderland
Bruce Sunderland
2 months ago

I had small account with Personal Capital for a couple of years. I liked the idea that the account, at least at that time, was composed of individual stocks according to their black box and my risk appetite, one or two or more shares of this and that, maybe 20-25 total in a 100K account I withdrew because the performance lagged a general index by several percentage points. I kept and recommend the free version to use as an aggregator of all my investments with simple analysis tool to screen my holdings. In my experience the Personal Capital sales/account manager personnel were not aggressive personalities, only mild attempts to try to get me to add funds and were prompt to honor my request to close my account. It has been a couple of years and nobody has called to try to woe me back. I note that their referral bonus is paltry compared to what the mainline discount brokers offer from time to time.

mjflack
mjflack
2 months ago

Bruce Sunderland, thanks for your comments. I have since received from Personal Capital, a couple of phone calls and few emails. The aggregator is a nice feature.

Last edited 2 months ago by mjflack
Andrew Forsythe
Andrew Forsythe
2 months ago

Michael, thanks for this. It’s always helpful to hear the actual client experience with a financial outfit.

mjflack
mjflack
2 months ago

Andrew Forsythe, thanks for the kind words. I think the conveying of personal experiences is what makes a Humble Dollar unique.

Sabine Nooteboom
Sabine Nooteboom
2 months ago

I’m kind of embarrassed to admit this – I’m afraid that I might sound like a testimonial or endorsement – but I like SoFi Financial. I’m a retired financial planner who occasionally provides pro bono assistance to very busy organic farmers. One couple was looking for an inexpensive robo investment platform and also needed some basic financial planning assistance (I no longer have access to professional level software so was limited in what I could provide), so I searched online for free or very low cost financial services that had received good reviews and stumbled on SoFi. Of course, I didn’t want to recommend a product I hadn’t tried myself, so I signed up for their free planning service and robo platform.

The financial planning service turned out to be very good at creating a plan for someone with relatively simple finances like SoFi’s target demographic, which appears to be young college graduates just starting their careers. They used the RightCapital professional software, which allows the client to add some data and is relatively robust and easy to use. I worked with a very polite and competent young man who was studying for his CFP designation; he had some minor but very good suggestions for how I could improve my plan. I did not feel any sales pressure.

The SoFi robo platform is also pretty good, offering the usual standardized portfolios based on risk tolerance and diverse mix of ETFs, some of which are SoFi branded and charge slightly higher fees than Vanguard or BlackRock. It does not include a tax loss harvesting feature.

I ended up staying with SoFi after trying them out, mainly because I loved how simple their app is to use. Once they received their bank charter I moved a checking and savings account over to their bank (current interest rate is 1% on balances up to $50K if you have direct deposit). I like their Vaults, which allow you to set aside funds for specific goals without actually opening separate sub-accounts.

SoFi does have some negatives, including their promotion of active trading and various financial products, but these are mainly found on their app. So far all emails and calls I’ve received have involved transactions I’ve made; no sales calls. Still, overall I like having so many financial services available within a single app.

Cheers,

Sabine

Philip Stein
Philip Stein
2 months ago

Mike, you were wise to wriggle off the hook.

Reading of your experience caused me to marvel at “the majesty of simplicity” (to borrow a phrase from John Bogle).

I have to wonder: If you had thrown your hat into the ring and allowed Personal Capital to manage your portfolio, how would you have made out, say, 10 or 15 years from now compared with a simple, indexed, three-fund portfolio? One thing is certain: you would have paid far less in investment costs with the three-fund portfolio than what Personal Capital would have charged you.

mjflack
mjflack
2 months ago
Reply to  Philip Stein

Philip Stein, thanks for your comments. I think that financial advisors feel that the simple three fund approach (that my 401k follows) is too simple to allow them to charge their 0.75% fee.

Dan Malone
Dan Malone
2 months ago

I accepted the consult call, and listened to the recommendation to sell ALL of my large position in QQQ (Nasdaq 100 index of high growth, large cap, primarily tech stocks) which would have produced a 6-figure tax bill for long-term capital gains. At that time, several years ago, PC only used its “secret sauce” fund that had an expense ratio of 89 bps.

Carl Book
Carl Book
2 months ago
Reply to  Dan Malone

The cost of that advice would have been impossible to overcome. Congratulations on your QQQ investment.

mjflack
mjflack
2 months ago
Reply to  Dan Malone

Dan Malone, thanks for your comments. I agree that investors nearing retirement may be sitting on significant capital gains. If they then allow an advisor to manage their portfolio, they need to be very wary about any recommendations that may cause those gains to be taxed.

DrLefty
DrLefty
2 months ago

I had the exact same experience with Personal Capital—same consult call, same advice. I still use the free service as one-stop shopping to look at our portfolio, but I dodge the calls. I had the same reaction to the “special sauce” pitch.

mjflack
mjflack
2 months ago
Reply to  DrLefty

DrLefty, thanks for the feedback. I think PC uses the same bate for every fish.

James McGlynn CFA RICP®
James McGlynn CFA RICP®
2 months ago

I use Personal Capital as well. I liked the $20 for me and $20 for a referral. I also like their retirement planner where I could input annuities and make other assumptions.It is a very good aggregator. I successfully dodged their consult call although I think they should have used a Social Security analysis for a one-time fee as part of their process.

mjflack
mjflack
2 months ago

James McGlynn CFA RICP®, thanks for the comments. I like the aggregator also.

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