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Financial Planning for the Masses: My Session with Personal Capital

by retirebyforty on December 22, 2013 · 30 comments

in early retirement, investing

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I know I wrote about Personal Capital quite a few times recently, but I’m really excited with their services. They are bringing financial planning to the masses through their website. I think this will help many regular people who are unsure about financial advisors to understand financial planning better. The main website and portfolio analysis tools are free which is awesome for most of us. Personal Capital generates revenue by charging a fee if you sign on with their investment management services.

Financial Planning Session

Last week, I had a financial planning session with Michelle, one of Personal Capital’s financial advisors. The call was very pleasant and she seems quite competent. Michelle gathered a snapshot of my personal and financial data over the 30-minute session.

My personal and financial data

  • I’m 39, married, and have one small child.
  • We went over my investment portfolio. You can read more about it in the first post I wrote about Personal Capital, My Overdue Portfolio Checkup.
  • I told her that I just left my job and I’ll be a stay at home dad for a while. Mrs. RB40 plans to retire in 20 years or so and will continue to max out her 401(k) contribution. We will avoid withdrawal from retirement portfolio until we are both retired.
  • Our income is enough to cover normal monthly expenses with a little left over.
  • We are planning to pay for college (as much as possible), but we don’t plan to leave an estate to little RB40.
  • I have a target asset allocation that I came up with and stuck with it through the down markets. Mrs. RB40 is not an aggressive investor and she doesn’t pay close attention to the market fluctuation.
  • We don’t have any plans to spend any lump sum in the next few years. We won’t need a new vehicle for a while and I don’t think we’ll buy any more properties.

My question

What kind of fee does Personal Capital charge?

They charge a graduated fee scale at around 1% of the portfolio they manage.

  • $0 – $250,000 at 0.95%
  • $251,000 – $500,000 at 0.90%
  • $500,001 – $1,000,000 at 0.85%
  • $1,000,000 – $5,000,000 at 0.80%
  • >$5,000,000 at 0.75%

So if I transfer $100,000 to the firm and let them manage that portion, then I’ll pay $950 per year for the service. Michelle told me that she can give advice on my total portfolio as well. This means they will manage $100,000 and I manage the rest of my accounts with their advice. For many of us, the 401(k) is a big part of our saving and it has to stay with the employer’s trustee. You won’t have to pay a fee on the asset you manage.

Analysis and Recommendations

Michelle took all the info to analyze and we made a follow up appointment. This time we talked about my portfolio and what we can do to improve it for our personal situation.

Here are the feedback of my total portfolio.

  • Good asset allocation overall for growth focused strategy
  • Currently over-exposed to emerging markets - not enough exposure to foreign developed stocks
  • No international bond exposure – these bonds provide another level of diversification
  • Adding alternatives will dramatically increase the diversification and manage risk within the strategy
  • Not enough in college savings account- increase to $30-40K (currently at $10K)

financial planning session with Personal Capital

Pictured above is their Optimal Investment Allocation for our situation.

The main takeaway for me is the Domestic to International ratio. They recommend 2/3 domestic and 1/3 international. This seems to be the magic ratio for us. They also recommend 2/3 developed international equity and 1/3 emerging market. It’s the same for fixed income (bonds) as well.

Another big recommendation is the alternatives investments. These are gold, metals, agricultural/food, energy, domestic and foreign real estate. We have rental properties and that’s about it for alternatives. It’s probably a good idea to diversify more.

financial advisor Personal Capital review

Tactical Weighting

I have been trying to inject some growth and diversity into our portfolio with small and mid cap equities (mutual funds and ETFs.) Michelle said this is better than many investors, but we can do better by diversifying though sectors. From the slide above, the SP500 is over weight in the Technology sector and is under weight in Basic Materials, Communication Services, and Utilities. I will need to run my total portfolio though Morningstar Instant X-Ray to see how it is weighted*. By keeping the sectors more equally weighted, you’ll have more diversity and should be better protected through the down turns. I think this is a good idea and will try to do this for our portfolio.

*Currently Personal Capital does not show the sector weighting of your portfolio. You can see that with Morningstar Instant X-Ray. That’s a bit disappointing, but I guess they can’t get everything right the first time out. They are a new company after all.

Good financial planning sessions

All in all, I was impressed with the free financial planning sessions. It was good to see a snapshot of our finances and have a plan for the immediate future. I learned a few things and I can take direct action with Michelle’s advice. If you are a self directed investor like me, I think you should make an appointment with Personal Capital and see what they have to say. It’s free and Michelle didn’t pressure me to sign up with their investment management service much. For now, I’ll stick with self directed because 1% seems like a lot of money to me. Although, I could let Personal Capital manage a portion of my account and I would manage the rest. This will drive the fee down below 1%. It could be tricky to get all the accounts to work together though.

There are a few compelling reasons to hire Personal Capital. The investment management service is probably good for people who want to be more hands off with their investments. Also, as we get older, our plans and goals will change. You can’t stick with the same strategy as you age. If you are not comfortable planning your own investment strategies, then a personal financial advisor will be helpful. I plan to reassess in a few years to see if this will be a good option for me.

Sign up with Personal Capital through this link.

Disclosure: I didn’t take note so I wrote this from memory. There are details that I left out such as how Personal Capital invest their client’s investments because I don’t remember the whole thing. If you sign up with Personal Capital, I may receive a referral fee depending on the size of your portfolio.

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{ 30 comments… read them below or add one }

Jason @ WorkSaveLive October 31, 2012 at 6:05 am

I loved their site and all of their software! I’d never heard of this company before and I wonder if they’ll be able to make a big splash before some other large advisor firm just does the same thing (Mint on steroids). Great, honest review!

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retirebyforty November 1, 2012 at 8:33 am

The CEO is from Intuit so I think they will be able to ramp up very quickly. They have a great product with no competitor right now and it’s good to be the first out of the gate. I would like to see some competitors too because it will drive everyone to deliver better products. :)

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Nate December 22, 2013 at 1:13 pm

I agree. The design and functionality are impeccable. If you are on the fence about signing up — just do it (through the RB40 link of course!).

It took me about one (1) hour to link all my accounts and get straight to the “full net worth picture). The Android app is beautiful as well.

Very cool product. I am scheduling my personal session with them this week — thanks for the “behind the scenes” Joe!!

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retirebyforty December 23, 2013 at 10:35 am

Thanks! Personal Capital is a great product that’s very useful for DIY investors.

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SMB October 31, 2012 at 2:21 pm

Thanks for the review. I signed-up with them when you first posted about them but I’m having issues uploading all of my accounts (which they know of). So until I can get those together, it’s not very helpful. Can’t wait until it is though, maybe then I’ll set up one of these appointments.

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retirebyforty November 1, 2012 at 8:35 am

Hopefully they will work that out soon. That’s their biggest weakness right now. I had to manually input a few investments too.

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Wayne @Young Family Finance October 31, 2012 at 7:00 pm

I haven’t utilized a financial planner yet, but I have thought about it. Does this company have any guarantees or insurances? I have heard a few financial planner horror stories, as I am sure we all have.

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retirebyforty November 1, 2012 at 8:38 am

From what I understand, investment management services doesn’t have guarantees or insurance. I think that’s just how private funds operates. You can’t trust guarantee anyway. Their brokerage is Pershing so that’s one good thing.

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Financial Samurai October 31, 2012 at 8:48 pm

Pretty cool you spoke to them and provided the fee structure! Better put in that $5 million with them to get the lowest fee rate! :)

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retirebyforty November 1, 2012 at 8:38 am

I hope someday we’ll hit 5 millions. :)

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Jeremiah November 1, 2012 at 5:55 am

I’ll be interested to follow your journey with a financial planner. I don’t mean to paint them all with the same brush, but we hired one a couple years ago – and fired him shortly thereafter. He gave a series of recommendations that at the best were idiotic, though in retrospect were more likely unethical. Thankfully, we were knowledgeable enough to not implement his recommendations. If we had, we would be significantly worse off financially than we are are today!!!

Anyhow, I don’t know what $950 of worth of financial advice looks like for you but I hope you do find it!

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retirebyforty November 1, 2012 at 8:40 am

The first thing to ask any financial planner is how they get paid. I’m not sure how to value financial advice either. If they can boost my return by xx%?

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Evan November 2, 2012 at 2:28 pm

Working in the financial sector you are NOT the normal client lol…was she shocked at your organization? or did she know your background?

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retirebyforty November 3, 2012 at 8:12 am

She said I’m doing better than most clients, but didn’t seem that surprised. I told her I was an engineer and I’m changing career. :)

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JC January 16, 2013 at 11:18 am

Was wondering if you have any updates since this last Nov 2012 posting. I’ve talked with Personal Capital too and trying to decide to sign up with them. Is it worth giving that 1% away to them?

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retirebyforty January 16, 2013 at 10:21 pm

I decided to not sign up with them at this point. I took their advice and diversify my IRA with sector weighting. 1% is quite expensive, but that’s the standard rate.

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Argus May 16, 2013 at 5:57 pm

For what it’s worth, i also did their free planning session and got the exact same allocation suggestions as you show above (exact same slides). My situation is fairly different tho in that i’m about 10 years older, single, no children, employed. It’s not the worst news in the world, but their personalized investment breakdowns seems like it may be fairly boilerplate…

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retirebyforty May 17, 2013 at 9:50 am

Thanks for letting me know. I was wondering how personal their plan is. I guess they just put us in an age range and risk tolerance, then spit out the result. I really appreciate your feedback.

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R July 24, 2013 at 11:19 pm

I have an appointment with same PC advisor next week. I will try to post feedback. I am curious how different my advice will be from yours and Argus’s above.

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retirebyforty July 25, 2013 at 9:08 am

I’m looking forward to seeing it. Who did you get?

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R July 25, 2013 at 10:50 am

Exact same person you and Argus got. Very professional and not pushy, but I would like to see how customized the advice will be.

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Fahim August 1, 2013 at 10:09 pm

had a chat with an advisor at personal capital today and was shown the exact same slide too! Before finding this page i thought they were doing a good job od providing personalized allocations and recomendations, clearly it is very cookie- cutter. Any one actually sign up and use them? thoughts / experiences?

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retirebyforty August 2, 2013 at 6:08 am

I wonder if it’s the same for every financial advisors. They have a template and only varies it just a little bit for each client. It just make their job easier to have one template.

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Bryan August 15, 2013 at 8:06 am

I spoke with Personal Capital yesterday and brought up that some of their plan seemed boiler plate. The advisor responded with that they have many plans that are similar having each client with a completely unique plan is not really feasible or scalable. He did say that within each plan there are unique elements to each individual that the advisor can help with.
I also mentioned that the graphs sent to others were exactly the same each time.
I like there tools and approach but it does concern me that their plans aren’t as unique as advertised.

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Moneycone December 22, 2013 at 2:00 pm

Very beneficial RB40!

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The Passive Income Earner December 22, 2013 at 3:54 pm

Personally, I have found that my international allocation is covered by companies such as KO, JNJ, MCD and so forth … They have so much revenues coming from other countries that I decided it was enough international exposure. Buying directly in international countries means buying ETFs or mutual funds very often otherwise you expose yourself to the regulations and politics of those countries and it falls outside understanding my investments.

In short, I find the rule book thrown at the allocations a little too basic … They would need to do much more to convince me.

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retirebyforty December 23, 2013 at 10:39 am

That’s good too, but I still think we can use a little more international allocation than that.
I like to have some emerging market in my allocation. They can give a big boost some years.

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Sean December 23, 2013 at 3:19 pm

RB40, I’m wondering if she gave any info on rates of return? I’m also interested in less management when it comes to my retirement fund. Anyway, thanks for looking into that. I’ve been looking at Personal Capital for a bit and have been interested in their portfolio management aspect.

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retirebyforty December 24, 2013 at 12:54 pm

She didn’t mention specific ROI. It just depends on how the market performs.

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dave April 9, 2014 at 6:26 pm

I signed up and gave it a try. Sadly, their tool doesn’t work. Probably not their fault, but most of the banks or financial institutions I use have multi layer security…..so it is NEVER synced on the Personal Capital site. I have tried and tried. It simply won’t work unless you have just a few accounts at banks that have simple security.

But what is the point if you only have a few accounts anyway

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