Review

Evaluating new financial products and services.

When Bill Harris thinks about investment advisers that cater to the wealthy, he said he envisions someone with graying hair behind a mahogany desk who has a “parent-child” relationship with clients.

He’d like to change much of that.

As chief executive officer of Personal Capital, which was introduced earlier this week, he is attempting to usher wealth management into the 21st century — think video chats, fancy Web charts, and e-mail in lieu of actual face time — while delivering customized financial advice to a much broader audience.

“The underserved market are people who have complex financial situations but don’t have the ability to get complex financial solutions,” said Mr. Harris, a former chief executive officer of PayPal and Intuit, who has also founded several other financial technology and security companies.

So Personal Capital is targeting people around the ages of 35 to 65 who have between $100,000 and $2 million in assets — basically, investors whose financial lives have become more complicated, and involve more moving parts than, say, an apartment rental and a 401(k).

As a customer, you’d start by linking your financial accounts to the Personal Capital Web site, the same way you would at a site like Mint.com. Then, Personal Capital harnesses all of the details of your financial life — cash coming in, credit card transactions and your investment accounts. You can then view all of your transactions in a giant check register, or examine the split of your various assets among all of your investment accounts. All of the information is elegantly presented in graphs, including a pie chart that categorizes your spending.

That part of the site is free. Human advisers can help evaluate it all, consult with you (perhaps over video chat initially) and then create what the company calls a “personal strategy” based on your specific needs, goals and assets. “Our model is a combination of technology and people,” he added. “What we are trying to do above all else is give somebody a sophisticated and holistic view of their money and an ability to manage it.”

Hiring Personal Capital to manage your money will cost a bit less than the 1 percent of assets that many higher-end financial planners charge. Its rates are graduated: it costs 0.95 percent of your assets to manage the first $250,000; 0.90 to manage the next $250,000; 0.85 percent on the next $500,000; 0.80 on the next $4 million, and finally 0.75 percent on amounts above $5 million. This includes trading and custody costs, as well as “unlimited personal advisory.”

Customers are assigned an individual adviser — full-time company employees who are paid a salary — who are also reachable via Web chat, e-mail, or over the phone. They are all required to be registered investment advisers, which means they’re held to a fiduciary standard. That’s an important distinction, since it means they are required to act in their clients’ best interest.

While Personal Capital encouraged its staff to become certified financial planners — the top credential for holistic financial planning — it was not a requirement if they weren’t already. For now, however, the firm’s main focus is on managing money, and not on helping you make decisions like whether you should refinance your home or buy more life insurance (though that may come later).

Personal Capital, which has raised $28 million from investors, has 10 advisers on staff who work from a call center in downtown San Francisco, though it expects to have as many as 30 by the end of the year. Mr. Harris said the company thinks that each adviser can handle about 200 clients.

The company refers to its investment strategy as “smart indexing,” which Mr. Harris says is a more sophisticated form of passive investing. The company is not going to try to beat the market, but that doesn’t necessarily translate into a standard collection of index funds either. (The investment side is led by Craig Birk, director of portfolio management, who was formerly with Fisher Investments, a money-management firm in Woodside, Calif.)

Instead, the company tried to create diversified portfolios using baskets of individual securities and exchange-traded funds, which are essentially index funds that trade like stocks. By using individual stocks, the company said it can better customize your portfolio, while also avoiding mutual fund fees. It also allows it to manage your holdings from a tax perspective, keeping those costs to a minimum. In fact, its approach is similar to investing in a portfolio of what are known as separately-managed accounts, which are essentially customizable baskets of securities targeted at wealthy investors.

When building portfolios, Personal Capital does not attempt to blindly replicate the Standard Poor’s 500 Index. That index is known as a market-cap weighted index, because the index’s component parts are weighted by their market capitalization. That weighting means that companies with larger market caps comprise a larger piece of the index compared with companies with smaller ones.

Personal Capital favors an equal-weighting approach, where it creates stock portfolios with equal weightings of sectors. That way, it can avoid portions of the market that analysts there believe may have become overvalued and thus overrepresented in the index. The company also believes it’s important for investors to have adequate exposure to small-capitalization and value stocks, which tend to outperform the market over time, as well as a healthy helping of international investments.

If you don’t want Personal Capital to oversee all of your money, you can invest in one of their “Personal Funds,” which are also baskets of stocks and E.T.F.’s that provide exposure to specific asset classes, say, small-cap domestic stocks, or strategies (like inflation protection or retirement income).

Gaining investors’ trust to manage their money might be one of the company’s biggest challenges. To that end, Mr. Harris points to his team’s impressive pedigrees. Rob Foregger, the company’s chief strategy officer, co-founded EverBank, one of the first online banks, while Jay Shah, the chief information officer, has held the same position at E-Loan.

Investors also need to be comfortable handing over the keys to all of their accounts to Personal Capital’s system. The company uses Yodlee to aggregate the financial data; Mr. Harris sits on Yodlee’s board as well as its risk committee. He was also the chief executive of PassMark Security, whose security system for online banking is used by most major banks. And Louie Gasparini, Personal Capital’s chief technology officer, held the same position at PassMark, which he also co-founded.

Customer’s investments meanwhile, are held by Penson, a third-party custodian, while their banking assets are held at EverBank.

Less than 24 hours after I linked up a couple of my accounts to test the service, I received a call from an investment adviser, who thanked me for signing up online, and said he was available to speak further. A few minutes later, he followed up with an e-mail.

Personal Capital doesn’t have many direct competitors. At Betterment, which is aimed at people with less money and doesn’t include personal advice, the investment management fees start at 0.9 percent for people with up to $25,000 and drop to .03 percent for amounts over $500,000. Many fee-only financial planners charge somewhere in the neighborhood of 1 percent of assets, often with a $250,000 to $1 million minimum.

And while Mr. Harris said that Personal Capital’s advisers can help you decide, say, which 529 plan to choose or how to best allocate your 401(k), it is largely focusing on the type of financial advice that it can implement. For a little more money, you can probably find a certified financial planner who will not only manage your investments, but also help you evaluate your homeowners insurance policy, for instance.

Personal Capital’s pricing seems particularly expensive for people at the low end of the target audience: does someone with $150,000 really want to pay $1,425 a year for money management? Perhaps people with more complicated financial lives and more money to manage will feel differently.

What do you think of Personal Capital’s strategy? Do you think it’s necessary to meet a financial adviser in person? If you sign up, please share your impressions in the comment section below.

Courtesy of Personal Capital.An investor’s dashboard at Personal Capital.

Article source: http://feeds.nytimes.com/click.phdo?i=e35b41b4668961bd80fe4ca0ef42b600