Should I use Personal Capital advisory services?

[EDSMedS]

I've been using PersonalCapital.com to track my investments for ~90 days.  I'm very satisfied with the tool for its ability to consolidate my various investment vehicles into a single sight picture.  I am an incredibly passive investor and I want my money to grow without ever thinking about it!  We have been investing in ETFs, Mutual Funds, Vanguard Funds, and the best of whatever awful options our 401Ks have offered.

I recently had two free advisory sessions with a PersonalCapital advisor.  They evaluated my goals, my current status, and made certain recommendations.  Generally they believe that ETFs and Mutual Funds are not efficient and will negatively affect growth through poor tax strategy and unreliable industry sustainability.  Specifically they recommended the following:
- Tactical weighting by STYLE (adding small growth, small core, and small value stocks) and SECTOR (evenly weighting vice S&P style weighting which is currently heavy on tech, health, and finance)
- Decreasing BONDS and increasing ALTERNATIVES b/c I aim to be incredibly aggressive and grow (I have a 30 year horizon)
- Actively rebalance (sell high, buy low)
- Reduce cash reserves (one of my 401Ks holds almost 6% cash!! WTF?!)

They claim that they can reduce overall costs (a few of our Mutual Funds carry ~1-1.5% management fees!) and provide more stability than Index Funds through tactical weighting and aggressive rebalancing.  With the amount of wealth that we would bring to the table, we would be charged .89% flat fee for their services.

Are any mustachians allowing Personal Capital advisor to control their funds?  Any opinions on letting a FA stick their fingers in my wealth?

[Prchawkeye]

I did the consultation with Personal Capital as well but declined to use their services. From their analysis they would do .4% better than the S&P 500 after subtracting management costs. From my perspective that's a nonguaranteed .4% and personally I am ok with achieving market returns in an index fund.

[kpd905]

You can get rid of those high fee mutual funds on your own.  If you switch to an index fund with a 0.2% ratio, but you are now paying Personal Capital 0.89%, you are no better off.

[BarkyardBQ]

With the amount of wealth that we would bring to the table, we would be charged .89% flat fee for their services.

That's almost 1%, add that to your existing expenses and you'd be over 1%!

I agree with kpd905. You can easily rebalance your 401k into better low cost funds and do the same with any other accounts. It's funny that on PC's Investment Fee Analyzer they suggest 'chose funds with .50% ER or lower', but they are willing to charge you .89% on top of your existing fees to manage your money. Personally, I will always chose to self-manage. PC shows my retirement accounts at .17% and the entire portfolio at .09%. Can't beat self managing and selecting good funds with low costs.

[Calvawt]

It really depends on your goals.  If you are that passive, it might make sense to have them manage it for you.

Most on these forums would say the opposite, but you are not required to use only index funds!  Good luck with whatever you decide.


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[Travis]

- Tactical weighting by STYLE (adding small growth, small core, and small value stocks) and SECTOR (evenly weighting vice S&P style weighting which is currently heavy on tech, health, and finance)
- Decreasing BONDS and increasing ALTERNATIVES b/c I aim to be incredibly aggressive and grow (I have a 30 year horizon)
- Actively rebalance (sell high, buy low)

That's their advice for just about everyone.  The "tactical weighting" thing is their company strategy.  For all I know they may be competent advisers, but I haven't seen anything that would make me think they're worth 1% of your earnings.  Between TSP and Vanguard I have the basic "3 fund" setup and PC's automated portfolio analyzer has little to suggest.  In fact it was the 401k analysis tool in their program that showed me I was getting screwed by my previous financial institution and their advisers.  The tools in their program pretty much do the work a paid adviser would do, except the people at PC want you to own a ton of different funds and have them adjusted constantly.

[TreeTired]

Some red flags, for me:

Generally they believe that ETFs and Mutual Funds are not efficient and will negatively affect growth through poor tax strategy and unreliable industry sustainability.

What do they mean by "not efficient"?   there are all kinds of ETFs and all kinds of Mutual Funds.  Some mutual funds have front end sales fees and are actively traded by morons.  Some ETFs try to track an exotic foreign index that could be very risky.  That is just a way to general and all encompassing statement for me.  Some ETFs (for example a very low fee Schwab broad equity index fund) are very efficient,  both in terms of taxes and achieving a desired exposure to the market.

  Tactical weighting by style and sector

  I dont understand what that means.  Why use the word "tactical" ?  As in, "touchy feely"  or as in,  less than strategic?

Decreasing BONDS and increasing ALTERNATIVES

  Huge red flag for me!  What "alternatives"??   Forestland in Canada or a fancy fixed income fund.  Did you happen to notice the recent news story about the "alternative" fund that turned out to be a fraud? 

- Actively rebalance (sell high, buy low)

  Sorry, but that just sounds so lame.  "Sell high, buy low?"  Don't forget to cut your losses and let your profits run.... and  never let a profit turn into a loss.   I like the use of the term, "Actively" in front of rebalance.  To me, that means "generate lots of commisions"....     So "Actively" probably means more than once per year.   Is it monthly?  Or only when things get x% out of line?  They probably can't divulge their proprietary method.

Reduce cash reserves (one of my 401Ks holds almost 6% cash!! WTF?!)

Now there's a great idea!  You don't need their help for this one.    Although I have at times held large cash balances in my retirement accounts, and even hold cash now.   It looks much worse now when cash earns zero.   Didn't look quite as stupid when cash earned 5%.

I think you can do much better on your own with fairly minimal oversight and involvement by you.


Story about an "alternative" fund:
http://www.marketwatch.com/story/how-a-fund-managers-alternative-investing-led-to-a-fraud-indictment-2014-12-22

[Travis]

  I dont understand what that means.  Why use the word "tactical" ?  As in, "touchy feely"  or as in,  less than strategic?

I don't understand why they use that term, but what they're referring to is putting you in countless funds and actively adjusting them.

I have no idea what they think an "alternative" is.  I have a bond fund, a domestic index fund, and an international index fund and somewhere in there PC thinks I own a couple percent of alternatives (but it wants me to own 11%).

[sobezen]

I met with a Personal Capital adviser and he was helpful.  He provided a high level summary and specific recommendations.  Nothing he shared with me was particularly illuminating but it helped to know I was on the right track.  After careful consideration, I decided against using their services mainly due to the high fees.  I feel if their fees were considerably less even less than Betterment (which I feel is already too high), I might reconsider.  YMMV.  Cheers!

[Melf]

I went through the Personal Capital advisor sales pitch not long ago myself.  It just turned out to be a lot more complicated of an investment strategy than I am comfortable with right now.  I'm trying to get away from all kinds of high fee funds and they're recommending having my investments spread across more than 4 dozen different funds in addition to the flat fee for total funds under management!  I decided to stick with my basic plan of total market index funds and go it alone as I had planned.  I had just dumped Smith Barney and didn't want to get back into another similar arrangement.

[karanasios06]

I just went through the sales pitch for their "tactical weighting" investment strategy.  Overall the experience was pleasant enough and very low pressure with plenty of feedback time for me but I'm just not sure if what they are selling is all that different from a typical actively managed fund.

Their pitch was: at 30 years old, I should be 60% in US stocks, about 40 of them which would theoretically give me equal sector weighting.  25% in developed foreign markets via 2 ETF's.  10% in alternatives, majority REITs and a bit of gold and commodities, and the remaining 5% split between bonds and cash.  So its an extremely diverse strategy...perhaps too diverse?

Overall Pros: fees are relatively low (balances under 1 million pay 0.92% per year) over a million is a lower fee. Takes the worry out of rebalancing and keeping an even sector distribution.  Supposed professional money management.

Overall cons: fees are much higher than admiral shares index funds I currently own.  No set control over how frequently things are traded/could mean high turnover.  Buying a select stock that represents a specific sector is a nebulous strategy, and while they claimed they "don't go for the hot IPO's" I don't know enough about what their investment strategy is to be comfortable with them selecting my stocks for me.

Can get the same diversification if i bought  3 index funds: a S&P 500, a small cap, and an international, for 1/6th the annual fee that they charge.

The more I delve into this "tactical weighting" the more it feels like an actively managed fund, and I'm really not convinced that I need to have a team of investors trying to outguess market volatility in order to rebalance my portfolio.  That's exactly the strategy that guys like Jack Bogle warned about and I believe it's just the natural inclination for investors and advisers to conclude that one is "missing out" on gains if they just let their money sit and be dumb in one or several index funds.

I believe the Personal Capital is sincere in their goals, but I still do no see how their plan will outperform common benchmarks like the S&P, MSCI-EAFE, or Russell 2000 over 20-30 years.

If anyone has a differing, educated opinion on the matter, I'd love to hear it.

[Scandium]

Between Betterment and personal capital and others this seem to be a newly popular (and frankly genius) business idea; operate an active mutual fund without having to run a mutual fund!  Just manage people's money in and out of a dozen or more ETFs. Doing "tactical weighting", "style diversification", "momentum optimization" or whatever.
"For the low-low price of 1%!"