Personal Capital Advisory Services

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Topic Author
bogle707
Posts: 28
Joined: Tue May 05, 2020 8:07 pm

Personal Capital Advisory Services

Post by bogle707 » Mon May 11, 2020 8:02 pm

I set up my personal capital (free account), and was offered a free wealth advisor consultation. I am a DIY passive index fund investor, but I thought it would be a good experience to listen to what an expert has to say and how their strategy justifies an advisory fee. Here's their approach:

- Asset allocation: US stock/international stock/alternatives/US bonds/international bonds/cash
- Use low-cost sector ETFs. Weight US sectors evenly. Personal capital believes that passive index funds become overweight by the outperforming sectors, causing more risk (especially when a bubble forms). Technology might be winning one year, but the next year it might be health care or consumer cyclical. When the bubble bursts, you can lose a lot.
- More emphasis on small-cap core, growth and value funds.
- Active passive management. Essentially, they rebalance back to an equal sector weighting and use tax-loss harvesting that a passive investor might not have access to due to the index funds not being separate. They don't try to beat the market, but rather maintain equal weighting for US sectors and tilt toward small-cap for growth.

I only have a simple two fund portfolio - 70% VTSAX and 30% VTIAX. I plan to reach FI in 9-10 years, but as I get closer I will rebalance my tax-deferred accounts into bonds (adding 25-35%). Personal capital thinks I should have alternatives (real estate, gold, etc.) and bonds right now, even though I don't hit my FIRE number for another 9-10 years.

They claim they beat the S&P 500 looking back to 1990, but this is BEFORE fees (gross). Assuming the same expense ratio for the S&P 500 and the Personal capital portfolio, you would have to subtract another 0.89% (their advisory fee). This results in the portfolio underperforming by around 0.2%, but they claim a lower standard deviation which implies a higher risk-adjusted return. It's probably a wash in the end.

I am partial to my simple approach but wanted to get input from others. Do you see value that justifies their 0.89% AUM fee?

LeeMKE
Posts: 1935
Joined: Mon Oct 14, 2013 9:40 pm

Re: Personal Capital Advisory Services

Post by LeeMKE » Mon May 11, 2020 8:13 pm

I handed over the reins just once in my investing career, and it was a dreadful mistake. My balance was high enough that I got scared that I was too inexperienced to continue to manage my portfolio myself. But I was certainly better than the "experts" I paid to take over. Thankfully I was young enough to recover from their mistakes.

I never again gave control over my money to anyone. And I did better managing things myself.

Why would you hand over a portfolio that is simple, low cost, and bound to harvest your share of the market?
The mightiest Oak is just a nut who stayed the course.

LeftCoastIV
Posts: 157
Joined: Wed May 01, 2019 7:19 pm

Re: Personal Capital Advisory Services

Post by LeftCoastIV » Mon May 11, 2020 8:18 pm

Thoughts:

* They say they tilt towards small cap but also limit standard deviation on returns? Those statements are incompatible unless the rest of your portfolio is more conservative, or there is some secret sauce in their segment re-balancing.

* "They claim they beat the S&P 500 looking back to 1990". I could beat the SP 500 with a backtested portfolio. Beating the SP 500 in the future is much more difficult. Ask them how their actual returns have performed vs. the market with real clients.

* It's a clever strategy to address the fact that more-and-more people want to invest in index funds, by offering "active passive management", as a way to earn a management fee. Seems like something you could do yourself with segment-focused index funds.

* What does this mean, "use tax-loss harvesting that a passive investor might not have access to due to the index funds not being separate"

Topic Author
bogle707
Posts: 28
Joined: Tue May 05, 2020 8:07 pm

Re: Personal Capital Advisory Services

Post by bogle707 » Mon May 11, 2020 8:27 pm

LeftCoastIV wrote:
Mon May 11, 2020 8:18 pm
Thoughts:

* They say they tilt towards small cap but also limit standard deviation on returns? Those statements are incompatible unless the rest of your portfolio is more conservative, or there is some secret sauce in their segment re-balancing.

* "They claim they beat the S&P 500 looking back to 1990". I could beat the SP 500 with a backtested portfolio. Beating the SP 500 in the future is much more difficult. Ask them how their actual returns have performed vs. the market with real clients.

* It's a clever strategy to address the fact that more-and-more people want to invest in index funds, by offering "active passive management", as a way to earn a management fee. Seems like something you could do yourself with segment-focused index funds.

* What does this mean, "use tax-loss harvesting that a passive investor might not have access to due to the index funds not being separate"
I meant that because they have so many different ETF funds, rather than one ETF to cover the entire US stock market, they will have more opportunities to tax loss harvest.

They claim their lower standard deviation is due to their sector weighting (even). They also have some bonds in the portfolio.

Here is their performance - https://www.personalcapital.com/wealth- ... erformance. When I put this in portfolio visualizer, using aggressive allocation, I get around the same results after subtracting their 0.89% fee (validating that the inputs are correct using the fine print at the bottom). But when compared to my simple 70/30 US and International split, they underperform.

FoolMeOnce
Posts: 914
Joined: Mon Apr 24, 2017 11:16 am

Re: Personal Capital Advisory Services

Post by FoolMeOnce » Mon May 11, 2020 8:28 pm

LeftCoastIV wrote:
Mon May 11, 2020 8:18 pm
* What does this mean, "use tax-loss harvesting that a passive investor might not have access to due to the index funds not being separate"
I listened to the pitch a couple years ago as a learning experience. I believe OP is referring to how they hold individual equities rather than index funds, creating more opportunities for TLH. I think something like 10 equities per sector. When there is a loss (perhaps with a threshold to make it worthwhile), they will swap into a different equity in the same sector to take advantage of the loss.

Topic Author
bogle707
Posts: 28
Joined: Tue May 05, 2020 8:07 pm

Re: Personal Capital Advisory Services

Post by bogle707 » Mon May 11, 2020 10:30 pm

FoolMeOnce wrote:
Mon May 11, 2020 8:28 pm
LeftCoastIV wrote:
Mon May 11, 2020 8:18 pm
* What does this mean, "use tax-loss harvesting that a passive investor might not have access to due to the index funds not being separate"
I listened to the pitch a couple years ago as a learning experience. I believe OP is referring to how they hold individual equities rather than index funds, creating more opportunities for TLH. I think something like 10 equities per sector. When there is a loss (perhaps with a threshold to make it worthwhile), they will swap into a different equity in the same sector to take advantage of the loss.
Exactly. More opportunities.

17outs
Posts: 89
Joined: Thu Feb 13, 2020 4:03 pm

Re: Personal Capital Advisory Services

Post by 17outs » Tue May 12, 2020 4:31 pm

I used it in the past. I also tried Etrades managed service in the past. I kept wanting to believe that these pros could do better because they were pros. I didn't learn my lesson until the second time. IMHO the only people that should use these services are people who don't know and don't care to know. Those are the ones who should use Vanguard PAS and set it and forget it.

Now all that said, I love personal capitals free site. I would probably pay for it especially if it had a few more features.

Topic Author
bogle707
Posts: 28
Joined: Tue May 05, 2020 8:07 pm

Re: Personal Capital Advisory Services

Post by bogle707 » Tue May 12, 2020 5:28 pm

Thanks for all the insightful comments! I agree, investing on your own using low-cost index funds is the best approach. I can use the person capital website to track my net worth and model some retirement scenarios, but I will avoid the high advisory fees and keep things simple with my three-fund approach.

deltaneutral83
Posts: 1626
Joined: Tue Mar 07, 2017 4:25 pm

Re: Personal Capital Advisory Services

Post by deltaneutral83 » Tue May 12, 2020 5:54 pm

Anybody can beat the S&P since 1990 by picking and choosing funds that did just that, hence the overweight to small cap. Will that happen going forward, who knows. You won't find many out there that can overcome 89 bps AUM + trade costs in a taxable account over 20 years. It's just an enormous task.

"Use low-cost sector ETFs. Weight US sectors evenly. Personal capital believes that passive index funds become overweight by the outperforming sectors, causing more risk (especially when a bubble forms). Technology might be winning one year, but the next year it might be health care or consumer cyclical. When the bubble bursts, you can lose a lot."

This part was the most entertaining and by entertaining I mean that in the same sense as science fiction is entertaining.

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