Personal Capital was founded in 2009 by Bill Harris, Louie Gasparini, Rob Foregger, and Paul Bergholm to improve and simplify asset management.
Personal Capital business model is based on charging its clients advising fees in exchange for managing their money. The fees for an investment portfolio are set based upon the portfolio’s weight and the client’s status as a private or institutional client.
Personal Capital is the first hybrid Robo-advisor, helping to democratize access to financial wealth management.
One of the frequently asked topics is how Personal Capital makes money, given that it offers the best FREE financial tools online for managing your net worth, optimizing your investments, and planning for retirement.
Personal Capital does not earn any revenue from its free financial app. On the other hand, the free financial software allows them to proactively pursue individuals who have invested more than $100,000. Clients may eventually be acquired from those contacts.
It’s a rather sound strategy to invest in developing an award-winning app, providing tremendous value to the user, and determining whether some customers want their money professionally managed.
To gain access to professional hybrid money management advice (algorithm + person), Personal Capital requires a minimum of $100,000 in assets under management.
The company charges 0.89 percent for amounts less than $1,000,000, 0.79 percent for amounts between $1 and $3 million, 0.69 percent for amounts between $2 and $5 million, and 0.49 percent for amounts over $10 million.
Personal Capital offers several months of free testing and a free hour-long meeting with an advisor before becoming a client.
Personal Capital manages around $12.5 billion in assets as of 2H2020. The company has 400 employees and four locations across the country, so I’d say it’s close to profitability. The company’s challenge is maintaining AUM growth while its business scales rapidly.
Personal Capital’s free financial tools are available to those who choose not to manage their money professionally.
What is Personal Capital?
Personal Capital is a FinTech company providing financial management solutions to help individuals manage their finances more effectively.
The company offers on-site financial advice to account holders holding balances over $100,000.
Personal Capital earns money by charging management fees for its advisory services. Personal Capital’s fee structure is tiered, increasing fees as the customer commits more money to the service.
Personal Capital was founded in 2009 and is headquartered in Redwood Shores, California. The firm has grown rapidly to become one of the nation’s largest digital asset managers.
Personal Capital was recently acquired by Canada-based Empower Retirement for $1 billion.
|Company Name||Personal Capital|
|Founders||Bill Harris, Paul Bergholm, Rob Foregger, Louie Gasparini|
|Product||Personal Wealth Management Company|
|Headquarter||Redwood Shores, CA|
How Does Personal Capital Work?
Personal Capital is a web-based digital asset management platform that provides tools and methods for improving money management.
The service allows customers to connect their financial accounts (401ks, IRAs, mortgages, loans, credit cards, and checking accounts, among others) to obtain a comprehensive representation of their assets and obligations.
Personal Capital will connect them with a financial advisor if they meet the requirements (assets of over $100,000 needed).
An advisor will evaluate a user’s present investment methods and net worth, spending habits, and general financial goals.
The advisor will then create a customized strategy based on the user’s needs and preferences. Apart from their own experience, advisors would evaluate algorithmic recommendations that either complement or enhance their methods.
Additionally, individuals can self-manage their finances with the help of Personal Capital’s finance tools. A user can track their net worth, save and budget, analyze their cash flow, and view investment checks, among many other tools.
Personal Capital will offer premium add-on services to users with more than $100,000 in assets.
Some premium features include tax management for efficiency, access to private equity, weighting for intelligent results, the inclusion of municipal bonds, and portfolio construction by data.
Personal Capital provides an ecologically conscious user with a socially responsible investment portfolio.
The investment strategy considers a company’s position on climate change, renewable energy, diversity, labor relations, and board independence.
Finally, Personal Capital provides customers with a wide library of financial education content. The Personal Capital app is available on its Android and iOS mobile phone and tablet applications.
How Does Personal Capital Make Money?
Personal Capital earns money from its financial advising services fees. These services are available for account holders with assets above $100,000.
Users pay financial professionals fees to obtain professional advice on investment, portfolio management, custody, and trading.
If users invest more than 200,000 dollars, they are eligible for suggestions from two licensed financial consultants.
The pricing structure of personal capital is higher than that of other (semi-) robotic consulting firms. Vanguard’s Personal Advisor Service, for instance, charges 0.30 percent, whereas Betterment charges 0.40 percent.
Personal Capital considers its pricing structure to be justified given the large number of services provided by the company and the option to contact 2 authorized advisors.
While registration is currently free, its tools are available for free to registered users. The company uses a freemium approach that mainly attracts consumers to its instruments but requires consultants to optimize financial returns.
Many wealthy customers—especially those with little time to manage their finances at this level—look for financial advice.
The company presently serves approximately 4,250 individual customers who commit $7.42 billion in assets to Personal Capital.
What is the Funding and Valuation of Personal Capital?
Crunchbase reports that Personal Capital has raised $265.3 million through nine rounds of venture capital financing. The main investors are IGM Financial, Silicon Valley Bank, IVP, Crosslink Capital, and others.
Personal Capital was acquired by Empower Retirement, a company that offers retirement services to other firms, for $1 billion.
Exits like this indicate a broader trend in a FinTech business, which has seen multiple successful sales in recent months. Intuit recently purchased Credit Karma for $7.1 billion or Plaid for $5.3 billion, both prominent examples.
What is the Revenue of Personal Capital?
Personal Capital generated revenues of $1 billion in fiscal 2019. There was no mention of whether the corporation was profitable.
Success Story of Personal Capital
Bill Harris, Louie Gasparini, Rob Foregger, and Paul Bergholm founded Personal Capital in 2009, with its headquarters in Redwood Shores, California.
The founder of Personal Capital previously worked in a variety of executive positions in the financial industry. The first version of ChipSoft, used to prepare taxes, was released early in the 1990s.
The company subsequently merged with Intuit, and Harris became its Managing Director — and ultimately its CEO.
Subsequently, around the turn of the century, he joined PayPal, where he led the merger of the company between Elon Musk’s X.com and Peter Thiel’s Confinity, then PayPal. Under his one-year management, PayPal was able to buy more than a million members.
Harris started several startups in the financial technology and cyber security fields after PayPal.
A company called PassMark developed an online authentication system with multiple functions designed for banks and brokers. This company was ultimately sold to RSA Security.
The exit not only provided Harris time to ponder about his future firm, but he had a lot of money to spend. What he soon learned was that the money management tools available at best were inadequate.
Surely he wasn’t alone. Many consumers, particularly wealthy families, face the complexity of navigating the financial landscape of checks, loans, credit cards, and mortgages.
Each account had to be accessed individually, leading to a great deal of complexity and lack of transparency in its finances.
Some credit cards or investment funds also had hidden fees, often not immediately apparent to users.
Harris started Personal Capital in 2009 to resolve his issue and resolve a battle many American families faced at the time. His co-founders were previous acquaintances of the companies he had previously started and sold.
The founding team has put up the initial $2 million to start the firm to make a head start. The lack of outside investors allowed the founders to build the product without pressure while studying the needs of their target market.
Personal capital emerged from stealth in August 2011. Several months after the company created its product, it was released to the public. The technology company had previously raised series A and series B funding of $10 million (led by IVP).
The startup was able to draw users immediately. The main reason for this was that its creators had refined the core value product and the target audience for the previous two years.
The firm set up a satellite office in 2013 from where its financial advisors can now operate.
Personal Capital did not target a wide range of households, but only the wealthy (i.e., those with more than $100,000 in assets). This provided them with the opportunity to craft tools that were designed particularly for this user base.
Quality products were one of the main growth avenues for the company because their quality generated a lot of sales and product talk.
Personal Capital has not purchased an overwhelming number of television or other pricey commercials until today.
Lastly, tools are free to employ personal capital items (such as their savings or retirement planner). Customers pay only if the company’s financial experts advise them to do so.
Its free tools, however, are what drove the registration of its paid services. The company’s free tools were the source of 90% of its paying customers.
While personal capital grew in the following years, its employees enjoyed success without Harris, the founder, and CEO.
After eight years of corporate leadership, Harris opted to stand aside as CEO to concentrate on other entrepreneurial initiatives.
Jay Shah, who joined Personal Capital during its early days in 2009 and later became the COO of the company, filled his role.
Under the leadership of Shah, personal capital has grown to 2.5 million users and managing assets exceeding $14 billion (AUM). These numbers prompted Canada to retire for a collective $1 billion personal capital in July 2020.
Empower Retirement (ER) has roughly 10 million customers, which may now use the combined products of Personal Capital.
Personal Capital will maintain a standalone brand that will not blend its goods into the present services of ER.
Key Takeaways From Personal Capital Business Model
Bill Harris, Rob Foregger, Louie Gasparini, and Paul Bergholm founded Personal Capital’s online wealth management and advice business.
Harris founded the company after observing inefficiencies and a lack of transparency in personal finance management.
Personal Capital’s business model is straightforward: advisory fees are charged across three management alternatives. Investing capital tends to reduce advising costs.
You won’t be charged any hidden fees or trailing commissions by Personal Capital. This conforms to the company’s ethos set forth by the former CEO Bill Harris.