Personal Capital - The Future of Wealth Management

from Xand : pcurley - 31st December 1969

The opinions expressed by this blogger and those providing comments are theirs alone, this does not reflect the opinion of Automated Trader or any employee thereof. Automated Trader is not responsible for the accuracy of any of the information supplied by this article.

Our Customer Spotlight series is intended to showcase the interesting ways Xignite's clients are using our financial market data web services.

Xignite would like to introduce you to Personal Capital (www.personalcapital.com), which was just launched in September, but already has made quite an impact in the wealth management industry winning "Best in Show" at Finovate Fall 2011, and being described by Bloomberg Businessweek as "Wealth Management for the Internet Age".

Personal Capital's goal is to offer a simple wealth management solution for the complex lives of their affluent clients. The firm was founded by some of the leading financial technology and e-finance executives, and is backed by a well-known Silicon Valley venture capital firm.

We recently sat down with Bill Harris, Chief Executive Officer of Personal Capital, who was formerly CEO of PayPal and Intuit, and Jay Shah, Chief Information Officer of Personal Capital, who was formerly CIO of E-Loan.

Q: Why was Personal Capital created?

Bill Harris - We really created Personal Capital to fill a gap that most of us feel in our everyday lives, that is how to manage our financial lives, when everything is so fragmented. Many of us have brokerage accounts, IRAs, 401ks, checking accounts, credit cards, mortgages, all strewn across multiple institutions, but there is no one place to go to make sense of it all. No one place where we can make a rational decision about our finances and plan for the future. Personal Capital was formed to allow people to make sense of their complex lives, in a comprehensive way, so that they can then take action.

Q: How does Personal Capital work?

Bill Harris - It really only takes 15 minutes to understand the power of Personal Capital. The first 5 minutes you spend linking all of your accounts to the Personal Capital website. This allows us to assemble a baseline of your financial situation on at least a daily basis. The next 5 minutes minutes we present you with an easy to understand analytic framework that gives you a graphical representation of your entire financial situation. Finally, in the last 5 minutes we recommend the ideal asset allocation based on your financial profile and other factors. All of this is for free. At this point you can then decide whether you want to work with one of our advisors so that we can help you manage and implement your financial plan.

Q: How is Personal Capital different from a more traditional wealth manager or investment advisor?

Bill Harris - There are a few significant differences but perhaps the biggest is the mode of interaction. With a more traditional approach much more face to face interaction is required, otherwise you don't get very much visibility into your finances. At most you probably get sent a statement every quarter or so but that's it. Just establishing your relationship with a traditional wealth manager can be a pain. It typically involves three trips to your advisor: (1) You drive to the advisor's office to decide whether you want to do business with them. (2) You then get back in your car to go home to gather all of your financial documents into a shoebox and then deliver it back to the advisor. (3) Finally you return to the advisor when they have made sense of your financial situation and are ready to make recommendations. Obviously, this mode of interaction just doesn't work for busy people. Personal Capital is different, we offer multiple ways to interact with us in real-time. We let our clients decide what works for them.

Q: Why has the wealth management industry evolved so slowly?

Jay Shah - There is no doubt that it has been slow. We have seen some innovation in the tools used by the wealth manager, but these are designed for the advisor and do not really impact the client directly. We've also seen progress on the self-directed side with online brokerage accounts but essentially the experience of the traditional wealth manager client has not changed much over the years.

Bill Harris - I think it has definitely has been slow. When I look at the last almost 100 years the two biggest innovations that come to mind have been the brokerage account, which was developed in the '20's, and the mutual fund, which was developed in the '60's. The brokerage account allowed individuals access to a variety of investments. They could, for the first time, personalize their investment choices. It is very much the craftsman model. The mutual fund, and more recently the ETF, have allowed an efficient way to access professional investment combined with the ease of buying and selling. Mutual funds, however, are about mass production, one size fits all. The next innovation that Personal Capital is a part of, will combine the personalization of the brokerage account, with the efficiency of the mutual fund industry. This mass customization of the wealth management industry is being made possible by the Internet and other technologies.

Q: How would you describe Personal Capital's investment philosophy?

Bill Harris - Our approach is based on today's accepted academic investment theory. We do not seek to beat or time the market. We are not about generating alpha. For us the most important long-term decision is the allocation decision. We are also very focused on risk management, and are aware of how harmful volatility can be. Once we understand our client's financial situation and goals, we then implement their strategic plan, using mainly individual securities and ETF's. Finally, we are very tax sensitive. Pre-tax results are not what will help you after retirement.

Q: How has Xignite's on-demand market data helped Personal Capital?

Bill Harris - I'd first like to say that we are huge fans of Xignite. Your whole web services approach to market data is as slick as a whistle. We've been delighted with our relationship, particularly with your ability to meet our tight time-lines for our September launch.

Really a major part of our business is data management and aggregation. Ultimately, our goal is to provide our clients with a simple financial dashboard, so that they can then make an informed decision about the future. Without Xignite's real-time market data the information presented to our clients would be stale and not as actionable.

Q: What are Personal Capital's plans for the future?

Bill Harris - Personal Capital's future plans are centered around deepening the analysis of our clients' financial lives, while at the same time broadening our understanding of their entire financial picture. Finally, we will continue to extend that mode of interaction with our clients that we talked about earlier. Our approach is that our clients should be able interact with us anywhere or anytime, through multiple touch-points, without ever having to go to a branch. With this in mind we will be releasing iPad, mobile phones, and some innovative browser-based apps in the very near future.

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