You may say that it was our own fault not to catch Personal Capital’s abysmal investment performance earlier. However, allow me to share our costly lessons to help prevent others from losing money with Personal Capital:
• Over the last 3 years, Personal Capital’s “smart portfolio management strategy” performed 60% worse than market.
• Personal Capital’s “tax optimization” produced higher returns on our taxed account and lower returns on our tax-deferred IRA account.
• Personal Capital’s “lower fees” consumed 18% of the returns they delivered.
During a turbulent time of job changes, founding our own company and multiple family health emergencies, we decided to entrust Personal Capital to manage our money. Personal Capital advertised a good story with a convincing webpage: “We act in your best financial interest and optimize risk & return on your behalf. We do this through our smart portfolio management strategy and Smart Weighting™ approach.”
Our experience was much different and cost us dearly. From 2015 until we canceled our accounts in 2018, the portfolio Personal Capital managed for us earned 4.9% annually. This is significantly lower than the risk-adjusted “moderate historic” ROI target of 8.3% Personal Capital advertised and even worse in one of the best bull markets for a long time that easily returned more than 12% each year during the same period.
When we confronted Personal Capital with this significant performance gap, they responded that our “claim was without merit: As written in our “Client Agreement” [..], it is explicitly stated that you understand that (a) investment results cannot be guaranteed, (b) past performance may not be indicative of future results, and (c) your investment decisions on my behalf may be different than I or other investment managers would have made under the circumstances.”
The objective observer may realize the irony of this response in one of the most bullish markets we had in years.
In retrospect, we made another peculiar observation, the consequence of which we only now understand too well. Overall, Personal Capital has great analysis tools and a nice user interface. However, the key analysis tool that is standard with any other broker we worked with, is suspiciously missing on Personal Capital’s webpage: The portfolio performance compared to generally accepted benchmarks.
After Personal Capital unduly delayed the immediate liquidation of our accounts we had requested, we transferred our accounts to another institution. As a result, we had to liquidate nearly 100 micro-positions ourselves, a time consuming and costly affair. Noteworthy, but in line with our overall experience, Personal Capital refused to reimburse us for the related transaction fees.
However, our losses with Personal Capital did not end there. Personal Capital claims: “Tax optimization – We do this by applying tax loss harvesting, reallocating assets to tax-deferred accounts, and helping you realize higher yields in your retirement account.”
When we liquidated our underperforming IRA and taxed investment accounts, we realized that in addition to the abysmal underperformance, the gains had actually accumulated mostly on our taxed accounts, while the performance on the tax-deferred accounts was even worse. Hence, in addition to losing years of retirement savings, we now have to bear the cost of Personal Capital’s failure to optimize and reduce tax.
Adding insult to injury, we paid Personal Capital sizable fees for their abysmal investment performance. Personal Capital advertises: “We have much lower fees than traditional brokers.”
18 percent of the total return Personal Capital made for us was consumed by the fees Personal Capital charged us over the years. Bottom line, Personal Capital has a one-sided business model: They can invest their customer’s money any way they like. They do not hold themselves accountable for their advertising and for the results of their investment strategy. They refuse and obfuscate any comparison of their investment performance with generally accepted investment benchmarks. Independent of investment performance, Personal Capital claims sizable service fees. Good deal for Personal Capital, an abysmally bad deal, at least for us!
Our recommendation: Check the performance of your holdings with Personal Capital against the relevant market benchmarks today! Otherwise, you may end up losing like us.
Bottom Line: No, I would not recommend this to a friend
32 people found it helpfulLink to this Review