SAN FRANCISCO - How should advisors think about Personal Capital?

Like many of the firms dismissed by rivals as "robo advisors," the technology-centric RIA has grown up in Silicon Valley with venture capital backing. It focuses on digital delivery of advisory services, and prides itself on the personal financial management software that it gives away for free.

Yet the San Francisco-based RIA has over 50 advisors in two cities, says founder and chief executive Bill Harris -- although most clients will meet their advisor only virtually -- and targets investors up to 60 years old.

Personal Capital has also eschewed the online competition's low fees and low minimums: It charges 89 basis points, has a $100,000 minimum per household for paying customers and just began offering a new Private Client service for customers with $1 million to $10 million in investable assets.

So why would clients pay the same fee traditional advisors charge but not get to see their wealth manager in person?

"Most of those clients would view that as an advantage of our service," Harris says. "They don't want to have to go an office. They want to leverage the technology that's available."


Indeed, technology is at the heart of Personal Capital's operations. The free software "is the most important part of our entire service," says Harris, a Silicon Valley veteran who was the former chief executive of Intuit and PayPal. "The software collects comprehensive personal financial data … and lays the foundation for our goal of providing an end-to-end system to help people manage their money."

The free software service has been an excellent source for leads, Harris says.

Approximately 500,000 people use the software, he says, adding that about 5% of the users with $100,000 in investable household assets have moved over to Personal Capital's fee-based service.

Personal Capital now has close to 3,000 clients and around $800 million in assets under management, Harris says, amounts which have tripled over the past year. The RIA has seen an average monthly growth rate of 10% over the past 15 months, he adds.


Last month the firm launched its new Private Client service for clients with over $1 million in their accounts. These clients will receive a free iPad and be offered customized portfolio strategies based on their personal data. Investment options will include individual stocks vetted by Personal Capital's investment committee.

Face-to face meetings will also be available with advisors, mostly in the firm's San Francisco and Denver offices -- but as is the case with the firm's other clients, most interaction will be virtual, conducted either over the phone, email or on video screens.

These high-net-worth clients will be charged on a tiered basis, starting at .79 basis points on $1 million to $3 million in assets with break points down to .49 basis points for $10 million in assets and up.

"We already had success with clients who had over $1 million, so we decided to formalize the process and capitalize on it," says executive vice president Kyle Ryan, who will head the new service. "From our data we could see that those high-net-worth clients were getting a higher level of touch from their existing wealth managers, but not necessarily a better overall service."

About 100 existing clients qualified for the Private Client service, and around 50 more signed up last month, with most becoming paying customers after using the free software, says Ryan, who cut his teeth in the business with Fisher Investments, which also mines prospects who sign up for free material.


Wealth management veteran Jeff Spears, chief executive of San Francisco-based platform providers Sanctuary Wealth Advisors, gives Personal Capital credit for recognizing the market demand for higher-end services.

"As the industry matures, you're seeing two service models evolve," Spears says. "The digital advisors are targeting an underserved market with unique needs by commoditizing products and offering low fees. But when those people have more money, they're not going away and will want more service and be willing to pay for it.

"If Personal Capital does it right, and gives them what they want," he adds -- "especially in markets away from big money centers, then there's real potential."

Personal Capital's investors, including BlackRock, Crosslink Capital and Institutional Venture Partners, are hoping Spears' assessment is on target. The 3-year old RIA has already gone through three rounds of funding totaling nearly $60 million, with a fourth round planned for the end of the year.

Harris says the company will become cash flow positive by the end of next year, arguing that because Personal Capital charges higher fees, it doesn't need "the same kind of scale" as its digital competitors. Personal Capital needs around $3 billion in assets to make its business model work, he says, while lower-cost firms will require "tens of billions" in AUM to become profitable.

"Personal Capital is built to be an enduring independent company," Harris says. "We're not built to sell."

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