Nearly two years ago, industry rumors swirled around Personal Capital that it could be up for sale.

Personal Capital CEO Jay Shah says from inside the firm at the time, the hybrid advisor remained focused on proving its model to investors.

Now, Shah can contemplate opening new offices, more advisor hires, acquisitions and an eventual IPO, having won the the patronage of Canadian conglomerate Power Corporation, which has pledged millions in investments.

In the second of two parts, Shah discusses why Personal Capital changed its advice pricing and what's next for the platform. An edited transcript follows.

With more firms investing in hybrid advice offerings, there’s going to be more competition for talent to staff call centers. How will the firm continue to find additional advisors?
First, I would note that we are a full-service wealth management firm staffed with highly trained financial advisors, not a call center. We’ve been very fortunate. We’re a Silicon Valley-based firm and in my view we had to make sure we had the appropriate recipe first. Is what we’re doing a consumer-centered value proposition, is it being perceived that way? Are we able to grow the business that way? It took us a couple of years of iteration, specializing roles and process to get it right. In 2013, we felt there was an opportunity to scale. We went to Denver, specifically because there is a rich talent pool there. Many people don’t know it, but it’s the most concentrated metro area of investment professionals anywhere in the United States. So some of us who were part of the formative team went to Denver, and we also started hiring very skilled and talented people. They all have a track record of success in advising people, either in acquiring or serving these types of consumers. We’ve expanded in Denver recently and we plan to continue to expand with this new round of capital. We’re going into new markets: Southern California, Chicago, Dallas and Atlanta.

It’s a different story for Personal Capital now. Not long ago there were reports about acquisition. After Power Corporation announced its investments, it seemed your firm got a new lease on life.
Having been here since day one, I can say growth is not linear. As in any enterprise when you are in the leaner startup years, you have to emphasize where you are going to invest and grow. And as a hybrid, it’s very capital intensive. Wealth management is a very considered purchase, so how do you make multiple impressions for mass affluent and the high net worth space, build a very sophisticated marketing engine, and then actually effectively get a message out to people when you are a startup organization? Is that tough to do when you’re small, especially when you spend a lot of money in building an advisory service and a technology firm? It was very, very difficult.

But at the time, we were at an inflection point, showing our proof points that with further investment and subsidization we could go larger and actually make this a more broadly understood offering. That was the basis for the capital, it wasn’t, ‘Oh, this thing is really struggling, here comes a white knight with capital.’ I don’t think anybody invests that way.

Assets under management have gone up substantially after the new investment, though.
Yes, because we were able to invest in the growth strategies that we’ve had. Some of that is in marketing, some of that is going deeper into the technology and making it just a much more effective conversation. But the other aspect is also product market fit. Power has been around for about a year and a half and in that time we announced our new tiering strategy, where we are actually building a feature set around different client segments. I can’t underscore how important that is. It’s not just this digital investor, it’s not this digital mass affluent investor. Clients are in different segments of the marketplace that have very sophisticated needs. Below 100K, that’s a choice we’ve just elected not to deploy, at least at this stage in the game.

At one point, Personal Capital did.
We did, yes, we went down to $25,000. What we’ve done though is we’ve decided where we can deliver the most value most effectively for the customers we serve. When you’re going through the inflection of growth as a startup firm, from the outside, people will say, ‘Oh, Personal Capital is raising money, it’s taking a long time,’ or, ‘Their growth is really stagnant.’ That’s one way to look at it. The other is this company is spring loaded right now with a growth strategy and with some more capital, watch out what might happen. I’m very proud to report, the strategies that we embarked on back at that time when we raised the capital and what life has looked like in serving our clients since, that’s now what you see. People can say, wow, what happened, or what changed, was it just the capital? Well, the capital has to be deployed with a smart strategy.

"The hybrid model is what we deemed to be the winning model from day one," says Personal Capital CEO Jay Shah.
"Is [growth] tough to do when you’re small, especially when you spend a lot of money in building an advisory service and a technology firm? It was very, very difficult," says Personal Capital CEO Jay Shah.

Power Corp. is also invested in Wealthsimple, which is targeting millennial investors with digital advice too. Is there a two-pronged strategy here?
Power is an investor, one of many investors, so they don’t control our firm. They’ve been fantastic investors but I would characterize [Power’s goal] as value creation, that’s really what they’re all about. They have a very rich and broad deployment, not only in Canada but globally, and not only in wealth management but across insurance, they have a massive retirement platform. They’re all over the place. Could there be complementary strategies, absolutely. Is that something that’s driving our existence or how we’re growing as a firm? Absolutely not.

If there is an opportunity to innovate and integrate offerings that are good for the consumer, then it’s something that we would absolutely consider. But that’s where I would start. And are we considering other solutions for consumers, all the time. It’s a lot to build a technology company and a financial services company, to build a hybrid advisor, it’s a lot. So focus is important, in order to build and effective business along the way. One thing we said at launch is we have so much potential, but if you try to do all that stuff, and build it all out, it is probably going to fall on the weight of itself.

Would Personal Capital consider an acquisition for growth?
I wouldn’t say that it’s off the table. But we offer a very consumer-centric experience that starts with people using our dashboard. That’s much different than acquiring a firm and assets and moving clients onto the service. So those are fundamentally different things. Our process has been a great strategy thus far, serving and onboarding organically rather than doing it through acquisition.

What do you tell advisors about the future of the industry?
There is something very true about how a breed of advisors is dying off right now and how do we as an industry replenish this workforce. [We’re seeking] this important segment of people who can remap their skills and do something differently. When you look at the optimal candidate that we bring in, it’s clearly people that have experience, but also just to be clear, we actually build a lot of our advisors in-house. We create multiple internal roles to educate and train advisors and, you know, we’re going to year six. We created multiple internal roles to recruit, educate and train advisors and we’re going to year six. Essentially, we’re developing a new base of financial advisors with our philosophy to serve our clients. Investing in our people is very important to our firm, it’s very important to me, and if you take a macro view of that, it’s replenishing the workforce.

Can you elaborate on the IPO question? For Personal Capital, what will it take to get there and when does that happen?
If you look at what’s out there right now, it’s not a winner-takes-all market; it’s not, which one of these digital wealth management firms takes the first move? If you look at this industry, which has been around for a really long time, and if you look at the titans, so to speak, no one has greater than a few percentage points of market share, and they are all very successful businesses. Some are publicly traded, some are privately held, there’s everything.

First and foremost, we’re in the business right now of building a great solution for consumers and this mission of better financial lives through technology and people. We’re going to continue to grow with this hybrid model that we’ve been doing since inception, and as we continue to grow in strength, is the public market going to be an opportunity for us? I absolutely think so.

Is an IPO something that we will do? We’ll know when the time is right. It’s something that we can put ourselves in the position for, but it’s not something we’re distracted by. But my feeling is there are so many other things that we’re doing right now to build our business. I also don’t feel this is an arms race. I mean, it’s such a big space to be in.

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