Personal Capital, the Silicon Valley digital wealth management firm founded by former PayPal and Intuit CEO Bill Harris, says it plans to hire 100 new advisors over the next two years.
Most of the advisors -- who will only work with clients remotely -- will be based in the companys Denver office, which opened this week. Personal Capital, which has nearly $250 million in assets under management, also has offices in Redwood City, Calif., and San Francisco.
I think its inevitable that over a five- to 10-year period a very significant portion of investment management services will be delivered digitally and remotely, Harris says.
Personal Capital is only one of a number of fledgling, online-oriented RIAs trying break into the financial advisory market using a digital platform based on state-of-the-art algorithms and account aggregation software.
The 2-year-old firms website provides free financial advice on issues like asset allocation, budgeting and rebalancing. Clients who have $100,000 or more under management at the firm receive more sophisticated analytics, personalized portfolio management, free trading and virtual access to advisors for fees starting at 95 basis points.
FLOOD OF VC MONEY
To be sure, it's not the only firm with big hiring plans: Rival LearnVest announced plans earlier this year to hire 100 advisors by end of year -- although a form ADV filed in late July reported only 20 advisors on staff -- and is planning a remote hub in Phoenix.
And Personal Capital has a long way to go. It has 250,000 people using its software for free, but only 1,000 paying clients being served by 15 advisors, according to Harris.
Yet Silicon Valley venture capital money has been flooding into the nascent digital advisory space.
Personal Capital, whose investors include BlackRock, the countrys leading asset management firm, has raised more than $50 million to date, including $25 million from a new round of funding in June. Other online-based financial advisory startups have received a total of close to $200 million in private equity investments so far this year, according to industry estimates.
Tech-savvy investors are attracted to the new digital companies because the financial advisory business is ripe for change, and because its such a huge market -- an estimated $32 trillion in individually managed investable assets, says Harris.
The shift to digital wealth management isnt being driven simply by a younger demographic, Harris maintains.
Tech adoption skews young, but having money and financial complexity skews old, he says. And this is the way people live now -- the penetration of digital and mobile devices in affluent households is close to 90%. Its part of the transition from physical to virtual distribution.
While Harris believes there will always be a need for human advisors, he thinks clients will increasingly prefer virtual contact. Everyone is mobile now and they will expect contact with an advisor by phone, online or on a screen, Harris says. I think one of the most beautiful moments will be co-browsing, when the advisor and the client are looking at the same information on the same screen at the same time and discussing what they want to do.
Indeed, Personal Capitals business model is a rich information base upon which an advisory relationship can be built, he explains.
Industry veterans like Tim Kochis, principal and former chairman of the San Francisco and Los Angeles-based wealth management firm Aspiriant, acknowledge the potential of the online platform model.
The venture capital money is certainly a validation of the opportunity, says Kochis. There is still a huge unmet need for comprehensive and unbiased financial advice.
But advice based on algorithms misses the human ability to detect patterns and take dynamics into account," he notes. "Its not impossible to do it with software, but its difficult and these companies arent the first to try. No one has pulled it off yet.
Despite the slow start, Harris predicts that within the next decade, much of the financial advisory industry will be doing what Personal Capital is trying to do today.
At present, however, too few people are pushing in the digital realm, he says. As for those who are, I encourage it. I dont see them as competition, but as comrades in arms."
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