Revived by an aggressive pricing strategy, new partnerships and the backing of a wealthy partner, Personal Capital has seen a near 56% increase in its AUM since the end of 2015.
“Consumers have been demanding transparency," Personal Capital Vice President Mark Goines said about the company’s growth. "Technology is the way transparency can be efficiently accessed, and we have fiduciary duty on behalf of our customers.”
Personal Capital's total AUM is still roughly half of the leading independent platform — it announced on Thursday it crossed the $3 billion mark, while Betterment's AUM now stands at $5.8 billion — and deep in the shadow of Vanguard's Personal Advisor Services' $36 billion, which analysts have described as a replica of Personal Capital.
But the firm is on much firmer ground than last year, when industry observers wondered aloud if it was going to be acquired. That chatter subsided when IGM Financial committed $75 million in E Series funding in May.
The November decision to lower its minimum from $100,000 to $25,000 "surely helped the firm pass the $3 billion mark,” says James McGovern, vice president of Consulting Services at Corporate Insight.
The average Personal Capital client invests more than $300,000, the firm said.
McGovern added the company’s recent partnership with BancAlliance also “generated some valuable publicity.”
CHANGE IN TONE
The hybrid robo's “rather unique” business strategy has helped it forward, says Bill Winterberg, founder of FPPad.
“Personal Capital has one of the more clever lead-generation strategies relative to the other digital advisory businesses,” Winterberg says. “The adviser uses technology to manage their relationship and the technology, in theory, should create a hyper-personalized experience.”
Blockbuster industry deals and unforeseen shifts in client attitudes are altering future forecasts for digital advice.
A Personal Capital client will sign up to use its free dashboard platform, which aggregates all their assets and holdings. After signing up for the free service, clients are contacted by a financial adviser.
“Everyone understands when they accept the terms and conditions they are consenting to be contacted by advisers in order to be introduced to the paid services,” Winterberg says.
Lex Sokolin, the global director of fintech strategy for Autonomous Research, notes because Personal Capital has always presented themselves as a premium business offering a live adviser, it has targeted a different demographic than Betterment or other competitors.
“They have human beings that you can video call and review your finances with together," Sokolin says. "Betterment also has help but it’s not as hands on.”
That difference also helped it find new investors, Sokolin adds, as it tapped into a trend among established financial institutions seeking fintech partnerships to increase distribution, such as Eaton Vance's investment in another Silicon Valley digital advice provider, SigFig.
"The tone of investments has changed,” Solokin says.
BENEFICIAL TIDE
Solokin echoes the idea that clients are becoming more comfortable with digital advising because of marketing pushes from bigger firms like Vanguard or Schwab.
“(The more established firms are) doing a ton of marketing for digital advising,” Solokin says. “It seems natural that the tide would lift all the boats. Personal Capital will benefit from that tide.”
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Previous investors were happy to let a Canadian firm be the sole investor, says Bill Harris, CEO of Personal Capital.
May 19 -
A private equity firm will help the robo RIA evaluate financing options.
December 10 -
Chief Executive Bill Harris says data alone is not enough for financial advice.
September 15
A lingering question is how Personal Capital can continue to scale the hybrid model. Winterberg, in particular, questions whether or not it will have the customer service needed to handle an increase in clients.
Goines says Personal Capital will keep up with demand through partnerships, like the deal they struck with Alliance Partners in July. That partnership allows Personal Capital to offer its services to mid-size banks, which diversifies its client demographic.
“We believe we’ve gotten enough capital to reach profitability,” Goines says. “We are in engaged in a number of partnerships to help grow our business.“
