Before starting this blog (a whole week ago), I spent most of my time and energy learning about personal finance through good, old-fashioned books. To a lesser extent, I included a steady stream of newspaper and magazine articles in my diet, but I mostly stayed away blogs.1 In order to best acquaint myself with my online neighbors, I recently began to check out the personal finance blogosphere. It started as mere curiosity, but before I knew it I found myself mad like Kurtz in Conrad’s Heart of Darkness, meekly whispering, “The horror! The horror!”
The Internet is filled with a lot of mediocre and non-replicable, and therefore useless, advice. That, however, is not the focus of today’s gripe.
In my scouring of the web, I was amazed at the times I encountered unbridled enthusiasm in the personal finance community for a money management app/service called Personal Capital. Blogs like Investor Junkie, CashCowCouple, Wallet Hacks and Financial Samurai were fans. Frugalwoods dedicates a whole section in their monthly expenditures post describing how it’s “a great way for us to systematize our financial overviews since it links all of our accounts together and provides a comprehensive picture of our net worth.” Naturally, such fervent zeal left me skeptical; I’m usually wary of when someone displays effusive eagerness to promote a 3rd party commercial enterprise.2
Click the link for Personal Capital on any of the aforementioned blogs and it’ll take you to a sign up page that does very little explaining about how the service works and how much the (full) service (really) costs. This was another red flag. My suspicions fully bore themselves out when I read the fine print at the bottom of the page:
“The statement is provided to you by [insert personal finance blog owner here] (‘Author’) who have entered into a referral agreement with Personal Capital Corporation (‘PCC’), through which Author will be paid between $70 and $150 for each person who uses this webpage to register with Personal Capital and links at least $100,000 in investable assets to Personal Capital’s Free Financial Dashboard.”
This is a classic conflict of interest. Party X is offering a referral, under the guise of impartial advice, of party Y’s services, but is compensated by party Y. And party X is paid handsomely for its referral: $70 – $150!3 It rubs me the wrong way. Of course, this isn’t actually enough to prove that Personal Capital isn’t worth your while. Perhaps, it’s a fantastic service that also happens to dole out referral kickbacks. Problem is I’ll never know because, at this point, I have no intention of trying it.
Much of Personal Capital’s tools are free (so I’ve read), but should one sign up for its full services, its financial advisory fee is 0.89% if your assets under management total less than a million dollars.4 That is very high compared to Wealthfront, Betterment, and Wealthsimple (none of which compensate me); in fact, it’s more than double their fees. Additionally, Personal Capital’s minimum is $100K. Compare that to Wealthsimple and Betterment that have no minimums and Wealthfront’s $500 minimum. The differences are stark and jarring. If fees are generally indicative of performance then it would stand to reason that one best steer clear of Personal Capital.5 Meanwhile, if you’re just looking for free, easy budgeting try Mint.
If you’re just starting out you can safely pass on Personal Capital for any number of other financial aggregators-advisors. Of course, do your research. There’s no substitute for due diligence. If you feel differently let me know as I’d love to hear from you, that is, unless you’ve been compensated by Personal Capital.
1Such a distrust of blogs is an unfair bias born of the memory of the early days of LiveJournal, a precursor to modern blogging sites. If you are part of the small segment of the population that went to college sometime between 2000 and 2005, you might remember it; you also might be surprised to find out 1) it still exists 2) it’s been owned by a Russian media company since 2007.
2Full disclosure: this website does use the Amazon Associates program to advertise books. They aren’t random books, but rather books I’ve read or are currently reading. Theoretically, I’m compensated if someone were to click a link and buy a book (or, interestingly any other product), but since this blog currently has a total readership of three, I assure you, I’m not quitting my day any time soon.
3Nerdwallet gets a whooping $1,500 if you pay for a subscription to Personal Capital’s advisory services.
4I suspect if you’re reading this, your assets are under a million dollars. If they’re over a million dollars, congratulate yourself. You’re my first millionaire reader.
5There’s substantial research that costs are a good predictor of success for funds; the lower the cost, the better the performance. I have not seen research on fees for advisement services and their relationship to performance, but the basic principle is the same. The more you spent, the less you make.