- Personal Capital is a startup known for its free platform, which allows people to plug in their bank and investment accounts to see all their financials at once.
- CEO Jay Shah says Personal Capital has been monetizing the business by getting richer clients to pay for financial advice.
- The startup recently raised an additional $40 million in outside funding.
A popular fintech startup is banking on rich people to power its business.
Personal Capital is known for its free platform, which allows users to plug in their bank and investment accounts to get a one-stop to track budgeting and spending, asset allocation, and fees they’re paying to asset managers.
Personal Capital also runs a financial advice business, for a much smaller, and overall richer, slice of the population. That unit charges users a flat fee to get access to Personal Capital’s advisors. To get a dedicated financial advisors, users are charged a fixed fee and need at least $200,000 in investable assets. The more millions one has to invest, the lower the fees.
The company is managing assets for Americans worth about $4.9 billion, and increasingly the customers are more affluent, Personal Capital’s CEO, Jay Shah, told Business Insider in a recent interview.
Shah declined to say how many of the company’s estimated 1.5 million free users convert to paying for financial advice from the free platform.
The company recently raised an additional $40 million in a Series E funding round and plans to invest in more marketing, technology and financial planning for customers.
Personal Capital is a fiduciary, meaning its advisors are legally required to put their clients’ best interests ahead of their own. That setup is not standard throughout the US’ financial advice model.
The Obama Administration had pushed through the so-called fiduciary rule, which was to reduce conflicts of interests for advisors overseeing Americans’ retirement accounts. President Trump has vowed to roll this rule back. Earlier this month, the Labor Department, which oversees the rule, announced that it would push back the rule’s implementation date until next year.
Business Insider caught up with CEO Jay Shah to get a sense of where the company is headed.
Responses have been edited and condensed for length and clarity.
On Personal Capital’s pitch to the rich
“It all starts off with the free dashboard. All of our users will come into the dashboard and link their financial accounts. Our typical affluent or high-net-worth individual, they have 15 or 20 different accounts, so it’s a lot of stuff. The dashboard lets them see not just their investment portfolio but their spending, their savings and most importantly, it lets them see their cash flows, which is very important to how we might design a solution for them.
“We have a segment of our free user base that will just continue to use our free software and that’s just fine, we’re doing something that we think is slightly philanthropic and trying to help people see and understand their financial lives.
“When it comes to people that have complexity and substantial assets, we have found that when they engage and when they look at what we offer as a solution, they find value there. To be clear, when we win new clients, about half of those come from advised relationships where our software allows us to go take a close look and say, ‘Are these assets being strategically managed? Are they well diversified? Is there an effective fee structure?'”
Who is paying
“We’re about $4.9 billion in assets under management in managing these US households’ money. And increasingly, these are more and more affluent and getting into the high-net-worth range for our customers. About 40% of our assets now are in portfolios that are greater than a million dollars.
“Increasingly, it’s folks with complexity and not a lot of time to control it and manage it themselves.
“The sweet spot are these accumulators in their 30s, 40s, 50s.
“Our average client is having us manage about $385,000 in their wealth. Now we’re not managing all of it, they might have active 401(k) accounts that we don’t manage.”
Why Shah thinks people will pay up
“We see a lot of mutual funds and active fund management and it just doesn’t make sense for the everyday investor, so they’ll switch over to us because it’s a much better answer. And importantly, they get an adviser. These are complex individuals. Our typical customer is a household and many times it’s a couple, many times they have children, and they have a ton of complexity.
“So it’s easy to say, ‘OK, this dashboard shows me everything, I’ll go manage it myself.’ But we go deep into what we do in portfolio construction and tax optimization.
“One thing that I think of is it’s much like the inflection point for a consumer when you start working a job when you have a single pay stub and have to pay a tax bill. It’s fine, you can do it, but when you start, you know, getting into multiple accounts, 15 to 20 accounts across a household and you’re needing to do tax prep, stock options, retirement accounts, and, “Oh goodness, I’ve got AMT’ and things that require a professional assistant, then people hire a CPA.”
Where Personal Capital will expand to
“I don’t think I’ll get into specific things that we’re considering and building.
“That being said, there are many things we could do. I would think about mass affluent, high net worth, what are the topics that are important to them. They want to do trust and estate planning, taxes are important to them, what other solutions might be form fitting for them? So insurance is a heavy topic for our customer set. I’m talking about the broader range of viable topics.”
On peoples’ concerns about handing over their bank logins
“We actually believe the solution we have is one of the safest environments where these users can operate.
“Once your information is together in a single destination, it allows you to see everything that’s going on and whether or not there’s anything happening in your accounts. We also have features that users can set up – I use this myself, every single day, I get a full manuscript of every single transaction in every one of my accounts. It’s a great canary in the coal mine.
“Importantly, when you put all this information into one single location, clients are not going to the individual institution. Most of that malicious activity is on that desktop, it’s on that open internet when users are transacting their credentials every single time they log into one of these end points.
“Once all of this is set up in our dashboard, it’s all read-only. This isn’t where we’re actively moving money around or it’s not a lot of money in motion stuff, it’s just one cohesive place.”
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