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Online Advisor Personal Capital Lowers Account Minimum

Nov. 18, 2015
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One of the biggest perks of robo-advisors is that they make financial advice accessible, with significantly lower fees than what human financial advisors charge. But that accessibility has, in some cases, been challenged by high minimum initial investment requirements.

The tides, it seems, are beginning to turn: Personal Capital announced Wednesday that it is lowering its minimum initial investment requirement by 75%, dropping from $100,000 to $25,000. It’s the latest online advisor to drop its funding minimum; TradeKing Advisors and Wealthfront made the move earlier this year.

Expanded access to financial advice

Personal Capital, which falls into more of a hybrid advisor category, as it combines management by computer algorithms and dedicated financial advisors, had long held one of the highest investment minimums. The company says its move to lower that threshold is rooted in a desire to broaden access to financial advice.

“We made the decision to lower our minimum because we recognize that many Americans are just now entering a more complex financial life and we want to give them access to an experienced advisor to help guide them through any financial obstacle,” Bill Harris, Personal Capital’s CEO, told NerdWallet by email.

The move is likely also rooted in a desire to expand its customer base. Harris said Personal Capital currently has over $1.7 billion in assets under management, less than what larger advisors Wealthfront and Betterment hold. Betterment has grown from $1 billion in AUM in January 2015 to over $3 billion today; Wealthfront hit $2 billion in March. Its website says it currently stands at $2.6 billion.

Unlike those two robo-advisors, Personal Capital offers various tools at no charge, whether or not the user invests with the company. It says more than 1 million households use its tools.

The company will now offer two tiers of paid service, one for clients with $25,000 to $100,000 in assets and one for clients with more than $100,000. The latter group will receive a second dedicated financial advisor and optimized tax opportunities, with access to individual equities. (As is standard with robo-advisors, Personal Capital portfolios are typically invested in exchange-traded funds.)  The company says its clients pay an average management fee of 0.89% of assets annually.

New minimum still high among robo-advisors

Other advisors who have lowered their minimums had requirements that were already significantly below Personal Capital’s initial minimum. Wealthfront lowered its minimum from $5,000 to $500 earlier this year. At the time, the company said the move was in response to repeated requests from young investors.

Wealthfront charges no fees for the first $10,000 invested; after that, the annual fee is a flat 0.25% of assets.

TradeKing Advisors, a robo-advisor from online broker TradeKing, which is known for its low stock trading commissions, has lowered its minimum investment requirement twice since launching in June 2014. The company offers two account tiers, which launched with minimums of $10,000 and $25,000 and now carry minimums of $500 and $5,000. In a statement to NerdWallet, Rich Hagen, CEO of TradeKing Advisors — which has also reduced its management fees — said the move was in keeping with its “philosophy of affordable accessibility and to ensure it remained extremely competitive in this market.”

Harris points to Personal Capital’s dedicated financial advisor offering as justification for its still-higher minimum, noting that the personal touch is essential. “Think of it this way: Anyone can use the data provided from our service to make small changes in their financial behavior, but you really need a coach along the way to help you plan for some of life’s biggest moments, like buying a house, having a kid or paying for college. An algorithm can only get you so far.”

Advisors with no minimum

Betterment has no account funding minimum. The company does charge $3 a month to accounts under $10,000 that don’t enroll in auto-deposit, which works out to over 7% on a $500 balance. Those who do initiate auto-deposits are charged 0.35% until they hit a $10,000 balance, then the fee drops to 0.25%. Accounts with balances of $100,000 or more are charged just 0.15%.

And Blooom, which manages 401(k) accounts, also has a $0 minimum.

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Arielle O’Shea is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @arioshea.

Image via iStock.