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Personal Capital Advisors: TAX MANAGEMENT (Updated 2018)

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  • Personal Capital Advisors: TAX MANAGEMENT (Updated 2018)

    I'd love to get input from anyone that is using or has previously used Personal Capital's Financial Advisors.  I've searched the forum and while there are posts that talk about their advisors, I haven't found any that specifically address what was pitched to me as their main selling feature; TAX MANAGEMENT.

    Personal Capital offers both their free dashboard to see all of your accounts in one place and a paid financial advisor service with an Assets Under Management fee that is tiered  (<1M 0.89%, 1-3M 0.79%, 3-5M 0.69%, 5-10M 0.59% and >10M 0.49%).  Their recommendation for me was an 80% Stocks (70% US, 22% Developed International, 8% Emerging Markets) 10% Alternatives (US Real Estate, Int'l Real Estate, Gold, Energy, Food, Metals) and 10% Bonds (US Gov, US Corp, Int'l, US Inflation Protected).  All US Stocks would be Individual Stocks and all Non-US are ETFs.

    Their analysis of my current portfolio was that I am overweighted in technology and financials and underweighted in other sectors such as utilities and materials.  He recommended a more balanced sector approach which would provide equal weight to all 10 sectors (Communication Services, Consumer Cyclicals, Consumer Defensive, Energy, Financial, Health Care, Industrials, Material, Technology & Utilities).  They would accomplish this by purchasing 100 individual US stocks, 10 stocks per sector.

    Being in a high tax bracket, the main benefit that he kept pointing out to me was their TAX MANAGEMENT PROCESS.  His claim was that it may result in 1% savings annually, which would of course cover their AUM costs.  The tax management process involved Tax Efficiency (Avoid tax-inefficient mutual funds, Use ETFs and tax-managed individual stocks), Tax Location (Put income generating assets in tax deferred accounts, Put capital gain generating assets in taxable accounts), and Ongoing Tax Loss Harvesting (Identify and sell securities with unrealized tax losses to offset taxable gains and optimize your taxes)

    He showed me the Tax Cost Ratios for my current accounts, which ranged from 1.76% for DISVX (Int'l Small Cap) to 0.43% for VTI (Vanguard Total Stock Market ETF).  I was pretty surprised to see how high those were.  So total ratios would be 2.44% for DISVX (1.76%. tax cost ratio + 0.68% expense ratio) and 0.47% for VTI (0.43% tax cost ratio + 0.04% expense ratio).

    He stated that their Tax Management system allows them to bring that tax cost ratio down to almost 0%.  The key to this system is owning those 100 individual stocks rather than having those stocks mixed into a large mutual fund where they cannot to manipulated individually for tax purposes.  He described their services as passive investing with enhancement.

    I'm fairly new to investing and while I understand the basics of things like tax loss harvesting, I've never done it and am by no means a tax expert.  So, I'd love to hear from others if they think this makes sense?  Can they save people 1% in taxes?  Has anyone used their services and found this to be true?  Does it make sense to own 100 individual US stocks vs using ETFs and mutual funds of the total stock market?

    I have a follow up with him next week to either sign up with them or part as friends.  Any help/input would be greatly appreciated!

     

  • #2
    - it makes sense in theory. however in the real world its a little more complicated.

    - you definitely need to pay attention to tax efficiency in a taxable account. every move you make causes consequences.

    - equal weighting has been dispelled multiple times in the past. theres a reason why market weight is the gold standard

    - you may save 1% in taxes. you may save nothing. 9 years into a bull market, there have been pockets of TLH opportunities, but still waiting on 2008.

     

    i doubt you will be able to overcome the AUM. but i have no experience.

    but i will tell you, they wont put it in writing that they guarantee to always save you on taxes.

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    • #3
      i urge you not to drink the kool aid.

      no way they cover their costs long term.

      especially if you are a new investor and the market stalls.

       

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      • #4
        i don't use them (other than the free platform  for tracking), but this is essentially our tax strategy. we have just under 100 stocks and use buy and hold strategy. There are no capital gains (rarely a company will undergo a merger, acquisition or something generating one, but 99% of the time every year we have zero capital gains..we have some funds in our employer accounts...but those are tax sheltered).  The stocks kick off equal income to when i was working part time...so that is the other advantage as the dividend yields can be much higher (though while we still work, and now i'm full time, it isn't helping with taxes but at least lower than ordinary rates).   And we pay no AUM fee as we DIY.  In the beginning we had to pay for trade commissions (remember once there was no internet and you had to call people to buy anything, even a fund)....as years progressed now we trade for free.  Rarely over the years we will dump something and then tax loss harvest, but it has become increasingly more difficult because after 20 years there isn't much for a loss anymore with our collection.....at least like Peds above said...we would have to wait until a market tank to take advantage.......  I agree with this being called "passive investing"....i don't do anything with my portfolio other than just dump money in...... how much savings 1% really is varies on your tax burden.  Personally, i wouldn't do it just because i'm a DIY, but i agree with their strategy as it has worked for us.

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        • #5
          Nope.

          First I don't know what a tax ratio is, but a three fund portfolio is highly tax efficient.

          Second what minor edge they are selling does not take into account tax loss harvesting that you could do if you want.

          Third you are giving up a lot of diversification (going from holding over 5000 stocks to 100.)

          Fourth Vanguard is insanely efficient when it comes to buying stocks-transaction costs, routing, obtaining best price can't be matched by you or me.

          I could go on but let me leave you with this- There is a reason advisors try to make this more  complicated than it is-they are trying to pull the wool over your eyes and justify the fees.

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          • #6
            In any post that discusses specific people and specific companies, we need to be very aware of libel laws. Stick to facts and clearly identify your opinions.
            Helping those who wear the white coat get a fair shake on Wall Street since 2011

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            • #7




              First I don’t know what a tax ratio is, but a three fund portfolio is highly tax efficient.
              Click to expand...


              a tax cost is how much taxes add to the ER. so if you paid an extra 0.32% in taxes on a fund that costs 0.04%, you are actually paying 0.36% cost on that fund.

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              • #8
                I understand a tax cost, not aware of tax ratio when discussing mutual funds I think the term may be tax efficiency ratio.

                 

                 

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