Wealth Management for the Internet Age

By Brad Stone

Harris was CEO of Intuit from 1994 to 1999 Lionel Alvergnas/Alamy

The Internet has changed how we pay our bills and apply for loans. What has not evolved as much is the relationship between wealthy individuals and their financial advisers, who manage their clients’ holdings, take an annual cut of overall assets, and periodically offer updates in person or over the phone.

Bill Harris has a plan to bring this kind of personal wealth management into the Internet Age. A longtime Silicon Valley veteran and a former chief executive officer of Intuit, Harris has quietly worked for two years on a startup called Personal Capital, raising $27 million in financing. Harris hopes to create a new kind of financial-services firm catering to moderately wealthy individuals whose net worth—from a couple hundred thousand dollars to a couple million—is not quite fat enough to attract the high-priced investment advisers at Morgan Stanley or Goldman Sachs. “We want to bring personalized, high-end wealth management services to a part of the market that is fundamentally underserved,” Harris says.

At the center of Harris’s plans is a free site, personalcapital.com, that will help people track their finances and improve their portfolios. When the company formally launches in September, visitors will register their various bank accounts, investment accounts, 401(k)s, mortgages, and credit cards. They’ll get assessments of their exposure to risk and their allocations in various asset classes and geographies. They’ll also be able to measure the fees on their mutual funds and judge whether the performance justifies the price. Some of this mirrors what’s available on other sites such as Wikinvest and Sigfig.com, and with personal financial management software such as Mint.com.

Personal Capital wants to go further. It plans to match customers who seek hands-on help with one of its registered investment professionals. That is the part of the business that Harris calls “a pretty big swing for the fence,” and it’s competing with portfolio advisory services from the likes of Charles Schwab and Fidelity and with thousands of independent broker-dealers around the country. The startup currently employs eight wealth advisers in a call center in San Francisco and plans to add to that staff as the volume of customers grows. Each client is assigned an adviser who designs a personalized investment strategy and is available to talk via phone, e-mail, video chat, or instant messenger. The company will charge an annual fee of 0.75 percent to 0.95 percent of the invested assets as commission, undercutting the average for the wealth management industry of 1.5 percent to 2 percent. “We’ve tried to combine real-time data tools that allow you to understand and take control of your financial decisions with the ability to have a personal adviser, to whom you can delegate,” Harris says.

The company will face plenty of challenges. It’s launching into a gyrating stock market and a faltering economic recovery. Jim Bruene, editor of the Online Banking Report, is skeptical of the company’s plans but thinks the market environment might help. “There’s a lot of volatility, and people are looking for advisers,” he says. “On the other hand, will they go to a brand-new Internet company, or will they go back to a name they have heard about for the last 100 years?”

Then there are the more profound questions facing Personal Capital, such as: Why would anyone trust a financial adviser whom they’ve never met with some of the most important decisions they’ll ever face? Mitch Tuchman, CEO of a portfolio management software maker called MarketRiders, says Harris is wading into a field that tends to revolve around trust and relationships. “If I want to manage your money properly, I need to know a lot about you,” he says. “Do you have a mortgage? Does your wife work? I need to be in your life to give you good advice.”

Harris believes he can establish these kinds of relationships and notes that many of the independent broker-dealers that dominate this sector of the market end up violating their clients’ trust by funneling their assets into proprietary mutual funds, on which they earn a separate commission. Personal Capital will select primarily individual securities from around the world and says it will tailor strategies for each client. Harris also argues, not surprisingly, that the time is perfect for Personal Capital. “In the boom time, everyone thought they were a genius and could do it themselves. Few people think that today,” he says. “The question is, do people still need a handshake” with a financial professional? “I firmly believe they don’t.”

The bottom line: Bill Harris has raised $27 million to manage the finances of the moderately wealthy online, offering lower fees than traditional advisers.

Stone is a senior writer for Bloomberg Businessweek.

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Guest Post: Made In U.S.A.: Wealth Inequality

Submitted by Charles Hugh Smith from Of Two Minds

Made in U.S.A.: Wealth Inequality

Here's the Great Game: mask the nation's rising wealth inequality with Central State spending that keeps the debt-serfs passive--all funded by debt, of course.

While we may not make that much stuff in America any more, we can say that the nation's gigantic wealth inequality is totally Made in the U.S.A. Before we examine the data in some charts, I want to stipulate that great wealth in and of itself does not make a person an "enemy of the people" or threat to democracy. I confess to having generally lumped the top 1% of wealth holders into one category, something I have decided to stop doing, as this misses two critically important distinctions:

1. Not all wealth is created equally. Compare Steve Jobs, who is a billionaire for developing and selling "insanely great" mass-market technologies that people willingly buy because it enhances their lives, with a person who made his $1 billion by insider trading or misrepresenting the risk of his company's stock (basically the same thing). (If you need a hint here, think "Countrywide" or "Enron.")

Clearly, there is a distinction between those two fortunes: one created value, employment for thousands of people, and tremendous technological leverage for millions of ordinary people. The other enriched one crooked insider via trickery and deception.

2. Wealth destroys democracy and free markets when it buys the machinery of governance. Larry Ellison has made billions by developing and selling databases and business services. To the best of my knowledge, he spends his wealth on personal hobbies such as large homes and racing yachts. His lobbying efforts appear to be confined to yachting and the possible purchase of sports franchises. In other words, the political influence of his billions is localized and benign in terms of Federal policy decisions.

Compare that to the millions spent by the "too big to fail" banking industry to buy Congressional approval of their cartel's grip on the nation's throat: Buying Off Washington To Kill Financial "Reform".

Much of the debate about wealth inequality focuses on whether the super-wealthy are "paying their fair share" of the nation's taxes. If we refer to point 2 above, we see that if the super-wealthy are allowed to buy the machinery of governance, then they will never allow themselves to be taxed like regular tax donkeys.

In that sense, the debate over tax rates is pointless, because as long as the super-wealthy own the levers of Federal governance and regulation, then they will buy exclusions, loopholes, rebates, subsidies etc. which relieve them of whatever official tax rates have been passed for public consumption/propaganda purposes.

Let's take a look at wealth in America.

In Who Rules America?, Sociologist G. William Domhoff draws an important distinction between the net worth held by households in "marketable assets" such as homes and vehicles and "financial wealth." Homes and other tangible assets are, in Domhoff's words, "not as readily converted into cash and are more valuable to their owners for use purposes than they are for resale."

Financial wealth such as stocks, bonds and other securities are liquid and therefore easily converted to cash; these assets are what Domhoff describes as "non-home wealth" on his website Wealth, Income, and Power.

As of 2007, the bottom 80% of American households held a mere 7% of these financial assets, while the top 1% held 42.7%, the top 5% holds 72% and the top 10% held fully 83%.

According to the Fed flow of funds data, total assets of households and non-profits (a small slice of the pie) are $71.9 trillion, liabilities are $13.9 trillion and net worth--everything from jet skis to homes to stocks to bonds--is $58 trillion.

Here is a snapshot of total assets by category:

Pension funds and "other assets" include Treasury and corporate bonds, favored holdings of pension funds and the wealthy due to their relative safety and guaranteed yield.

Here is a snapshot of stock ownership:

No surprise there: the top 1% owns roughly 40% of all stocks, and the top 10% own 81%.

Wealth comes from earned and unearned (rent, dividends, etc.) income and capital appreciation, so it's no surprise that the income of the wealthiest segment has also far outpaced the lower 95%:

Meanwhile, the ratio of earned income to GDP is plummeting, which suggests that less of the national income is going to wages and salaries:

Thus it's no surprise that the median income has actually declined during the past decade of bogus debt-based "prosperity":

Here's a snapshot of just how debt-based that phony "prosperity" was:

Private borrowing declined as the home equity extraction ATM was closed, but the Federal government helpfully picked up the slack, borrowing and spending roughly $2 trillion a year so that total debt kept right on rising:

You have to wonder how much of our national wealth is the result of private consumption being transferred to the Federal ledger:

Put these charts together and you get the outlines of the Great Game: to keep the debt-serfs from rebelling, the Financial Elites have OK'd the funding of private spending by Federal debt. The Federal Reserve is a key player in the Game, of course, and its "job" is to suppress interest rates so the true costs of this skyrocketing Federal debt are masked, at least for awhile.

Beneath the happy surface of Federal transfers and spending funded by debt, earned incomes for the bottom 95% are falling and wealth is accumulating in the top 1%. The Federal Reserve's project of goosing stocks and bonds has greatly enriched the holders of those assets, while doing essentially nothing for the bottom 90% except increasing their government's debt load.

It's painfully obvious that the Federal government and the Fed are the handmaidens of the politically powerful Financial Elites. Why spend your own money on bribes, bread and circuses when you can arrange for the Central State to borrow the money? Why, indeed. "Austerity" is of course a modest reduction in the amount of money borrowed and spread around to keep the masses safely passive, but a few trillion trimmed here and there over a decade won't change the Great Game.

Frequent contributor B.C. summarized this reality quite cogently:

The top 1% of US households receive nearly as much income each year as the value of Germany's GDP; and they receive more income than all other nations' GDP (individually, not cumulatively) but the GDPs of Japan, China, and the US.

The financial wealth of the top 1% exceeds the value of the entire GDP of the EU (the world's largest GDP in aggregate).

Moreover, the top 1% could lose 90% of their financial wealth and still collectively have more wealth than all but each of the world's top eight GDPs (US, China, Japan, Germany, France, UK, Brazil, and Italy).

When one hears that wealth and income inequality is extreme in the US, I suspect many do not realize just how extreme it really is.

Peak Oil (falling net energy and available net exports), government "austerity", and the effects of population overshoot imply that wealth and income concentration will become even more extreme, affecting what remains of the professional middle class, who are largely dependent upon the ongoing growth of debt-money and government borrowing and spending.

Thank you, B.C. In other words, the top 15% better keep their eyes on the referee, if you know what I mean.

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