Personal Capital SRI Review: Is It Trustworthy?

Personal Capital is a company that offers financial advice and personal wealth management services. One of the options provided is a Socially Responsible Investment portfolio. 

Below, we’ll take a closer look at this SRI portfolio in the following review to help you determine if it’s a good match for your needs and investment goals.

Personal Capital SRI Review Methodology

Personal Capital has some information about its SRI portfolio product on its official website and some data about its performance. We used this information to assess how well an SRI portfolio would perform and what investors can expect in terms of exposure to the ESG market.

We also looked at the different tools Personal Capital offers, including robo-advisors, financial advisors, retirement planning tools, and a digital platform for managing your investments.

We also read reviews from customers to better understand the kind of service, experience, and level of personalization investors can expect when trusting Personal Capital with their finances.

Personal Capital Review + Tutorial: 10+ Years of Budgeting

Watch this video on YouTube.

What is Personal Capital SRI?

Personal Capital is a financial service company. Investors can open a Personal Capital account and get help from robo-advisors and financial advisors to build a personalized portfolio and save for retirement or reach another financial goal.

Personal Capital offers existing portfolios that investors can easily customize by answering a few questions about their goals and risk tolerance. One of these portfolios is an SRI product.

This SRI portfolio is a pool of stocks and other products that meet specific ESG criteria. 

Investors can use the robo-advisor feature or speak with a financial advisor to build a personalized investment strategy based on the pool of ESG stocks that Personal Capital has selected.

Personal Capital SRI Review: A Summary

We like the transparent approach to selecting products for the SRI portfolio. Personal Capital uses data collected by a research firm to build a pool of stocks from companies that score in the 90th percentile for their industry in terms of ESG practices.

There are tiers for the SRI portfolio to reflect various growth and risk exposure levels. After answering a few questions, investors will access personalized recommendations with stocks and other products from a specific growth tier that reflects their goals and risk tolerance.

Overall, investors can expect a lot from Personal Capital. It’s a financial service with an excellent digital platform and valuable tools for taking control of your finances and retirement planning. Investors can also work with a financial advisor to get personalized recommendations if the robo-advisor feature doesn’t meet their needs.

However, Personal Capital doesn’t cater to everyone. This firm focuses on high-net-worth individuals and has a minimum account balance of $100,000.

Fees get lower as the account balance increases and can seem high compared to other services, especially given the fact that robo-advisors will do most of the personalized recommendations.

Pros and Cons of Personal Capital SRI

Personal Capital SRI is a good option for individuals who want exposure to the ESG market and need help selecting the right products.

There are several benefits to investing with Personal Capital:

• There is an excellent methodology for selecting ESG stocks based on credible research. Investors can rest assured that they’re getting the best ESG stocks.
• The SRI portfolio and other products from Personal Capital have a good track record regarding returns and performance.
• The personalization features add value. There are ESG funds you can invest in, but Personal Capital’s approach gives you a lot more control over what goes into your portfolio.
• Personal Capital uses an active management approach. You can count on your financial advisor to monitor and adjust your portfolio to reflect market trends or help you achieve a new financial goal.
• Personal Capital SRI is more than stocks. It’s a balanced portfolio with a total of six different asset classes to help you balance risks.
• Personal Capital offers excellent customer service as well as convenient digital tools for tracking and managing your investments.

Are there any downsides to using Personal Capital to grow your nest egg for retirement? There are a few drawbacks to consider:

• There are very few ETFs that focus on the ESG market. Personal Capital works with a pool of ESG-optimized ETFs to help you build a diversified portfolio. Still, you should know that the ESG criteria are less strict for this product category.
• The SRI portfolio doesn’t give you exposure to the energy sector. Understandably, an ESG-oriented portfolio would filter fossil fuels out. Still, there is limited exposure to the renewable energy sector, which means you could miss out on some exciting investment opportunities.
• The focus on high-net-worth individuals means that SRI is not a good product for everyone. Not everyone has $100,000 available to invest, and fees can be high. However, Personal Capital SRI would be an excellent option for someone who is rolling over a 401K with a high balance.

See Related: How to Start Investing With Purpose

Personal Capital SRI Key Features

Is Personal Capital SRI a good option for you? Let’s take a closer look at the key features of this investment portfolio.

Investing with Personal Capital

SRI is one of the products offered by Personal Capital. You can choose to invest your entire account balance in ESG stocks and other assets or to adopt a mix of ESG and non-ESG investments.

Personal Capital builds pre-existing portfolios by analyzing stock performance, and in the case of SRI, by vetting stocks against ESG criteria. There are also different tiers based on potential growth and risks.

When you create an account with Personal Capital, you’ll have to answer a few questions about your financial goals and risk tolerance. Robo-advisors will then recommend the products that make the most sense for you.

Even though these products come from a pool of stocks, ETFs, and other products that Personal Capital has selected, each portfolio is unique since investors get personalized recommendations based on their goals and tolerance to risk.

You can also work with financial advisors who will review your portfolio regularly. They will rebalance your asset mix if your goals change or if the market shifts.

They can also optimize your portfolio for tax purposes.

Selecting ESG Stocks with Trustworthy Data

Personal Capital uses thorough ESG criteria to select stocks for its SRI product. This financial firm uses data from the research firm Sustainalytics. Sustainalytics is an independent research firm that issues ESG ratings and rankings. It’s a Morningstar company and a leader in this field.

We like the fact that you can look up stocks and access their ESG ratings for free.

Being able to see the ratings from Sustainalytics makes Personal Capital SRI feel very transparent. It’s also an excellent tool you can use to find ESG stocks if you want to build a more ethical portfolio without going through a service like Personal Capital.

The great thing about how Sustainalytics issues the ratings is that this research firm uses ESG criteria that make sense for each industry. Other research firms use broad criteria that might not correspond to the unique ESG risk for a specific sector.

For instance, a company with high carbon emissions could still gain points in another ESG area like conflict minerals, even though this company’s activities have nothing to do with mining.

Sustainalytics analyzes the ESG risks that exist for each industry and sub-industry. The purpose of this approach is to develop unique ESG criteria for each industry and issue ratings that reflect how a company performs compared to other businesses in the same field.

Personal Capital uses this data to select stocks that rank in the 90th percentile for their respective industry. Overall, it’s a great method for vetting ESG stocks. However, there is a potential drawback to consider.

This approach doesn’t necessarily mean that these companies have an impeccable ESG policy. It just means that they perform better than 90% of businesses in the same field. For industries that have been slow to adopt ESG practices, the requirements might be less strict for reaching the 90th percentile.

The ESG Criteria in Detail

Sustainalytics measures exposure to different ESG risk factors. There are environmental factors, such as sustainable production, pollution, and contribution to climate change.

There are also social factors, such as whether a company harms a community through the resources it uses or through its diversity policy.

Lastly, Sustainalytics looks at governance. The research firm assesses how much executives make, whether the company board can make decisions independently, and how well the company can handle ESG issues.

Personal Capital also uses some filters to exclude some investment vehicles, such as stocks from companies that have exposure to industries like fossil fuels, firearms, gambling, adult entertainment, and more.

Personal Capital also looks at the ESG risk rating of the different stocks included in the SRI portfolio. The data from Sustainalytics shows potential exposure to ESG risk and how this exposure could impact performance.

Some investors care about ESG because they want to build a portfolio aligned with their values. However, choosing ESG stocks is also a good strategy because companies with strong ESG policies tend to be more resilient and perform better even when the market is not doing well.

Sustainalytics also uses a dynamic rating system that evolves as new information becomes available about companies.

This reactive approach is interesting because Sustainalytics will adjust its ratings quickly if there is a controversy about business ethics or an issue with employees or customers surfaces.

Personal Capital SRI Portfolio Breakdown

The Personal Capital SRI portfolio includes stocks from companies with good ESG practices, but other types of financial products are available.

The SRI portfolio includes a mix of:

• Domestic equities, including stocks and ETFs
• International stocks
• Domestic and international bonds
• Alternative investments
• Cash

It’s also worth noting that the equity portion of this portfolio includes a mix of stock cap sizes and exposure to different industries.

When it comes to ETFs, you should know that there are very few ESG-optimized ETFs. Personal Capital is working on adding more ETFs to its SRI portfolio as more options become available. However, the ESG criteria are less strict for ETFs because it’s a smaller market.

The stock portion of the SRI portfolio includes 75 to 85 different stocks. These stocks give you exposure to various industries, including:

• Basic materials.
• Communication services.
• Consumer cyclical.
• Consumer defensive.
• Financial services.
• Healthcare.
• Industrials.
• Technology.
• Utilities.

Each industry represents 11.1% of the base portfolio. Mega and large-cap stocks respectively account for 10% of the portfolio, while mid and small-cap stocks each represent 6.7% of the portfolio.

These percentages will change as robo-advisors and financial advisors help you personalize your SRI portfolio. Allocating similar amounts to different industries or stock market cap sizes can seem like a random approach, but it’s important to remember that your personalized SRI portfolio will not look like the base portfolio once you answer a few questions to get customized investment recommendations.

The main downside of the SRI asset mix is the lack of exposure to the energy market. Understandably, Personal Capital decided to exclude companies with exposure to fossil fuels, but the wealth management firm didn’t include a renewable energy category in its asset mix.

It’s a promising sector, and investors interested in ESG products will likely want exposure to this market. The selection of stocks available is also relatively small. There are only 75 to 85 different stocks to choose from. Personal Capital adds new stocks regularly and selects stocks regularly based on their performance and ESG ratings.

However, NASDAQ has close to 3,000 companies listed, and the NYSE exchange isn’t far behind. Working with a smaller pool of stocks can help you avoid poor investment decisions.

It also ensures that you only invest in companies that have adopted good ESG practices, but it can also mean that you will miss out on some investment opportunities.

Decent Performance

Returns can vary depending on the portfolio tier you invest in. Investors will also see their returns vary after personalizing their SRI portfolio since no two accounts will have the same asset mix.

Personal Capital offers a full-growth SRI portfolio with an average return of 16.9% a year. There is a growth option with a return of 14.7% and a balanced growth plus a portfolio that yields 12.4% a year.

Investors with a lower risk tolerance will likely want to invest in the balanced tier that sees an average annual return of 9.8% or in the balanced stability tilt option with a return of 8% a year.

Overall, these different tiers seem to perform well. However, Personal Capital also has data available for a benchmark portfolio that uses a similar asset mix without focusing on ESG investments.

Except for the balanced stability tilt tier, all the SRI tiers underperform when compared to the non-ESG benchmark portfolio. The difference can be significant with the riskier tiers. There is a 1.4 percentage point difference in the performance of the full growth portfolio.

Investors have to decide if they want to achieve potentially higher returns with a non-ESG portfolio or if they are willing to earn less so they can build a portfolio that aligns with their values.

Over the past ten years, the average stock market return has been 9.2% a year. Most of these tiers outperform the average stock portfolio, which investors should expect when working with a wealth management company.

However, the balanced stability tilt option yields lower returns than this average.

Ratings for the Personal Capital SRI Portfolio

Overall, the SRI portfolio deserves high ratings for providing investors with a trustworthy and performing product to gain exposure to the ESG market. However, there are a few drawbacks to consider when it comes to fees and the minimum account balance.

Ratings:

• ESG criteria: 5/5
• Portfolio composition: 4.5/5
• Personalization: 5/5
• Portfolio performance: 4/5
• Customer service: 5/5
• Fees: 3/5
• Minimum account balance: 1/5

Our Verdict

The SRI portfolio is an excellent product for investors who want to make better decisions and build a portfolio that reflects their values. Investing in ESG can also help manage risks since these businesses with good ESG practices tend to be more resilient.

Personal Capital uses high-quality data from Sustainalytics and relies on trustworthy research to select stocks and other products.

The result is a pool of financial products that provide you with a strong basis for building a personalized portfolio. With the help of robo-advisors and financial advisors, you’ll get to personalize your portfolio to reflect your unique financial goals and risk tolerance level.

Overall, it’s easy to build a diversified portfolio with exposure to different asset classes, industries, markets, and stock market cap sizes. The active management style is a plus for achieving growth.

There are a few drawbacks to consider, namely the fairly small selection of stocks and the fact that the ESG criteria used to vet ETFs are less strict. There is also a caveat with the methodology used to select ESG stocks. 

Personal Capital selects stocks that rank in the 90th percentile for their industry, which means companies have to perform better than 90% of the businesses in their field to qualify.

It can still mean that they engage in problematic environmental and social practices. Performance is another critical consideration. Data shared by Personal Capital shows that the firm’s non-ESG benchmark portfolios tend to perform a little better than its ESG products.

Investors should also know that fees tend to be higher than what other services charge, especially for a service that relies on robo-advisors. Lastly, the $100,000 minimum account balance is a significant drawback and makes SRI an option that isn’t realistic for a large pool of investors.

However, for those who can meet this minimum account balance and who want to build an ESG portfolio, Personal Capital’s approach is excellent due to the method that relies on quality data and the options for personalizing one’s portfolio.

FAQ

Here are a few other things you should know about Personal Capital and the ESG market.

Related Resources

• Best Impact Investing Online Courses
• Reasons to Start Social Impact Investing
• Is Socially Responsible Investing Important?
• Best Investments for Young Adults
• Greensky Finance Review