Bill Harris: «Internet to Revolutionize Finance Industry»

Personal Capital launched in 2011 after two years of development and with 27 million dollars in venture capital. Personal Capital is a US-based online financial advisor for affluent customers. It gathers all the personal financial information in one place and offers investment check-up and advice. Whereas all core services are free, there is an investment management fee of 0.75% - 0.95%

Which do you consider the greatest innovations in investment management so far?

Bill Harris: Some of the greatest innovations in investment management to date have been the brokerage account and the mutual fund. If you think about the early stock market, it was really difficult for individual investors to buy stock in public companies. The invention of the brokerage account changed that by allowing brokers to purchase stock on the behalf of individuals, making everything much more efficient and accessible. I believe the next great innovation was the mutual fund, which made diversification available to the average investor and lowered cost dramatically. However, it is our view that mutual funds no longer represent the most efficient way to invest due to their tax liabilities and the fact that they take a one-size-fits-all approach to investing.

Which will be the next big innovations?

Moving forward the next major innovation will be mass customization where, through the use of technology, each individual investor receives a personalized view of their financial life, and a unique investment plan tailored to their age, risk profile, and so on. We believe that a person’s finances are inherently personal, and as such, the companies that provide a high level of customization for clients will be most successful.

Digitization revolutionizes various industries. The shockwaves have already hit the media industry. What happens when these shockwaves reach the financial services industry?

I believe that the two industries that will be most fundamentally changed due to digitization and connectivity are media and finance. The reason is that the Internet enables all interactions to take place virtually, in both directions. We’re already seeing this in media, as you rightly point out. New media is skyrocketing and old media is stumbling. In finance, the change isn't visible yet - but it is coming.

Astoundingly over the last 40 years – in the eras of ATM banking, phone banking, online banking, and mobile banking – the number of physical bank branches have increased by 4x. As financial services transform from physical distribution to virtual distribution, the next decade will be a period of deconstruction for financial institutions, which will involve unplugging technology stacks, shuttering brick and mortar branches, shifting workforces to areas that matter to consumers, and abandoning traditional notions of what it means to be a bank.

We believe in 10 years the notion of driving to a branch to meet with your financial advisor (or sitting through a sales pitch over a round of golf at the country club) will seem absurd. There is no reason that everything that has to do with your financial life shouldn't be immediately available in the palm of your hand, and Personal Capital is beginning to enable that shift through an approach that puts the individual consumer, as opposed to the mutual fund, or the bank account, or the institution, at the center of every interaction.

What was the main idea behind founding Personal Capital?

We created Personal Capital to provide the type of money management previously available only to the ultra wealthy to retail investors at a more affordable cost than has ever been seen before. We do this through the efficient use of technology combined with human expertise and advice. While we don’t believe that technology can do it all, there is a huge opportunity to apply technology to the business of financial advice and management in areas like data gathering and analysis - activities that are very time-consuming and tedious for individuals to perform without some assistance. We provide our expert financial advisors and clients with cutting edge dashboard and analysis tools to help them make better decisions, more efficiently.

Today’s financial institutions are often rather product than customer centric. What are your plans to change this product centricity?

You’re absolutely correct that most financial institutions are product centric rather than customer centric. Large financial institutions have different people in charge of credit cards, mortgages, pre-paid accounts, and so on, and they are mandated to sell as many of that particular product from that particular institution as possible. However, customers don’t view their finances this way and they are tired of the fragmentation. We flip this traditional way of doing business on its head by putting the customer in the center and giving them a holistic view of their entire financial life - across all accounts and institutions.

Personal Capital gathers all clients’ personal financial information. Of each client, Personal Capital has more data than the respective financial institutions. Is this data power an issue for the cooperating financial institutions on the one hand and your customers on the other hand?

We take the privacy of ourclients very seriously, and protecting their personal data is our primary concern. Our team has deep experience in financial security, and many of us helped build the authentication systems that many major banks use for their online services. Personal Capital clients can rest assured that their data is safe and that their personal information will never be rented, sold, or traded in any capacity.

Investment advisory is all about trust and people. According to Mike Alfred, CEO of BrightScope, «financial advisors continue to grow in to one of the most powerful players in the financial services world and the entrance of online investment advice providers will not reverse that trend». What is your strategy to gain trust and reverse that trend?

We believe that trust derives from having consistently delightful interactions with a service over a period of time. As an online financial service, the success of our business depends on trust, and we are confident that we’ll be able to earn the trust of users by continuing to make sure that every interaction with our service is positive.

It’s important to point out that consumer behavior made a significant shift over the past few years, and people now manage huge parts of their lives online. Instead of going to Sears, they make purchases on Amazon. Instead of booking travel plans at a travel agent, they use Expedia. As more people are comfortable managing more of their everyday lives online, we believe that investment advisory services are a natural next step.

For how long will the asset and wealth management industry stay a people business?

Wealth management will always remain a people business. As technology continues to evolve and improve, the practice of wealth management will become more efficient for both clients and providers. While the number of physical branches may go down, we believe that customers will always want an interpersonal relationship when it comes to managing their entire financial life. If this relationship can be tech-enabled -- through video chat and advanced online tools, the customer experience is only enhanced.

Do you plan to expand internationally?

Currently we are 100% focused on the U.S. market, and we don’t have plans to expand internationally at the moment.

Where do you see Personal Capital in five years?

Personal Capital officially launched in September 2011, and we’ve been building the company since July 2009. Currently there are tens of thousands of users using our free service, and they have aggregated over $4 billion in assets. Looking ahead, we plan to continue to release new products and services. In the past 8 months alone, we’ve launched the company and opened our doors, released iPhone and iPad apps, launched banking products and seen tremendous growth. We will continue our rapid pace of innovation, and also plan to broaden our service set. Stay tuned for exciting things to come.

June 4, 2012