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High-tech solutions to manage less money

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Undated screenshots of Personal Capital's Dashboard application which can be used with your mobile device and personal computer.
Undated screenshots of Personal Capital's Dashboard application which can be used with your mobile device and personal computer.Personal Capital

Can technology bring money management to the masses?

Traditional money management is a labor-intensive business. Because they are paid a percentage of assets under management, most managers want clients who have at least $1 million - and usually much more - to invest.

A growing group of startups is using technology to lower the cost and provide personalized solutions to a less-wealthy demographic. Many are based in the Bay Area, drawing on the region's engineering and financial talent. Here's a look at four of them:

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Personal Capital

Last week Personal Capital, a Redwood City company headed by former Intuit and PayPal chief executive Bill Harris, announced it had raised $25 million from investors, including Crosslink Capital and Blackrock, bringing its total venture investment to $50 million.

Personal Capital offers a free app called a dashboard that lets users aggregate online financial accounts - including bank, brokerage, credit card, mortgage, employee stock options and 401(k) accounts - in one place. Clients must provide the company with their log-in and password for each account.

The dashboard, which can be used on a PC or mobile device, updates whenever users log on, so they can see their net worth at any moment. The average user has 14 accounts on the dashboard.

Dashboard users are recruited to sign up for the company's investment advisory business, which is how Personal Capital makes money. Customers with at least $100,000 in investable assets can have them managed by a registered investment adviser for an annual fee that ranges from 0.95 percent on the first $250,000 in assets to 0.75 percent on assets over $4 million. The fee includes trading commissions.

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The 70-person company has about 20 advisers in San Francisco and is adding 20 more in Denver. They get a salary plus a bonus based in part on assets they attract and retain.

Harris says Personal Capital can manage money more cheaply than traditional advisers because clients input their financial data themselves. When clients meet with their advisers - in person or more frequently by phone or video chat - they can "co-browse" the dashboard together.

New opportunities

Personal Capital is hardly the first Bay Area company to marry finance and technology. Charles Schwab pioneered online stock trading. Financial Engines provides online 401(k) advice and management and is expanding into individual retirement accounts. Mint.com, now part of Intuit, has been letting users aggregate financial accounts on a dashboard since 2007.

The success of these companies - combined with the growing popularity of mobile devices and a generation of investors who grew up in the digital age - is creating new opportunities. Personal Capital says the main way users access its service is with an iPad.

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Bryan Liu, a tech recruiter in San Francisco, says he used Mint to balance his checkbook and "track savings projects," but switched to Personal Capital in 2011 "because it was a great visualization of my assets and net worth. I started as a dashboard client, then they sold me into their wealth management product."

While Mint focuses mainly on budgeting, Personal Capital looks at a client's entire financial situation. It has tools for analyzing stock options and 401(k) fees. It offers advisory clients sophisticated strategies used by big-time investors such as tax-loss harvesting (selling losing stocks to offset taxable gains in winning ones).

Personal Capital invests client money in stocks rather than stock mutual funds because they are cheaper to own and work better in tax-loss harvesting. For bonds and other asset classes, it uses exchange traded funds.

Personal Capital has more than 250,000 clients using its dashboard and a little more than 500 enrolled in the advisory business. It has more than $150 million under management, with an average account size around $300,000.

Jim Feuille, a general partner with Crosslink Capital, says he invested in the company because there are many people with $200,000 to $2 million in assets who are not being well served by money managers. Most of these investors are do-it-yourselfers or use brokers focused on product sales.

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Personal Capital's dashboard is an effective, cost-efficient way to recruit these investors, he says. "The back end is a pure financial services company."

Wealthfront

Wealthfront, on the other hand, is for people who like having a computer manage their money. The Palo Alto company calls itself "an investment platform designed by engineers."

"Our average client is in their 30s ... and we are their first investment adviser," says Adam Nash, the firm's chief operating officer. "They don't like the traditional industry. They don't want a handshake and a wood-paneled office."

Users go online and answer a short questionnaire about their age, investing goals and risk tolerance, and a computer suggests a mix of investments, all exchange traded funds, in 11 asset classes.

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Users pay nothing for the advice and can buy the funds from any broker. Or they can sign up to have Wealthfront manage their money for a flat fee of 0.25 percent of assets per year. (Accounts under $10,000 are free).

Investing guru Burton Malkiel, author of "A Random Walk Down Wall Street," is the firm's chief investment officer and helped design its asset allocation and selection strategy.

Wealthfront has 25 employees and raised about $30 million from firms including Index Ventures, Social+Capital Partnership and Greylock Partners.

Last week it hit $250 million in assets under management. It has more than 3,000 customers with accounts ranging from $5,000 to $5 million, the average being $80,000 to $100,000.

Wealthfront will automatically rebalance client accounts (buying and selling investments to maintain a fixed asset allocation). For clients with more than $100,000 under management, it offers tax-loss harvesting.

It does not look at a client's 401(k) account because, Nash says, most clients do not have large ones. Its clients, at least in the beginning, were primarily tech employees who had fallen into some money and were not sure what to do with it.

FutureAdvisor

FutureAdvisor, which moved from Seattle to San Francisco in November, is similar to Wealthfront, but also takes clients' 401(k) plans into account. It has 11 employees and raised $6 million from firms led by Sequoia Capital.

Users take an online quiz and the program suggests investments, primarily exchange traded funds. "If you come to us with a bunch of Vanguard funds, we will recommend Vanguard (ETFs). If you are from Fidelity, we use Fidelity Spartan funds and iShares. If you have a 401(k) with a great fixed-income option, we will overweight it there and get equity exposure somewhere else," says chief executive Bo Lu.

There is no charge for that service, but if you want FutureAdvisor to manage your money, it will cost $9 per month for accounts under $50,000 or $19 a month for larger accounts. There are no personal advisers.

"We have found there is a swath of society that doesn't enjoy spending time on the phone with a financial adviser," Lu says.

Its typical customer has about $100,000 in assets and is between 35 and 55. Lu would not disclose assets under management.

NestWise

NestWise, based in San Francisco, provides traditional financial planning services to middle-income people (earning $50,000 to $120,000 a year). It is focused less on investing and more on helping people improve their cash flow and save for an emergency fund, house or child's education. "We are using technology to drive down the cost of advice. We are not using technology to replace a personal relationship," says Esther Stearns, Nestwise CEO.

Clients fill out questionnaires online and can take online "financial fitness classes," but they are assigned a personal adviser they can talk to each quarter, more often if necessary. The year-old firm has 14 independent advisers, with six more in training.

Clients pay $250 up front for a financial plan plus $575 per year. Nestwise is a subsidiary of LPL Financial, a large broker dealer that mainly serves independent advisers.

NestWise will advise clients about their 401(k) plans. For a separate fee, clients can invest in portfolios managed by LPL's research group.

"We think we have the perfect blend of people, technology and pricing to meet the needs of middle-class families," says Stearns, who worked at Schwab for 15 years before moving to LPL, where she was chief information officer and later president.

Kathleen Pender is a San Francisco Chronicle columnist. Net Worth runs Tuesdays, Thursdays and Sundays. E-mail: kpender@sfchronicle.com Blog: http://blog.sfgate.com/pender Twitter: @kathpender

Kathleen Pender was a San Francisco Chronicle journalist for 36 years. After serving as a business reporter and editor, she wrote the Net Worth column from 2000 to 2021, where she explained how the big business and economic news of the day affected a household's net worth. She majored in business journalism at the University of Missouri-Columbia and was a Knight-Bagehot fellow in business journalism at Columbia University.