Personal Capital sells to Empower Retirement in $1B deal

Empower Retirement will buy digital advice company Personal Capital in a deal that could provide a pipeline of clients to Personal Capital from the retirement plans serviced by Empower.

Under the agreement, Empower will acquire Personal Capital for $825 million on closing and up to $175 million for planned growth, according to the companies. The transaction is expected to close in the second half of 2020.

The deal illustrates increasing consolidation among digital advice firms. In May, Charles Schwab acquired the technology behind thematic investing startup Motif, while Folio Financial bought Motif’s accounts. Folio was then quickly purchased by Goldman Sachs.

Empower plans to use Personal Capital’s technology and wealth management capabilities as a benefit that plan sponsors and advisors can offer to retirement plan participants. Personal Capital will leverage Empower’s size and resources to grow its presence among individual investors seeking a hybrid of digital and human advice, especially with regard to those seeking to roll over retirement accounts.

“From a Personal Capital perspective, they now have a vastly increased pipeline of potential clients. Empower has 9 million existing clients,” says Robert Norris, managing principal of consulting firm Capco’s wealth and asset management practice. “Personal Capital has a well-renowned value proposition around their aggregation capabilities combined with digital premier service with a focus on client experience. Empower Retirement will have the opportunity to utilise these capabilities across their existing user base and enable further insight into the holistic investor picture.”

Empower was created in 2014 as the combination of record-keeping services from Great-West Financial, JPMorgan Chase and Putnam Investments. It is part of the Great-West Life Annuity Insurance Company and today administers $656 billion in assets for 9.7 million workers in the U.S., the company says. Empower also serves 135,000 IRA and brokerage account clients with $13 billion in assets.

Personal Capital was founded in 2009 and carved a niche in the burgeoning online advice market with its combination of free personal finance technology for consumers — such as account aggregation, 401(k) fee analyzer and financial planning and budgeting tools — and a premium managed accounts service. At a time when purely digital robo advisors like Betterment and Wealthfront attracted a lot of attention, Personal Capital stood out for offering human financial advisors alongside automated investment management.

Now the so-called hybrid robo approach is popular across the industry and even embraced by some formerly digital-only startups, including Betterment.

Though Personal Capital maintained higher account minimums and management fees than other digital startups, the company says it has grown to $12 billion in AUM and tracks $771 billion through its personal finance tools.

Rob Foregger, executive vice president of NextCapital and a co-founder of Personal Capital, congratulated his former team in an email to Financial Planning.

“It’s clear that the COVID effect is compressing the digital transformation of the investment industry by five years, if not more,” Foregger says. “Empower [is] fortunate to have Personal Capital fully in their fold.”

Personal Capital will continue offering its technology and investment services following the close of the deal, which is expected in the second half of 2020. It will be rebranded as “Personal Capital, an Empower Company.”

CEO Jay Shah will serve as president and report to Empower CEO Edmund Murphy III.

In a statement, Murphy called the combination of Empower and Personal Capital “the next step forward in the evolution of an integrated platform” where individual investors and retirement plan participants can find all the tools and advice they need to manage progress towards financial goals. It can also help plan sponsors and advisors differentiate with a “powerful retirement benefit that is highly valuable in a competitive labor market,” he said.

Shah called Empower a “purpose-oriented” and “philosophically aligned” partner to accelerate the company’s growth.

Morgan Stanley and Rockefeller Capital Management served as financial advisors to Empower. Moelis Company advised Personal Capital.

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