Raffone said Financial Engines has an inherent marketing edge: a captive audience of 10 million workers who already know the company through their employers, which are some of the biggest companies in the U.S. When it comes to managed 401(k) accounts, Financial Engines has a 60 percent market share, according to research firm Cerulli Associates. That’s three times larger than its closest rival, a managed-account service offered by investment research firm Morningstar Inc.
More and more companies are hiring companies such as these to help employees with retirement investing. The percentage of 401(k)-style plans offering managed accounts doubled from 2009 to 2014, to 22 percent, Cerulli said. Revenues at Financial Engines, a publicly traded company, have tripled over the past five years, to $311 million in 2015.
Since some employers worry that employee financial stress hurts productivity, the firm provides the managed-account option to help ease the burden, particularly for employees close to retirement. For example, Financial Engines’ “Income+” product helps retirees with the challenging task of turning nest eggs into regular income after retirement.
Managed accounts aren’t for everyone, particularly younger workers who can get by with target-date funds. Even as companies offer managed accounts to more workers, Cerulli noted that the share of those who sign up is flat, hovering around 7 percent of participants who are offered them. About 10 percent of the 10 million workers at Financial Engines 401(k) plans use its managed-accounts service.
As useful as managed 401(k) accounts are in helping workers plan for retirement or predict their monthly Social Security check, their scope is limited. They do little to help an employee worried about issues such as debt, the rising cost of college, and overspending. Managed-account providers, or the employers themselves, can offer online resources or put on group seminars covering financial topics, but the advice is often vague and unhelpful.
“In a group setting, you can’t solve an individual’s problems in the same way you could if someone is sitting down across the table,” said Jason Roberts, CEO of the Pension Resource Institute, a firm that helps companies manage retirement plans. That’s why Roberts thinks “financial planning solutions” are the “next wave of benefits that plan sponsors will seek to offer to employees.” This is where Raffone wants to come in.
Network Ready To Go
In launching the new service, he will rely on a readymade network of advisers and offices. His company recently bought up the Mutual Fund Store, an investment advisor with 125 U.S. locations and about 300 employees, bringing Financial Engines’ total staff to more than 800. Starting this week, every Mutual Fund Store is being rebranded as a Financial Engines Advisor Center. Raffone also plans to bring advisers directly into the workplaces of existing clients.
But can Financial Engines make a profit providing personal advice to workers with an average person's net worth? Right now, the average retirement account handled by Financial Engines is $125,000, while the median is just $55,000. About half of U.S. households age 55 and older have nothing saved in a retirement account, according to (PDF) the Government Accountability Office, and the rest hold a median of about $109,000.
“If they can do one-on-one [advice], I’d be impressed,” said Ronald Surz, a pension consultant who is president of PPCA Inc., in San Clemente, Calif. “I just don’t know how you get paid for that.”