Financial Engines bills itself as your very own financial team, and they do this by providing customers with assistance in retirement planning through an unlikely source: employer sponsored defined contribution retirement plans. If you’re thinking about trying out Financial Engines, read our review first.
What Is Financial Engines?
Founded in 1996, Financial Engines is a retirement plan advisory service for employees of participating employer retirement plans.
One of the co-founders is Professor William F. Sharpe, winner of the 1990 Nobel Prize in Economic Sciences for his work on the theory of financial economics. He studied how prices of financial assets are determined, as well as the link between risk and return. A second co-founder is former SEC commissioner, Professor Joseph A. Grundfest.
In 1998 the firm became the first independent online advice platform, and they have worked to remain in the forefront of how people plan, save and invest for retirement ever since. They are now the nation’s largest defined contribution managed account provider. According to their 2015 Annual report, they serve 9.3 million plan participants across 670 employers, with more than $113 billion under management.
Financial Engines describes themselves as,
“an independent investment adviser hired by some of the biggest companies in the US to provide personalized advice for retirement.”
They provide advisory services for employee/employer benefit packages, working primarily in preparing employees for retirement. They also work with both employers and individual employees themselves.
The list of companies they work with in the retirement arena is impressive and includes Delta Airlines, Ford, IBM, Kraft Foods and Microsoft, to name just a few.
They also partner with retirement plan providers, and the list of companies is just as impressive here. Fidelity Investments, J.P. Morgan, T. Rowe Price and Vanguard are just some of the investment companies they’re partnered with.
How Does Financial Engines Work?
They provide professional management to employees participating in company-sponsored, defined contribution plans, such as 401(k) plans. They provide management services and advice and can either manage your plan or arm you with information and input so you can manage your plan better.
The service is made available through your employer plan, which is to say it’s offered as an additional benefit — a benefit within a benefit.
Features and Pricing
The website doesn’t offer information on what Financial Engines costs to an employee, but I was able to contact Mike Jurs, a spokesperson for the company. He said the cost to the employee will depend upon the arrangement the employer has with Financial Engines.
A very few employers make the service available to their staff free of charge, but the range is between 0.20% and 0.60% of the value of your retirement portfolio, with the average being “just below 0.40%.” Based on the average, the cost on a $100,000 401(k) plan would be just below $400 per year.
This is the fee you will pay to Financial Engines while using their service. It does not include administrative fees paid to your account administrator or transaction costs to trade and maintain securities and funds.
There are no account minimums. The service is available as long as you have a retirement plan with your employer.
As noted above, Financial Engines provides professional management of your company-sponsored retirement plan. There are numerous tools and features they use to provide this service.
Professional Management. They provide ongoing monitoring and care of your account, which will:
- Provide you with an investment advisor.
- Analyze your retirement plan saving options.
- Consider expense ratios, sales loads, asset turnover, transaction costs and management style of individual fund investments, among other services.
- Provide you with a progress report showing your account balance, the potential value of your account when you retire and the adjustments they’ve made to reflect your situation and market conditions.
- Provide detailed retirement checkups with expert advisor representatives who can help you stay on track as you approach retirement.
Personalized Plans: Income+. Financial Engines provides a complete retirement plan designed to help make the most of your money. This includes Income+ a program to help you transition your 401(k) from retirement savings to steady payouts in retirement. It’s the first service of its kind, created for a generation of workers who have built their retirement entirely on a 401(k). Income+ is designed to provide steady income payouts from age 65 to 85. It allocates your portfolio to balance between growth and safety and rebalances your 401(k) to help keep you in a safe zone.
Retirement Readiness. This includes their Social Security Planner, a tool that can show you how to maximize your income from that source.
Online Advice. They can provide specific fund recommendations across your total portfolio, helping you decide which investments to make and how much to invest in each.
How Does Financial Engines Compare to Related Services?
The process of providing employer-sponsored retirement plan investment advice is complicated by the fact that plans are ultimately under the domain of the plan trustee. Unless an advisory service is working with both the employer and the plan trustee, control over the investment selections and allocations is generally not possible. Financial Engines is able to offer this service, because they have exactly that arrangement with well over 500 employer retirement plans.
Many robo-advisor services exclude employer-sponsored retirement plans entirely or can do nothing more than offer independent advice, which you can then act upon. Financial Engines handles all of that for you by working on the inside of your plan.
There are other providers available that can provide similar services, but they can be expensive to work with, may choose to work only with high-dollar-value plans, and face the same limitation as robo-advisors in that they don’t have direct control over your plan. Many others will work with you only if you are rolling over your employer sponsored plan to a self-directed plan, such as an IRA.
- They charge a percentage fee and don’t make a commission for selling you anything.
- They declare they are a fiduciary, which is to say they must put your best interests first.
- They work with your employer plan from the inside, which enables them to assess your plan and carry out the recommended changes.
- You can either have them take control of your account or work strictly in an advisory capacity, where you continue to manage your investments within the plan.
- On the negative side, an annual fee of 0.20% to 0.60% will have a significant negative impact on your investment performance over the very long term. You have to weigh whether you will be better off using the service and paying the fee each year, as compared to investing your money in an index fund until retirement.
Participant investment management is a glaring weak spot in most employer-provided plans. Though investment information is often made available to the participants, most have little or no direct investment support.
Considering that many of the people who participate in employer-sponsored retirement plans have little or no investment experience at all, Financial Engines is filling a badly neglected role in the investing world.