In an age of volatile financial markets and uncertain
retirement benefits, programs such as Income+ fromFinancial
) are a welcome helping hand.
The Silicon Valley-based Financial Engines has been an
innovator in the retirement space. More specifically, the company
focuses on 401(k) plans to help employees manage their
It launched Income+ in early 2011 to help near-retirees
transition into retirement without the worry of how to structure
their accumulated 401(k) savings. While helping to protect
participants from large losses before retirement, Income+ can
provide steady monthly payouts for the remainder of one's
"Everybody retires when they hit 65. Most people take their
401(k) and they withdraw the money and then they buy an annuity
or they do something with that money, such as putting it in a
brokerage account or spending it," said Michael Grondahl, an
analyst at Piper Jaffray.
"Income+ is designed (so) your money stays in the 401(k). And
if you want to design a low-cost annuity, it will help you plan
that. And you don't have to buy an expensive annuity that you're
locked into for the next 10 years," he said. "You can change with
Income+ every month if you want."
So far, 50 companies with $79 billion in retirement plan
assets and 900,000 employees have decided to offer Income+.
In addition to various strategies that retirees or
near-retirees have available, they also have access to a live
adviser who can help them structure their overall retirement
"We're using a concept called liability-driven investing,
which means we're trying to structure a portfolio that will meet
your liabilities, in this case a stream of income that doesn't go
down, in all future states of the market," said Christopher
Jones, executive VP and chief investment officer at Financial
"So if interest rates go up or down, if the market goes up or
down, you'll be able to draw upon that stream of income. What's
nice about this ... you have full flexibility and access to your
money," he added.
While Income+ is the latest of their products, Financial
Engines has been in the retirement space since its inception in
Co-founded by Nobel Prize winner Bill Sharpe, the company's
vision has been to leverage technology in order to provide
affordable investment management to people regardless of their
Today, Financial Engines is the largest independent registered
investment adviser managing retirement assets for about 500 plan
sponsors representing over $500 billion in assets and over 9
million individuals. The average 401(k) client has $90,000 in his
"What's unique about Financial Engines is that we have really
come up with technologies and processes that allow us to change
the scale of economics of providing investment advice," said
Jones. "We can provide very high-quality, personalized,
objective, independent investment advice, but do it at a cost
that's much lower than the traditional cost of working with a
highly paid expert in a face-to-face kind of interaction. And
that allows us to serve the needs of people who don't have very
much in the way of financial assets."
Financial Engines has been very successful at going after
large employers. It currently has contracts with 140 of the
Fortune 500 companies.
It offers two services for regular management of the 401(k)
plan. The online service is designed for people who want to be
hands-on in managing their 401(k) investments. Financial Engines
helps them put together a personalized retirement plan. The
employee can then make adjustments as his tolerance for risk or
other factors changes. The fee for this plan is usually paid by
"It's designed to be used by the participants themselves,"
said Jones. "They can change various assumptions. They can change
various parameters, and they can update their retirement
The second service is professional management of the assets in
the 401(k) plan. Here, people delegate their responsibility of
managing their investments to Financial Engines. At the end of
last quarter, Financial Engines managed nearly $62 billion in
assets for 650,000 participants in this category.
Once the personalized retirement plan has been created and
agreed upon by the employee, the company takes over the
management of the portfolio. It then makes appropriate changes on
an ongoing basis as the market or the circumstances change.
"What professional management offers is free and unlimited
access to online advisers," said Jones. "And our advisers are
Financial Engines' employees, they're not commissioned in any
way. So they're able to provide objective assistance to people to
help them think through retirement planning decisions, to help
them understand how they might want to bring together various
parts of their household portfolio and to make informed decisions
about things like risk, downside protection and the like."
The annual fee for this service ranges from 0.2% to 0.6% of
the total assets. Larger accounts typically have lower fees.
"One of the nice things about the service is if you have
$5,000 in your account, you have the same access to the advisers
as somebody who has $250,000 in their account," added Jones.
"That access to a human being is really helpful, particularly for
people who are a little older."
Demographics play an important role for the company. As 78
million baby boomers reach retirement age, many are entering
uncharted territory when it comes to decisions about their
"You have a very large audience of people concerned about
their retirement, looking for advice and help on how to prepare
for it," said Grondahl.
With demographics being such a strong driver, the company is
also actively exploring the IRA market.
"If they can design something that brings that asset
allocation and diversification expertise to the IRA market, it's
potentially a nice growth vehicle," said Grondahl.
Competition in the market in which Financial Engines operates
is rather fragmented. There are a few, much smaller players
trying to tap the market.
In addition, some of the largest 401(k) providers also carry
the company's services via an outsourced model. Those include
Fidelity Investments,ING (
),JPMorgan Chase (
), T. Rowe Price and Vanguard.
"They really are the clear market leader," noted Grondahl.
"They kind of got an early lead. And with that early lead, it was
really hard for others to get there."