For most new hires, it’s now common for employers to set up a small contribution into a 401(k). This is to ensure, at least until the employee changes it, that contributions are being made toward retirement.
The default setup by your company isn’t configured around your personal investing style nor is it meant to build your retirement in a meaningful way. For that, you’ll need to become more active in your investment management or hire someone to manage your investments for you.
Allowing a service to manage your investments is what we’re reviewing today.
Financial Engines is a company that has been around since 1996. They’ve been at the forefront of helping employees at Fortune 500 companies with personal financial guidance. As stated on their website, “We provide objective, fee-based advice and asset management, with an aim to help you build a better financial future, plain and simple.”
Who Is Financial Engines?
You can find Financial Engines (FE) at financialengines.com. They started in 1996 by providing online financial advice. From there, they moved into company-sponsored retirement plans — i.e., 401(k)s — and Social Security guidance. Some of their high-profile clients include Arby’s, Ford, Dell, Raytheon, and PG&E.
FE provides two primary services for employees:
- Financial advice
- Investment management
FE’s financial advice service provides investment recommendations personalized to the employee. It’s then up to the employee to execute those recommendations. The investment management service is different in that it does the execution for the employee. In doing so, the employee has to give up control over their retirement account.
The investment management service is not automatically enabled on your account. You have to request the service. Don’t forget to check how much it will cost and what is involved with turning the service off, in the case that you want to manage your account again.
FE also states on its website that it is a fiduciary. A fiduciary must put a client’s best interest first. In other words, FE must not gain (financially or otherwise) at your expense.
How Much Does Financial Engines Cost?
FE doesn’t publish its service fees. This is probably because they vary depending on the arrangement with the employer. In some cases, the employer may fully cover the FE fee for the employee.
Most robo-advisors charge well under 1% for their service fee. However, it’s important to note that FE isn’t a robo-advisor. For each of the two services mentioned above, there are real people involved.
Each corporation negotiates it's rates with Financial Engines for what it offers its employees. Compare those fees with competitors such as Blooom, which offer flat rate 401k management options. Read the Blooom review here.
I Already Have an Advisory Service with My 401(k)
If your employer uses any of the large brokerages for retirement management such as Fidelity, American Funds, Charles Schwab, or Merrill Edge, a retirement service is likely included. Additionally, the service is probably free. If that’s the case, you might ask: “Why would I pay for an advisory service?”
This comes down to differences between each service. One major difference with FE is that it can perform the executions on investment recommendations for you. Most other brokerages require that you initiate each investment recommendation.
Financial Advising for Your Personal Life
FE offers a lot of education and tools on its website to help employees understand the many aspects of investing and retirement planning. In 2016, they began offering personal financial advice beyond just an employee’s 401(k).
“We’re broadening our focus beyond retirement,” Lawrence Raffone, Financial Engines’ chief executive told Financial Advisor magazine. “We’re going to start helping people with even more of their finances.”
The above means that if you like FE’s services provided through your employer, you can basically extend their service offering so FE becomes a one-stop financial advisor management service for all of your finances.
Who Is Edelman?
In 2018, private-equity firm Hellman & Friedman LLC paid $3.02 billion for FE. As stated in their press release, “Edelman Financial Services (“Edelman”), one of the nation’s largest independent financial planning and investment management firms, will be combined with Financial Engines as part of the transaction. H&F owns a majority interest in Edelman.”
Before the acquisition, FE was a publicly traded company on the NASDAQ with the FNGN ticker symbol. On 4/27/18, the stock closed at 33.73. It opened on 4/30/18 at 44.40 and traded fairly flat until 7/18 when it closed at 44.95 and stopped trading.
FE is not offered by all employers. If you aren’t sure if your employer offers services through FE, inquire about them. Be sure to ask about fees both from your employer and FE.
Also, check where the fee is originating (your employer or FE). If you are going to use FE’s managed service, you’ll likely incur additional fees.
It’s important to fully understand what is involved with the managed service and to confirm that FE is trading based on your risk profile.
You’ll want to ask ahead of time how the service is turned off should you want to take over management of your account again at some later point.
Financial Engines Review
- Commission and Fees - 80
- Customer Service - 80
- Investment Options - 80
- Asset Allocation - 80
- User Friendliness - 80
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.