The Palo Alto, California-based provider has unveiled its long-anticipated Personal Asset Manager program, a personal portfolio management program designed for employees who would prefer to not only obtain investment advice – but to let the provider act on its own recommendations. Financial Engines estimates that the so-called “reluctant” investor, who would prefer to have someone make those choices for them, represents some 30-40% of current participants.
The program is accessible to all plan participants and has no minimum account balance requirement. The service is not free, but as is the case with many personal advisory services, the fee is asset-based. Financial Engines told PLANSPONSOR.com that it currently plans to charge participants between 20 and 60 basis points, according to the size of their account and the size of the company they work for.
What makes the new offering stand out, according to Jeff Maggioncalda, president and CEO of Financial Engines, is that it does not rely on pre-configured model asset allocation portfolios. In addition to their 401(k) accounts, Personal Asset Manager can also take into account non-401(k) investments, spouse’s investments, savings rate, time horizon, risk level, and goals. The program also offers access to a live advisor who can explain how their recommended portfolios will help them reach their goals.
After enrolling in the program, participants will receive a Personal Plan Preview that details the exact portfolio plan that will be implemented, at the same time offering an option of supplying additional information through the mail, online, or to an advisor over the phone. Thereafter, the account will be monitored and periodically rebalanced, taking into consideration all of the personalized data provided by the participant.
In developing Personal Asset Manager, Financial Engines spent a year with over 50 sponsors and 2,000 participants listening to what they want from this kind of a program. A sponsor forum in May 2003 revealed that the most important elements in a managed account solution include:
- 89% said it should use a plan's existing investment options.
- 84% noted that it should represent the guidance of an independent fiduciary.
- 80% cited a simple enrollment via paper, phone, online.
- 73% said it should be personalized to include outside assets and company stock.
- 68% noted the importance of phone access to an advisor (68%).
In a pilot program with Motorola (an existing Financial Engines client), 1,000 randomly selected participants were divided into groups to test different enrollment methods. The goal, with a tested fee of 50 basis points, was to achieve a 10%+ enrollment in the program.
Financial Engines says that the test program had the following enrollment rates:
- 18.3% - for those given a free "plan preview" (during a 2-month enrollment period);
- 13.6% - for those given a brochure explaining the service, and then an evaluation of their current 401(k) investment allocations (over a 3 month period);
- 12.5% - for participants given only an evaluation of their current 401(k) investment allocations.
The evaluations of their current allocations employ a relatively straightforward "red, green, yellow" rating system, which makes it relatively easy for participants to determine if they have a problem or not.
For those wondering about Financial Engines' track record in picking investments, the firm says it recently took the 8,443 mutual funds it analyzed in 1997 and looked at how well the top-ranked funds performed over the six-year period from 1997 to 2002. According to Financial Engines,
- 73% of Financial Engines' top-ranked funds outperformed the median fund in their category over the past 6 years.
- 70% of Financial Engines' top-ranked bond funds outperformed the median fund in their category over the past 6 years.
- 62% of Financial Engines' top-ranked equity funds outperformed the median fund in their category over the past 6 years.
- 66% of Financial Engines' top-ranked international equity funds outperformed the median fund in their category over the past 6 years.
- 95% of Financial Engines' top-ranked money market funds outperformed the median fund in their category over the past 6 years.