Edelman Financial Engines is bringing financial planners to small 401(k) plans

Edelman Financial Engines is bringing financial planning to participants in small 401(k) plans over the next six months as the advisory firm emerges from its recent integration and seeks to expand distribution.

The firm will leverage a recently forged relationship with 401(k) administrator ADP, which caters primarily to smaller-sized workplace retirement plans, to pair financial planners with 401(k) investors.

“That’s not something we’ve offered in the small market before,” said Larry Raffone, chief executive of Edelman Financial Engines.

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Edelman Financial Services is the result of a combination of Edelman Financial Services, one of the largest registered investment advisers in the country, and Financial Engines, the largest provider of managed accounts to 401(k) plans.

The combined firm managed $212 billion — $38 billion in the retail channel and $174 billion from workplace clients — as of June 30, according to a spokeswoman.

Private-equity firm Hellman & Friedman announced its $3.02 billion acquisition of Financial Engines in April 2018 and merged it with Edelman Financial Services in November. The combined entity has roughly 330 financial planners, and the firm is currently looking to hire an additional 25 around the country, Mr. Raffone said.

Roughly three months prior to the acquisition announcement, Financial Engines inked a distribution partnership with ADP under which the retirement-plan record keeper made Financial Engines’ managed account services available to its clients.

A managed account uses technology to give participants a customized 401(k) asset allocation based off individual data points like age, salary and amount of non-retirement assets. Financial Engines has a 57% share of the market for retirement-plan managed accounts, according to consulting firm Cerulli Associates.

Financial Engines, which historically has only worked with 401(k) plans with hundreds of millions or billions of dollars, now delivers its managed-account services to 4,500 small retirement plans through the ADP partnership, Mr. Raffone said.

ADP administers more than 90,000 defined-contribution plans with aggregate assets of $78 billion and 2 million participants, according to a spokeswoman; its average DC plan has around $867,000.

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Financial Engines previously experimented with offering financial planning to non-ADP clients following its $560 million acquisition of The Mutual Fund Store in 2015, a deal that brought over around 150 planners, Mr. Raffone said.

Mr. Raffone said the firm may eventually partner with other record keepers that focus on small 401(k) plans but first wants to “make sure we get the scalability with this right.”

“Everybody is trying to figure out how to do that effectively,” Louis Harvey, president and CEO of consulting firm Dalbar Inc., said of bringing wealth management and financial planning to 401(k) participants. “There’s no question they’ll be serving an unserved need in that marketplace, so there’s lots of potential.”

Vanguard Group, for example, is currently piloting a digital-only service, called Vanguard Digital Advisor, that will offer goals-based financial planning to retail and 401(k) participants.

Edelman Financial Engines is currently working on combining the two firms’ CRM and financial planning platforms, an effort it will likely wrap up in the next three to four months, before focusing more intently in 2020 on its value proposition and client experience, Mr. Raffone said.

The firm is currently upgrading its financial planning services for retail — non-401(k) — clients to be able to offer life planning, Mr. Raffone said. The service will be broader than its current offering, focused on a goals-based process and clients’ life stages rather than on how much clients will need to retire, he explained.

Edelman Financial Engines is currently introducing the approach to its planners and will begin using it with retail clients in the middle of next year, he said. Eventually, the firm will offer a more simplified version of the life planning services to its 401(k) clients.

“I think you should consider we’d create some of those [at the 401k level],” Mr. Raffone said. “It’ll first be rolled out in retail but it’ll be streamlined [for 401(k) plans].”