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As the responsibility for retirement shifts to the individual, there is a growing need for investment counsel. However, employers are hesitant in providing advice because of the fiduciary risks and liabilities. But this has been a huge opportunity for independent service providers, such as Financial Engines. In fact, to capitalize on things, the company has filed to go public.
At the core of Financial Engines is a sophisticated platform for financial planning, which is based on the portfolio analysis of Nobel Laureate, Professor William F. Sharpe (who is also the company's co-founder). This allows for building optimal decisions based on past financial performance, expense levels, manager performance, asset class exposures, tax efficiency and risk tolerances. In other words, individuals can get top-quality financial advice that would typically be available mostly to those with large portfolios.
To monetize things, Financial Engines charges fees based on the value of the underlying assets of the retirement plans. For the first nine months of this year, the business model has resulted in revenues of $58.8 million, up from $52.3 million in the same period a year ago. Currently, Financial Engines has contracts with 107 of the Fortune 500 and seven of the Fortune 20.
While there are many opportunities to expand the customer base, Financial Engines also is focused on increasing the participation rates of its existing footprint. The company also believes there will be significant growth as the Baby Boomers begin to retire and look for qualified financial advice.
The lead underwriter on the IPO is Goldman Sachs (GS) and the offering should hit the markets in the first quarter of next year.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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