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Financial Engines' $560M Deal Puts Humans in the Machine

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When Financial Engines, an online investment and retirement guidance provider, launched nearly two decades ago, it was a digital-first venture.

But with its agreement to acquire the Mutual Fund Store from Warburg Pincus for $560 million, the digital RIA will have 129 storefronts across the country and a complement of human advisors with whom investors can meet face-to-face.

There's inherent irony in a firm considered the original robo advisor platform taking over a traditional wealth advisor, admits Financial Engines CEO Larry Raffone.

However, Raffone says the deal "is not a brick-and-mortar play," but rather an acknowledgement that "people want help in different ways. Instead of rejecting everything and insisting advice will be automated and online, can you embrace and apply technology along a greater spectrum?"

The deal is also a signal to independent robo advisor firms that they need to pair their technology with traditional advisor outreach to remain relevant, analysts say.

"This really reinforces our view that online automated advice is the future, just like online banking was in the 90s," says H. Peter Nesvold, managing director of Silver Lane Advisors, and author of a recent study questioning the viability of the robo advisor model. "However online is only one component -- it's a product feature, not a standalone business."


Financial Engines' acquisition builds upon an earlier announced move to make it easier for clients to reach advisors for financial advice, free of charge. 

It's the latest in a series of moves by digital firms to cut into the $4.6 trillion 401(k) space -- in September, leading robo Betterment launched a 401(k) plan administration offering for businesses, while Next Capital boosted its own 401(k) offering aimed at the defined contribution market. 

It's also the latest pairing of technology and human advisor expertise; last month Blucora paid $580 million to marry its online tax preparation platform with HD Vest's data mining capabilities and lineup of advisors.

Raffone says client studies showed him they wanted more face-to-face experiences with an advisor, even just for an initial meeting. "It was an eye-opener, but it has been on our path to add more advisors."

Discussions with Warburg Pincus began in February, he says, adding he was satisfied there would be a good cultural fit. "We saw an interesting overlap, and felt like it was right in our strategy to accelerate our growth."

The acquisition is a combination of $250 million in cash and 10 million shares of Financial Engines' stock, and nets the Mutual Store's 84,000 accounts and its $9.8 billion in AUM.

Raffone says the firm paid a fair price for the Kansas City-based RIA. "We've got this for significantly less than what others have paid," he says. "We feel good about this acquisition."


Silver Lane's Nesvold says the move will pressure independent platforms to add more live people to their offerings.

"Since Vanguard rolled out their own offering, the future of robos is as a partner, not the lead," he says.

Financial Engines' acquisition was a big development for the fledgling digital 401(k) space, says Grant Easterbrook, a former Corporate Intelligence analyst who recently launched Dream Forward Financial as a low-cost 401(k) provider.

"It's an ambitious move, and clearly that's a lot more than what they started life as, when they were just a plug-in tool for 401(k) asset allocation."

There has been much discussion about how robo advisors will evolve, and the model of technology and humans combining for a service is beginning to become prevalent, Easterbrook says.

"This is an exciting, big leap forward to realize that vision," he says.

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