Financial Engines Tunes Up Retirement Strategies
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Future Retirees Need Financial Plans
Since January of 2010, an estimated 10,000 baby boomers per month have celebrated their 65th birthday. Estimates of this number, 120,000 annually, suggest that this rate should continue through 2029. With anticipated pressure on the Social Security system and a lack of significant savings, it appears many of these retirees will not be in a position to live comfortably in their twilight years.
Younger workers are finally waking up to the reality that a personalized retirement plan for saving, investment and retirement income is a necessity, not an option. The traditional pension plan, one that guaranteed a steady payout during retirement, has all but disappeared. Once maintained by some 39 percent of private sector employees, that number has dwindled to 15 percent, according to the Employee Benefit Research Institute.
Additionally, reliance on stocks in retirement plans has become more important as future retirees look for ways to grow assets while mitigating risk. But an analysis of Standard and Poor’s index over the past 10 years, posting an annualized return of less than 4% (and that is assuming dividend reinvestment), suggests that a more comprehensive retirement plan will be needed.
Where There's a Strategy, There's Hope
Enter Financial Engines (NASDAQ: FNGN). The company is the nation’s largest independent investment advisor, helping investors develop a retirement strategy by offering personalized retirement plans for savings, investment, and retirement income. They work with leading employers and plan providers in the United States to provide retirement help to millions of American workers.
With a trailing twelve month profit margin of more than 10% and operating margin of almost 16%, the company’s year-over-year quarterly revenue growth of close to 36% provides a compelling reason to add this company to your portfolio. A number of fund managers consider Financial Engines as well run, with a good management team, exhibiting a platform that creates a more efficient process for delivering increased results to net users.
Financial Engine’s track record of delivering solid operating results, regardless of the cycle, is the result of designing a platform that is both independent and scalable, an attribute that puts the company in the enviable position of maintaining high incremental profit margins while profitably adding additional accounts with lower total assets. The company is considered an early innovator which, in the eyes of many, should give it formidable market leadership.
Of the three domestic competitors, only one of them is publicly held. Ameriprise Financial (NYSE: AMP), formerly known as American Express Financial Corporation, changed its name in September of 2005. The company provides a range of products and services both at home and abroad. With a trailing twelve month profit margin of more than 8% and operating margin of more than 23%, the company’s year-over-year quarterly revenue growth of less than 1% does not provide a compelling reason for investment.
FMR is a privately held financial services conglomerate known as Fidelity Investments and is one the world’s largest mutual fund firms. It serves more than 20 million individual and institutional clients and more than 5,000 financial intermediary firms.
The Vanguard Group is another privately held financial services firm that offers individuals and institution investors a comprehensive line of mutual funds and brokerage services. The firm is currently battling the aforementioned Fidelity Investments for the title of largest retail mutual fund manager.
The Charles Schwab Corporation (NYSE: SCHW) and the Principal Financial Group (NYSE: PFG) are indirect competitors of Financial Engines, but have respective business models that are more in line with Ameriprise and Fidelity Investments.
Schwab has a trailing twelve month profit margin of more than 19% and an operating margin of over 29%. The company’s year-over-year quarterly revenue growth of a little over 9% is compelling, but still about 75% lower than Financial Engines'.
PFG has a trailing twelve month profit margin of close to 9% and an operating margin of just over 12%. The company's year-over-year quarterly revenue growth of 29% is certainly impressive. However, I am looking for one stock in this sector to add diversification to my portfolio, and FNGN is my choice for financial services.
Future Baby Boomers, Fiancial Engines and Anticipated Business
Financial Engines' business model creates a sustainable business with an attractive return for investors. Management foresight, a track recored of solid earnings regardless of the economic cycle, and scalable infrastructure suggests a business that will run on all six cylinders for a number of years. The company has earned investor attention.
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