Chasing assets, online platforms dive deeper into retirement plans, SRI – Financial Planning

With competition for new assets tightening, digital advice platforms are partnering with outside firms and beefing up offerings to extend their reach into untapped markets.

Financial Engines, an online 401(k) financial advisory firm, teamed up with human resources giant ADP to offer their digital platform to ADP’s employer network — while digital advice firm Personal Capital opened up a new socially responsible investment portfolio option, according to the firms.

Financial Engines blends online advice tools — like college-savings planners and retirement calculators — with professional management options and personal financial planners to help 401(k) participants better manage their retirement goals, according to the firm.

The move could extend Financial Engines’ reach to 1.7 million new prospective clients on ADP’s network. The Sunnyvale, California-based firm now has more than 1 million clients and manages $160 billion in assets, according to a spokeswoman.

“We’ve spent the last 20 years dealing with largest 401(k) plans. In terms of complexity and engagement with participants, this is kind of the next natural extension,” says Financial Engines COO John Bunch, adding that the firm deals with more than 700 corporations, many of which are Fortune 100 companies.

Traditionally, smaller employers didn’t have the required assets to work with RIAs, Bunch says, meaning millions of clients couldn’t access financial planning through their company’s benefit plans.

“Smaller companies that are just getting started probably don’t have the asset levels that a traditional RIA would look at managing,” Bunch says. “We have built that scale down in the marketplace in a way that’s profitable.”

The hybrid service offers four tiers of advice from online tools to personal advisors, according to the firm.

While the Financial Engines move looks to enter the retirement planning market, Personal Capital is making a foray into a growing investment sector — socially responsible investing. Following in the footsteps of the leading independent robos, the Silicon Valley, California-based firm launched an environmental, social and governance portfolio that allows clients to invest in alignment with their morals.

The tool screens stocks based on ESG factors with data provided by the New York-based ratings firm Sustainalytics. The SRI option retains the same features as Personal Capital’s core portfolios and includes exposure to all six major liquid asset classes, according to the firm.

“It’s something that’s important to clients,” says Craig Birk, vice president of portfolio management at Personal Capital, “and we believe we can offer it without any negative impact on expected returns.”

Existing ETFs are a little bit expensive and are relatively low volume, says Birk, adding that some SRI funds are heavily invested in technology. “You end up taking pretty big bets,” Birk says.

In contrast, SRI portfolios offer individual stocks, which allows clients to create a more diversified and transparent portfolio, Bunch says. The only excluded stocks are fossil fuels and traditional “sin stocks,” like equities from tobacco, alcohol or gambling companies and defense contractors.

Personal Capital manages more than $6.5 million in assets and has 1.6 million registered users.

As the popularity of SRI grows, so too is a laundry list of online firms now offering SRI options. Betterment and Wealthfront both unveiled SRI approaches last year, responding to demand from clients that have turned ethical investing into an $8 trillion category.

In fact, SRI reached $8.72 trillion at the start of 2016, according to the most recent data from a biennial report by the Forum for Sustainable and Responsible Investment.

Personal Capital expects to see $1 million in new AUM flow into its ethical investing option by the end of the quarter, Birk says.

Sean Allocca

Sean Allocca is the associate editor of Financial Planning, On Wall Street and Bank Investment Consultant.

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