The Sunnyvale, Calif.-based robo colossus needed human advisors, and the radio RIA liked having a non-radio source of new clients

November 5, 2015 — 11:15 PM UTC by Brooke Southall


Brooke’s Note: No, we didn’t see this one coming. But as aggressively as human RIAs are trying to add a robo aspect to their businesses, the robos are just as hungry to add people who can explain goals-based investing and staying the course to clients. Both buyer and seller here see greener pastures. Still, this deal between an RIA with location in strip malls wedged between Subway stores and beauty salons and an RIA that was built by the most human-averse, pointy-headed Palo Alto types is a real head-spinner. It’s what happens when partners with critical mass are moving fast in a hot industry still dominated by fledglings on the robo side and moms and pops on the human RIA side.

Financial Engines has signed an agreement to acquire The Mutual Fund Store LLC from Warburg Pincus LLC and management for total consideration of approximately $560 million, including cash and stock. See: How Mutual Fund Store is the real engine now at Financial Engines.

Based on the terms of the transaction, Warburg Pincus is expected to become Financial Engines’ largest stockholder, owning about 12.5% following the closing of the transaction.

Michael Martin, managing director of Warburg Pincus, will be appointed to Financial Engines’ board of directors upon closing. See: How Warburg Pincus plans to grow The Mutual Fund Store several-fold.

Financial Engines has a market capitalization of $1.76 billion and its shares closed at $34.01 today, less than half of the $70 price hit briefly in 2013.

Just down the road a piece

The total transaction purchase consideration includes approximately $250 million in cash and 10 million shares of Financial Engines common stock. The combined company will be debt-free following the transaction.

The pairing matches a Sunnyvale, Calif.-based company of quant geeks running what many view as the original robo-advisor with the ultraretail, mass-affluent RIA built very much on the charisma and personal knowledge of Adam Bold, a former Smith Barney stockbroker.

Since 2011, the Overland park, Kan.-based company has been professionally managed by CEO John Bunch, who formerly headed up TD Ameritrade’s branch network. See: John Bunch is hired as the new CEO of The Mutual Fund Store.

The Mutual Fund Store, once primarily a franchisor, has approximately 345 employees, 200 of whom are advisors, and approximately 84,000 accounts at about 39,000 households and more than $9.8 billion in assets under management, as of Oct. 31. It’s spread out over 125 locations, putting 70% of Financial Engines’ investors in driving distance of an advisor.

People crunch

Bold and his original VC firm, Summit Partners, sold the majority of the company shares to Warburg Pincus for about $350 million, a deal first reported in July 2011. See: Mutual Fund Store sells controlling interest to Warburg Pincus. At the time, it had 70 stores and managed $6.6 billion in assets.

The name of The Mutual Fund Store will be changed to Financial Engines. Bold says he will continue to own a large number of shares and continue to do his radio shows. See: Financial Engines more than doubles its share price by defining a niche in the 401(k) market between target date funds and RIAs.

The main catalyst for the deal was the recognition of Financial Engines that it was bumping up against limits as a result of its lack of people.

“Putting money into a 401(k) isn’t enough,” he says. “Now you have access to real-life human beings. We can help you with assets outside and your life insurance.”

Getting 'real’

Indeed, the press announcement chalks up the deal to the need for driving greater usage and retention of Financial Engines’ services and helping 401(k) participants with more complex needs.

Financial Engines, Bold says, had no rollover strategy before the deal, and does now.

The deal validates industry chatter that Financial Engines was seeking more humans. See: What exactly to make of the big robo-advice deal that, according to Reuters, Financial Engines and Wells Fargo are nearing.

“People might put $2,000 with a robo but when it comes to real money you earned over 20 years, you need a real person,” says Bold.

Mentioned in this article:

Financial Engines
401k Plan Consultant

Share your thoughts and opinions with the author or other readers.


Andrew Ghezzi said:

November 5, 2015 — 11:35 PM UTC

The end game for a very large portion of the mid market is an “objective” and safe environment where they can count on suitable advice or even financial education that is free from any conflicts of interest. Financial Engines understands this.

Personally I feel that consumers who migrate to pure 100% online robo offerings are the very low hanging fruit representing 30% of the total assets up for grabs. Firms will need a retail footprint to make it work with the remaining 70% of the market.

Also….its going to cost you a tidy some to scale this without being eaten alive. Welcome to the age of investing as a commodity while taking stock in advice as a service. The wirehouse sector will not win at this game because investors already group them in with the usual suspects. Deals like this where Financial Engines gets to white wash The Mutual Fund Store into something more appealing to Gen M and X are going to rule the roost.


Elmer Rich III said:

November 6, 2015 — 6:35 PM UTC

Nice reporting job. It’s always useful to highlight the incentives, revealed by deal behavior, of financial buyers in our industry.

On the value of this industry, this research just hit my inbox yesterday: “ evidence that financial experts are making better investment decisions: they do not outperform, do not diversify their risks better, and do not exhibit lower behavioral biases.” Oh oh. Full report here:


Stephen Winks said:

November 6, 2015 — 7:49 PM UTC

More evidence the advisory services industry is maturing far beyond its product sales roots. Doesn’t every consumer want more for less? Andrew Ghezzi’s observation is right on target confirming you can’t teach “old dogs (of Wall Street) new tricks.” Will Wall Street adapt and support advisory services in the client’s best interest or will it continue to resist fiduciary duty and professional standing for those who render advice. Wall Street’s neglect of advisory services has created a leadership vacuum as illustrated by its opposition to fiduciary debate. There is no question that future goes to those who serve the best interest of the investing public. Financial Engines’ acquisition of the Mutual Fund Store importantly establishes for the first time critical mass in people, assets and financial resources from which advisory services will flourish in ways not possible on Wall Street. The investing public wins in a virtuous cycle of innovation. This merger will profoundly impact the industry which has foolishly ignored fiduciary duty and professional standing of the broker rendering advice

Stephen Winks..

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