From the June 2008 issue of Investment Advisor • Subscribe!

June 1, 2008

Retirement Planning at Envestnet

Former Ibbotson executive plans 401(k) advice platform

Mike Henkel, former president of Ibbotson Associates, was recently tapped to be the managing director of Envestnet Asset Management's newly established Retirement Services Group. A pioneer in the 401(k) business, Henkel helped to spearhead Ibbotson's 401(k) advice offering, growing revenue from $3.6 million in 1993 to $40 million in 2006. Envestnet Asset Management, which electronically provides a range of wealth management services to more than 20,000 advisors, currently has $45 billion under management. Henkel is charged with the task of completing Envestnet's 401(k) advice platform--which will include a number of helpful tools for advisors--and hopes to have it up and running by summer. We spoke with with Henkel in late April about how he plans to pull the platform together and the challenges he sees for advisors working in the retirement space.

How do you plan on building out the Retirement Services Group?

I've got a couple of mandates. The first is to get the last pieces [of the platform] built and in the market for a 401(k) advice service Envestnet announced last summer. That is a discretionary advice model in the 401(k) space designed to work with big plan administrators. So it's similar to some of the things that we pioneered at Ibbotson, and I was one of the key reasons that we pioneered that at Ibbotson. So you go to a big plan sponsor and help them build advice that doesn't get entangled with ERISA regulations; today, that's still mostly accumulation oriented--how do you help an investor in a 401(k) plan that may have only $50,000 or $100,000 saved make sure they have the right savings and right investments and that they understand what they need to do to get to retirement with enough money put away?

The second step has broader ramifications. Everybody in the industry talks about the coming wave of baby boomers retiring, and most of us are not going to have pensions. I know I probably won't. So you've got the money you've put away and you say, "I don't know how long I'm going to live. I don't know how much I can spend. Where should I put it and how should I manage it?" There's a whole set of tools, advice, guidance, and models that need to be built around how to help people do that. Some of that [process] will go into the 401(k) market; there's a base level set of tools that's going to work across all of this, but a lot of it will also extend into the traditional Envestnet business lines of separately managed account platforms, etc. So the things that we build in my group will get pushed out across the Envestnet platform.

What types of services will be on the platform to help advisors?

Advisors will have access to more tools, and we'll be looking at various annuity products and how they work and include those in an advice or illustration model. The idea is to help any advisor help any investor look at their situation and assess the risks--"What am I facing? If I invest this way, how often would I run out of money? What are my options? Help me understand it in a more holistic sense." So it's not about selling a product, it's about selling a process.

How long have you been specializing in the 401(k)/retirement space?

At Ibbotson we started that [401(k)] business back in 1997, so we've been doing it since it started, in essence. The business I'm talking about is the 401(k) business--how do you give advice to 401(k) participants and not run afoul of ERISA? One big hang up in ERISA--sort of a good thing or sort of a bad thing depending on how you look at it--is if you're a money manager and you want to give advice to a participant and, let's say, within the investment options in the plan that the investor has access to, you have one or two of those investment options . . . ERISA says that if you were to tell an investor what to invest in, no matter how unbiased the advice might actually be from you, that would be illegal because any advice that you give changes the fees you receive. If you tell them to invest in the large cap fund more or less than the small cap, then since you have one of those funds, it changes the fees, so you're conflicted. So the first service we offer would be an independent way to offer advice and not run afoul of those regulations.

What do you see as the biggest challenge for advisors in the retirement/401(k) space?

I see two challenges for advisors--one in the 401(k) world. Let's say you do advise on 401(k) plans and that's part of your practice. You look at any sort of 401(k) plan and there are people of all different asset ranges--those just starting out with only a few thousand dollars or others like the owner of the business with $100,000 or $200,000. So from an advisor standpoint, you can't afford to spend a lot of time with the $1,000 investor but you don't want to neglect the $100,000 investor; so how do you build something that's scaleable? That's one of the key components of the things that we build in the 401(k) advice world. So one of our challenges is to see how we can connect the advisor world with some of these discretionary advice tools. I don't have an answer for it yet, but it's something that we need to do a lot of serious thinking about because there's an opportunity there for everybody.

The second challenge is easier to solve in some ways; it's looking at trying to help an investor with just the assets they save and Social Security--that's their form of income. I personally don't think there are a lot of good tools available to advisors to help investors work through those problems [of figuring on how to draw an income] in a systematic way. That's one we definitely will solve, at least from a tools standpoint.


Washington Bureau Chief Melanie Waddell edits IA's retirement section. She can be reached at mwaddell@investmentadvisor.com.

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