Financial Engines

Prospectus Summary

This summary highlights selected information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information you should consider before investing in our common stock. You should carefully read the entire prospectus, especially the risks set forth under the heading “Risk Factors” and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. Our investment advisory and management services are provided through our subsidiary, Financial Engines Advisors L.L.C., a federally registered investment adviser. References in this prospectus to “Financial Engines,” “our company,” “we,” “us” and “our” refer to Financial Engines, Inc. and its consolidated subsidiaries during the periods presented unless the context requires otherwise.

Financial Engines, Inc.

Overview

Our company was founded to address the need for independent investment advice. Traditionally, high quality, customized investment advice had been available only to large institutions and the affluent, and providing such advice to low asset balance investors had been cost-prohibitive. We believe that our advice technology platform allows us to cost-effectively service the needs of individual investors with low asset balances, many of whom are underserved by the financial services industry. We believe shifting retirement industry trends present us with an opportunity to provide independent portfolio management services, investment advice and retirement help to plan participants who previously did not have access to these services.

Our Company

We are a leading provider of independent, technology-enabled portfolio management services, investment advice and retirement help to participants in employer-sponsored defined contribution retirement plans, such as 401(k) plans. We help investors plan for retirement by offering personalized plans for saving and investing, as well as by providing assessments of retirement income needs and readiness, regardless of the investor’s personal wealth or investment account size. We use our proprietary advice technology platform to provide our services to millions of retirement plan participants on a cost-efficient basis. We believe that our services have significantly lowered the cost and increased the accessibility to plan participants of independent, personalized portfolio management services, investment advice and retirement help.

Our business model is based on workplace delivery of our services. We target three key constituencies in the retirement plan market: plan participants (employees of companies offering 401(k) plans), plan sponsors (employers offering 401(k) plans to their employees) and plan providers (companies providing administrative services to plan sponsors). We generate revenue primarily from management fees based on the value of the assets we manage for plan participants, which we refer to as Professional Management revenue. We refer to the amount of retirement plan assets that we manage for plan participants as part of our Professional Management service as Assets Under Management, or AUM. We refer to plan participants who are enrolled in our Professional Management service as members. We also generate revenue from recurring, subscription-based platform fees for access to either our full suite of services, including Professional Management, Online Advice and Retirement Evaluation, or our Online Advice service only, which we refer to collectively as platform revenue. Platform fees are paid by the plan sponsor, plan provider or the retirement plan itself, depending on the plan structure.

We offer three principal services:

XBRL Paragraph Pagebreak XBRL Pagebreak Begin End box 1 END PAGE WIDTH PAGEBREAK BEGIN PAGE WIDTH Begin box 1 XBRL Pagebreak End services, investment advice and retirement help from an independent investment advisor without the conflicts of interest that can arise when an advisor offers proprietary products. Our investment recommendations are limited to the investment alternatives available in a 401(k) plan as determined and approved by a plan fiduciary other than us, although we do take into account other identified holdings of the plan participant when offering investment advice. With the exception of employer stock, if any, included as an investment alternative, we do not provide advice on or manage single-company securities. We do not consult with, or make recommendations to, the plan sponsor regarding which investment alternatives to make available in a particular plan. In some cases, we provide this service by acting as a subadvisor to a plan provider acting as the investment manager to plan participants.

Our total revenue for the nine months ended September 30, 2009 was $58.8 million, compared to $52.3 million for the nine months ended September 2008, an increase of 13%. We generated Professional Management revenue of $34.4 million for the nine months ended September 30, 2009, an increase of 23% from $27.9 million for the nine months ended September 30, 2008. We generated platform revenue of $22.5 million for the nine months ended September 30, 2009, an increase of 2% from $22.2 million for the nine months ended September 30, 2008.

We target large plan sponsors across a wide range of industries. As of September 30, 2009, we had signed contracts to make our services available through 107 Fortune 500 companies and seven Fortune 20 companies. As of September 30, 2009, we were under contract to provide either our full suite of services, including Professional Management, Online Advice and Retirement Evaluation, or our Online Advice service only, through more than 765 plan sponsors with approximately 7.6 million plan participants, whose retirement savings represented more than $500 billion in assets. Within this group, we provide our full suite of services to 341 plan sponsors representing approximately 3.7 million participants and approximately $242 billion of assets in retirement plans for which we have rolled out our Professional Management service, which we refer to as Assets Under Contract, or AUC. As of September 30, 2009, we had approximately $23.5 billion in AUM, and managed the accounts of approximately 383,000 members who have delegated investment decision-making authority to us. Our AUC does not include assets in plans where we have signed contracts but for which we have not yet rolled out our Professional Management service. We deliver our services to plan sponsors and plan participants primarily through existing connections with eight retirement plan providers. Based on information from Pensions and Investments, as of March 31, 2009, and one plan provider, we estimate that these eight plan providers collectively service plan sponsors representing more than $1.5 trillion in plan assets, or more than 80% of the assets contained in plans with more than 10,000 participants.

The key steps associated with delivering our Professional Management service are as follows:

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We launched our Professional Management service in September 2004. From December 31, 2004 to September 30, 2009, we had a compound annual growth rate, or CAGR, of 93% for AUM and 98% for membership. As of September 30, 2009, we had AUM of approximately $23.5 billion and approximately 383,000 members, compared to AUM of approximately $15.6 billion and approximately 322,000 members at December 31, 2008.

The following tables illustrate the increase in our AUM and membership, and the corresponding CAGR, from December 31, 2004 to September 30, 2009.

All data are shown as of December 31 of the applicable year except 2009, for which the data are shown as of September 30.

The following table illustrates the number of plan sponsors where Professional Management is available, and the corresponding CAGR. The data below includes plan sponsors where no members had yet enrolled.

Total Plan Sponsors

All data are shown as of December 31 of the applicable year except 2009, for which the data are shown as of September 30.

Our Market Opportunity

We believe the United States retirement savings industry is large and growing and that shifting trends within the retirement industry present us with an opportunity to help plan sponsors provide independent portfolio management services, investment advice and retirement help to their employees. We believe the following key market trends will continue to drive the growth of our business and increase the value of our service offerings:

Shifting Demographics Drive a Growing Need for Retirement Assistance. The ongoing growth in retirement assets, especially 401(k) assets, is driven in part by individuals seeking to supplement retirement funds they expect to receive from Social Security and corporate defined benefit plans. Defined contribution assets, including 401(k) assets, are not evenly distributed by age. According to data contained in the Federal Reserve Board’s Survey of Consumer Finances for 2007, households headed by individuals age 45 through 64 represented 45% of all retirement account holders, but account for 56% of the assets in retirement accounts. Members of the Baby Boomer generation, which refers to individuals born between 1946 and 1964, will begin to reach traditional retirement age in 2011. However, studies suggest that many Baby Boomers are not financially prepared to support themselves in retirement. The Employee Benefits Research Institute, or EBRI, 2009 Retirement Confidence Survey indicates that approximately 36% of workers age 45 through 54, and approximately 30% of workers age 55 or older, report total savings and investments, excluding the value of their primary residence and any defined benefit plans, of less than $10,000. Despite the increased reliance on defined contribution plans, we believe many investors are not equipped to adequately formulate an investment strategy for their retirement assets. As a result, we believe these investors face significant investment risk and potentially inappropriate market exposure and asset allocations.

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Growing Reliance on Defined Contribution Plans. As employer-sponsored retirement plans shift from defined benefit plans to defined contribution plans, the responsibility for making retirement investment decisions shifts from professional pension fund managers to individual investors. Cerulli Associates estimates that private defined contribution assets, excluding Individual Retirement Accounts, or IRAs, were approximately $4.2 trillion and constituted more than 25% of total retirement assets in the United States, excluding Social Security, in 2007. According to Cerulli Associates, there were approximately 57 million 401(k) plan participants as of December 31, 2007. Of the workers surveyed in EBRI’s 2009 Retirement Confidence Survey, 42% estimate that a major source of their retirement funds will come from employer-sponsored retirement savings plans.

Changing Legal and Regulatory Framework. As the burden of retirement investing shifts to the individual, we believe that there is an increasing need for assistance and guidance on how to maximize retirement wealth. However, according to a 2009 survey by Hewitt Associates, the primary reason cited by plan sponsors for not making investment advice available to employees has been the fear of increased fiduciary or legal risk. We believe the Pension Protection Act of 2006 and subsequent Department of Labor regulations can reduce these concerns. In addition to providing specific guidelines for plan sponsors to automatically enroll employees into qualified plans and accelerate contributions on an annual basis, the Pension Protection Act of 2006 further supports the existing foundation for professional asset management of 401(k) accounts. Adherence to these guidelines provides specific safeguards to plan sponsors from fiduciary and legal risk.

Automatic 401(k). As a result of the Pension Protection Act of 2006 and Department of Labor guidelines, plan sponsors are now actively seeking automatic retirement savings solutions for their employees. According to a 2009 401(k) plan survey conducted by Hewitt Associates, the percentage of employers that automatically enroll new participants has increased from 19% in 2005 to 58% in 2009. Similarly, automatic contribution escalation, where employees’ contribution rates are automatically increased over time unless the employee affirmatively elects otherwise, increased from 9% in 2005 to 44% in 2009. A 2006 report by the Retirement Security Project estimates that the automatic 401(k) could increase net national saving by about 0.34% of gross domestic product per year, or approximately $44 billion per year.

Our Competitive Strengths

We believe that our market-leading position results from the following key competitive strengths:

Independent and Unconflicted Advice. We believe that many plan participants value an investment advisor that is independent and free from potential conflicts of interests. We also believe that many plan fiduciaries similarly value making independent and unconflicted advice available to their plan participants. We do not receive differential compensation based on the investments we recommend. We offer no proprietary investment products and are free from the conflicts or the perception of conflicts of interest that can arise for competitors who offer such products. We do not hold assets in custody or execute trades. Our investment recommendations are limited to the investment alternatives available in a 401(k) plan as determined and approved by a plan fiduciary other than us, although we do take into account other identified holdings of the plan participant when offering investment advice. With the exception of employer stock, if any, included as an investment alternative, we do not provide advice on or manage single-company securities. We do not consult with, or make recommendations to, the plan sponsor regarding which investment alternatives to make available in a particular plan. We are not affiliated with or controlled by any broker-dealer, registered investment company, insurance company or financial services organization. We base our investment advice on quantitative criteria applied through a computerized model that is consistently applied across plan participants, plan sponsors, plan providers and investment choices.

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Proprietary Investment Advice Technology. Our Advice Engines, which consist of our Optimization and Simulation Engines, incorporate portfolio analysis methods commonly used by large institutional investors and pioneered by our co-founder and Nobel Laureate, Professor William F. Sharpe. Our technology-based investment approach incorporates the following:

Scalable Technology Platform. We believe our technology platform allows us to cost-effectively service the needs of large numbers of individual investors with low asset balances while providing sophisticated, personalized investment advice. As of September 30, 2009, approximately 46% of our Professional Management members had less than $20,000 of retirement assets in their accounts. We believe that the ability to serve these low balance plan participants cost-effectively is a key advantage of our business model.

Significant Invested Capital. Our services are based on our proprietary technology, which we developed over a number of years, and in which we have invested significant financial and personnel resources. We believe that any potential competitor will face significant challenges in terms of the human capital, time, money and technology required to develop a competitive offering. Furthermore, the technology interfaces that we have established with our retirement plan providers and plan sponsors are complex and would be time-consuming and costly for our plan providers and plan sponsors to replicate.

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Established Relationships and Data Connections with Retirement Plan Providers. We have built data retrieval, transaction processing and fee deduction interfaces with a number of retirement plan providers, including these eight primarily: ACS, Fidelity, Hewitt, ING, JPMorgan, Mercer, T. Rowe Price and Vanguard. Based on information from Pensions and Investments, as of March 31, 2009, and one plan provider, we estimate that these eight plan providers collectively service plan sponsors representing more than $1.5 trillion in plan assets, or more than 80% of the assets contained in plans with more than 10,000 participants.

Large, Industry-Leading Retirement Plan Sponsor Clients. We believe our brand recognition and experience serving large plan sponsors from a wide variety of industries provide us with a competitive advantage and enhance our position as an acknowledged leader in our markets. We believe that many plan sponsors that contemplate switching plan providers consider the availability of our services on alternative plan provider platforms in making their decisions. We believe that this in turn provides incentives to the plan providers to maintain ongoing relationships with Financial Engines.

Our Business Model

Recurring and Resilient Revenue Base. We believe our business model has structural advantages that allow us to demonstrate resiliency in difficult environments. We currently serve investors with 401(k) accounts that, unlike other non-retirement investment accounts, generally receive consistent automatic contributions from participants and have adverse tax treatment on early withdrawals. We create portfolios with a diversified mix of equity and fixed income exposure designed to reduce volatility. Our investment methodology is also designed to avoid market timing biases that can increase volatility for investors. In addition, our contracts with plan sponsors typically have initial terms of three years and evergreen clauses that extend the initial term until terminated by either party after a specified notice period. In a given year, a significant portion of our Professional Management revenue consists of recurring revenue earned from contracts in place prior to the beginning of that year. Revenue from contracts in place as of December 31, 2007 accounted for approximately 99% of our total revenue for the year ended December 31, 2008.

While market declines may impact the value of our AUM, we believe our business model may mitigate the effects of market declines. From December 31, 2007 to December 31, 2008, our AUM declined approximately 4%. This was a challenging time for the equity markets, as shown by a decline in the S&P 500 of approximately 38% over the same period. We believe the effect on our AUM during this period was mitigated as a result of new business, ongoing participant contributions and less volatile investment performance, among other factors. From December 31, 2008 to September 30, 2009, our AUM increased 51%.

Attractive Economic Model. We believe the scalability of our technology platform results in attractive per-member economics. We have incurred significant up front expenses to establish connectivity with plan provider and plan sponsor platforms. We believe that our investments in technology allow us to manage existing member accounts at significantly lower costs and to add new plan sponsors and plan participants with less than pro rata incremental expenses.

Sole Access and Customer Retention. Our business model enjoys a number of structural advantages that result in sole access to plan participants and high plan sponsor retention levels. The 341 plan sponsors representing approximately $242 billion in AUC who make available our Professional Management service have each made us the sole provider of these services to their plans. We believe this reflects the desire of plan sponsors to avoid inconsistent methodologies, to simplify choices for plan participants, and to avoid building new data connections with multiple investment advice vendors.

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Since the launch of our Professional Management service in September 2004, we have retained over 97% of our plan sponsors each year. We believe this reflects the desire of plan sponsors to maintain continuous and consistent provision of investment advisory services for their employees. In addition, we have been largely unaffected if a plan sponsor changes its underlying recordkeeping platform or the investment alternatives available to its employees because of the breadth of our data connections and our independent investment methodology.

Significant Growth Opportunity Within Our Existing Customer Base. We believe our business has a significant opportunity for growth from our existing customer base. As of September 30, 2009, we had approximately $23.5 billion in AUM and approximately 383,000 members, while our Professional Management service was available to employees representing a total of approximately $242 billion in AUC and approximately 3.7 million potential members. This implies a participant enrollment rate of approximately 10.3% across all plans where Professional Management is available, including plans where enrollment campaigns are not yet concluded or have not been commenced. We believe we can increase our revenue and net income by increasing our participant enrollment rate within our existing client base.