Robo-advisers rolled into the financial services industry initially targeting
individual investors, but in recent years automated advice pushed deeper into the
retirement planning space with the release of a wide variety of products and services.
A number of integrated
401(k) platforms emerged during 2016, offering personalized investment advice for large and small groups of participants; they provide plan sponsors with streamlined administration and fiduciary
support. Some operate as independent platforms while others can be layered with other services. Either way, experts increasingly argue that automated investment technology can
help retirement advisers and asset management firms better serve their clients.
During a Plan Adviser National Conference (PANC)
panel on robo-advice, Jeffrey Hemker, national sales manager in the
retirement division at Invesco, argued that advisers stand to gain from incorporating
the best parts of “robo” into their business. His firm recently adopted services from robo-adviser Jemstep, which previously served only as an automated investment platform
before offering its software.
A number of firms including Vanguard, Charles Schwab,
have rolled out their own offerings, which combine
robo-advice with the human touch. This approach to asset management may help overcome some of the challenges robo-advice critics said would prevent the
technology from making a sizable impact on the retirement industry. A human
adviser can call a client when the market crashes; human advisers can also help with
some of the specific aspects of retirement planning that may now be too complex
for algorithms, perhaps Social Security claiming strategies or managing health
care costs in retirement.
Retirement plan participants can also take advantage
of what affluent investors already find interesting
about robo-advisers. According to research and focus group studies by Hearts& Wallets, consumers generally value key benefits from robo-advice
including user-friendly interfaces, responsive design, and fee transparency.
Most robo-advisers, however, still manage rollovers
into automated individual retirement accounts (IRAs) rather than assets in a
401(k). But this may change with advances in technology, changes in regulation, the growth of
automated retirement plans, and an industry shift to passive investing.
Robo-advisers may face challenges as fiduciaries especially in light of the
impending Department of Labor conflict
of interest rule. Some industry experts, however, argue that robo-advisers can
function perfectly well as fiduciaries under current Securities and Exchange Commission (SEC)
rules, and even present fewer potential conflicts of interests based on their
Ultimately, the key for plan sponsors and their
advisers is to leverage this technology as they best see fit for their unique
participants using the resources at hand.