View Points February 14, 2024

How AI Will Change the Retirement Industry, and How It Won’t

A PensionPro executive explains that while AI will make third-party retirement administrators more efficient and effective, human advisers and administrators will still need to steer the ship.

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One could make the argument that 2023 was the year AI fully entered the public consciousness as a technology that will permanently alter our lives and our livelihoods. It’s understandable if artificial intelligence was relegated to science fiction in the minds of most people before OpenAI launched ChatGPT in November 2022, regardless of what Siri or Alexa had to say about it.

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As ChatGPT took off and dominated headlines, it created both excitement and anxiety about how AI could streamline tasks that had always been left to humans. In other words, it’s great that it can make things easier and more profitable for companies, but at what cost to humans?

Darren Conner

There is little doubt that AI innovations are going to reshape companies across nearly every industry, some faster than others. This includes the retirement business, where third-party administrators will be able to utilize AI to increase efficiency in ways previously unavailable.

One doesn’t have to be a Luddite to react to these technological innovations with a sense of doom and gloom, fearing that robots will come for our jobs. But to gain a more nuanced perspective on these developments, it is important to look at the ways AI will change the industry, how it won’t, and the challenge facing many TPAs to incorporate this new technology into their business.

Increased Automation and Accuracy

Certain tasks have already been automated for the retirement industry through a combination of machine learning and programming, including the way a recordkeeper can deliver quarterly statements to a plan sponsor for all its participants. There is a bot that logs into the website, understands what’s on the website, scrapes it and then pulls the information and downloads a PDF. But a human engineer is telling it how to connect the dots, how to read the document and how to look for the account number by using optical character recognition—OCR—to read the characters from the PDF.

With the introduction of AI, humans no longer need to tell the bot where the account number is on the statement. It will read the document, interpret the values on the page and understand the field and its value.

This goes beyond traditional automation where it was humans programming machines and then the machine executing it repeatedly. AI removes the human element from this process. The bot has an extremely low error rate, with nearly 100% accuracy, whereas a human has an increased possibility of making a mistake. That’s a boon for recordkeepers seeking accuracy, speed and efficiency.

Working in Tandem

While AI will remove the human element from some tasks, humans will still be necessary for many parts of the processes. AI will be a productivity add-on for every line of business, not a way of replacing administrators, advisers or other professionals in the retirement business. Although bots are much better at memorization than we will ever be, we are much better at making new decisions and interpreting things. A bot also lacks the human emotional context that will always be important to the retirement industry.

Where we see AI having the biggest impact in the near term is digesting communication with your clients. When someone calls you, the AI program can look up their phone number, sift through previous communication and remind you what you discussed the last time you talked to them. It surfaces all this information to make your conversation with the client more relevant. It lessens the time you need to prepare for a call, reducing your prep time to basically zero.

What an AI solution becomes, then, is a good assistant whispering relevant information in your ear.

Democratizing Innovation

If any firm had the scale to implement more automation, it would do so, to make its business more efficient and cost-effective. But if you don’t have enough scale, then implementing these technological upgrades becomes nearly impossible. The scale of the implementation matters tremendously in whether people overcome the capital expenditure to get something like this off the ground.

Most TPAs are small. Automation has already been around for years, but traditionally it has only been available to huge companies with lots of resources.

But large companies like Microsoft are democratizing this technology for smaller companies by giving it to you essentially as a utility. For PC users, most communication is done these days through Microsoft 365, and Microsoft is already baking in AI with its AI-powered Copilot feature. It’s just a matter of people embracing it and making it a part of their firm’s infrastructure.

At PensionPro, we have partnered with experts to deliver this cutting-edge, AI-based automation for early adopters. Additionally, PensionPro is continually researching AI developments to find ways to deliver effective solutions that harness these incredible new technologies.

Whenever there is a lot of hype surrounding a new technological innovation, it can be difficult to gain perspective amid so much noise. But while the hype attached to AI is mostly warranted, a lot of the doom and gloom is overblown.

There are currently and will continue to be AI solutions that will make the retirement business more efficient and more cost-effective. But humans will continue to be crucial to planning and execution across all facets of the retirement business. Innovations in AI will just make it easier for you to do your job. 

Darren Conner is the chief operating officer at PensionPro, an AmericanTCS business.

Data & Research February 14, 2024

Financial Advisers Less Optimistic Than Clients on Retirement Readiness

Among those nearing retirement, 47% are as likely to use advisement services linked to their workplace plan as they are outside offerings, according to Allspring’s annual retirement survey.

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As the retirement industry prepares for increased demand for individual retirement planning amid Peak 65, it may find some confident clients on the other side of the table, according to a new survey of consumers and financial advisers.

In Allspring Global Investments’ 21st annual retirement survey, the asset management firm found that 65% of near-retirees and retirees with at least $200,00 in investable assets believe they are on track for retirement. That is more optimistic than surveying Allspring did among financial advisers, 40% of whom believe their clients are ready for a secure post-work life.

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In surveying conducted by Escalent for Allspring, the researchers found disconnect between savers and advisers even greater when it came to specific areas of retirement readiness, including Social Security, Medicare and general financial planning:

  • In terms of Social Security, 44% of near-retirees and more than 50% of retirees say they know enough about it; only 11% of advisers agreed with that sentiment.
  • When it came to Medicare planning, 30% of near-retirees and 46% of retirees said they know enough; only 8% of advisers agreed.
  • Finally, 65% of retirees and 54% of near-retirees are confident in their personal finance knowledge; 14% of advisers gave them that credit.

“This report suggests investors are entering retirement less prepared than they think they are,” said Ron Cohen, Allspring’s head of defined contribution investment only distribution, in a statement.

Allspring also noted via email response that 53% of near-retirees have used a financial adviser, which was about flat to last year’s figure; the firm expects that percentage to remain steady.

The survey did, however, find potential for retirement participants to seek individual services through their employer. Six out of 10 near-retirees said they know an adviser service is available through their 401(k) or 403(b) workplace plan. Meanwhile, 47% are equally as likely to work with an adviser associated with their workplace plan as to go outside for advice.

“This finding is in line with findings from prior surveys that employees implicitly trust their employer as it pertains to their retirement needs,” an Allspring spokesperson wrote via email. “Employers have a unique opportunity to raise employee awareness of consequential retirement decisions like when to start Social Security payments, Medicare planning, lifetime income, etc.”     

Allspring also looked at when people retired and how they felt about it, reporting that:

  • 37% of retired respondents said they retired sooner than expected;
  • 6% said they retired later than expected;
  • 39% said they retired too late and wish they had more time to enjoy retirement; and
  • 18% felt they retired on time.

Overall, near-retirees expect they need at least $1.6 million in retirement savings to be comfortable, and retirees said they need $1.1 million.

Escalent conducted the surveying on behalf of Allspring from September 5 through September 28, 2023. The survey included 752 near-retirees (average age of 61), 763 retirees (average age of 70), and 320 advisers (with at least $5 million in assets under management).

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