Blockchain and AI’s Role in Retirement Planning

Art by Alex Kiesling

Sitting down for a conversation with PLANADVISER about their 2020 collaboration plans, the leaders of the Defined Contribution Institutional Investment Association (DCIIA) and the SPARK Institute highlighted a shared interest in examining the potential roles of artificial intelligence (AI) and blockchain technology in the financial services space.

Lew Minsky, president and CEO of DCIIA, and Tim Rouse, Spark Institute executive director, say their member firms see the related topics of cybersecurity, AI and technology development as being of paramount importance in the coming decade. In their experience, firms are already eagerly investigating and implementing new technology solutions meant to address some of the age-old challenges of the advisory and investment services industries—and to address mounting competition and fee pressures.

An Edge via Artificial Intelligence?

A sizable survey conducted by Nationwide Advisory Solutions shows that 33% of registered investment advisers (RIAs) and fee-based advisers were already using AI in some capacity as of last year. Among this group, 37% expected their profitability would expand substantially over the next few years. Recordkeepers and investment managers, as well, have embraced data analytics, AI and machine learning to provide a more customized experience for each retirement plan participant and to help them make better decisions to improve their retirement readiness.

Still, while there have been some early adopters, experts agree that AI is still in its nascent stage within the broader investment management industry. In terms of applications that already exist, firms are using AI to supplement client service in the form of chat bots or robotic process automation, wherein repeatable, non-judgmental tasks such as client report preparation can be augmented by a computer. Using such AI support, an analysis that formerly could take an hour or more to put together ahead of a client meeting can now be delivered in minutes.

As an example of this, Redtail Technology has added AI elements to its customer relationship management (CRM) system, which can now analyze emails, notes and text messages to predict client needs. Specifically, the CRM system looks for client sentiment by identifying and categorizing their opinions, so advisers can mitigate any issues that arise. Other technology providers are taking different approaches to integrating AI, but their shared interest is to make practices more efficient in a fee-sensitive environment.

According to DCIIA research, recordkeepers and plan sponsors are both interested in AI, but they have different focus areas. Recordkeepers, for example, are focused on the potential to address operational efficiency issues, whereas plan sponsors are more focused on investment topics and on the risk of fraud. On the other hand, when asked about how AI might be of most help to the retirement plan industry, plan sponsors and recordkeepers both selected “to address participant retirement planning and readiness” and “to address holistic financial wellness” as their top two choices.

According to DCIIA, plan sponsors’ and recordkeepers’ chief concerns about AI include the potential for inaccuracy/unreliability, data privacy issues and an unclear value proposition at this early stage. Both groups say the industry must think carefully about the ethics of AI in managing biases, preventing conflicting goals/incentives and avoiding the misuse of data.

The Blockchain Debate Is Just Beginning

In 2020 and beyond, Minsky and Rouse say, DCIIA and SPARK Institute will be working to foster a cooperative outlook on these subjects, noting they are planning to inspect the topic of blockchain technology in greater detail.

For context, a “blockchain” is a series of digital records of data that, in basic terms, cannot be retroactively modified and it is managed across many distributed computers of independent entities. Each of these blocks of data is secured and bound to the others using advanced cryptographic principles, in theory making blockchain records both highly secure and transparent without requiring a centralized clearinghouse to manage the whole process.

Minsky and Rouse say their member firms are highly interested in blockchain technology, but they also want to learn more about its potential before they commit significant resources to implementing the technology. This makes sense from both a practical but also from a business standpoint, as well-established financial services firms have invested huge amounts of capital to build their centralized digital account processing infrastructure. Depending on how it is used, the emergence of blockchain could hypothetically reduce their influence in the financial system.

“The consensus at one recent DCIIA/SPARK event was that blockchain could have a huge impact on our space,” Rouse observes. “Like cybersecurity, blockchain is an area where collaboration is needed and which thrives on a consortium model. At this stage, the most popular ideas for the use of blockchain are creating protected digital identities for participants, and doing the same thing for plan data. We’re just at the beginning of this conversation, but it’s a very important one to start.”