Mitch Caplan, chief executive of Jefferson National, describes robo adviser technology as a GPS system that allows investors—especially those who are starting to save for retirement—to be self-directed, but still receive some guidance. High-net-worth individuals, who will demand much more human support, are less likely candidates to receive robo services, he says.

Todd Clarke, chief executive of CLS Investments, recalls that when his firm began offering money management advice to plan participants in 2001, he found participants crying out for actual advice. “This holds very true today,” Clarke tells PLANADVISER. After receiving education on the available investments, technical information on equities, bonds and asset allocation, participants in an enrollment meeting would leap at the offer of a managed account from Clarke’s firm. They wanted advice, not general information.

The bottom line is that participants need investment advice, and plan sponsors are willing to make it available, Clarke says. Participants vary in the amount of advice they need, he explains, from the do-it-yourself (DIY) participant who eagerly plunges into the investment lineup, to the do-it-for-me participant at the other end who wants full support.

Robo adviser tech might find its natural home in the smaller end of the plan market, where plan sponsors could be reaching for low-cost advice solutions. Alison Borland, senior vice president of retirement strategy and solutions at Aon Hewitt, says the large plans Aon Hewitt serves haven’t expressed much interest in robo advisers specifically. Most large plans already include some level of advice, some of which is automated, and not very different from the robo-adviser experience.

After thousands of participant meetings, Clarke maintains that all participants fit somewhere on this continuum and says the robo adviser is an excellent fit for those who want an adviser to do it for them.

Robo advisers are good for the intersection of several needs, Caplan says: “The technology specifies dollar amounts they need to put in, and guides them to allow the money to build over time. It allows for timely rebalancing.” A robo solution works for people entering the savings market, which is a wide cross-section, allowing an adviser to more cost-effectively serve a range of people.

Caplan’s bet is that robo advisers are going to wind up being among the most powerful tools to help advisers, because of their ability to help scale up a practice. Whether dealing with plan sponsors or individuals outside a retirement plan, advisers need to ask themselves whether they want three very large clients, or if they are better off with 20 clients in the middle? “Scale is what matters,” he stresses, “and advisers have to get their business to a point where they are serving for scale.”

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Technology Helps Scale

After a period without much tech innovation, Caplan points to several factors that are driving much of the current interest in robo adviser themes. “Advisers are realizing they need to embrace technology,” he says. Technology matters more than ever, especially if advisers are serving a number of participants in a defined contribution (DC) plan, because it allows them to provide a better experience to the plan and run the practice more efficiently.

Clarke sees robo advisers as an advice solution that will fit some retirement plans, but the option is unlikely to have any effect on the cost of providing advice to participants. “We charge the same whether you eat in our restaurant or go through our drive-through,” he says, only half joking. The reason is that CLS delivers the same service whether it’s via technology or in a face-to-face session, he explains. “We’re putting in the same amount of work behind the scenes in managing our portfolios. Our advice is our advice. It’s just a different way to package it.”

Advisers who can provide low-cost advice, high-value human interaction when needed, and the technology people want are the ones who will really win, Caplan believes. “Everyone is fascinated with robo, and you can compare it to the same behavior you saw with the online or discount brokers in the 1990s,” he explains, another tech innovation that seemed like a huge, untapped market. “Robo advice is being viewed as a solution for Millennials. That market is untapped because no one’s figured out how to reach that market.”

Participant outcomes will always be better when plan participants are given professional advice, Clarke says, whether the advice is given person-to-person or delivered through technology in the form of a robo. “It’s better than people trying to do it themselves,” he says. However, robo can never entirely replace in-person advice sessions, because the robo is built solely for the investments the user has in a 401(k). Clarke notes that face-to-face advice gives a much more complete picture of the person and their finances. “We’re too early to know if robo is going to be an acceptable way to deliver advice to participants,” he says. “The future will tell us.”

The intersection of technology and financial services is always attention-getting, Caplan says, as are suddenly emerging business models, and the potential to serve a large, under-served market. “It feels very current, very in the moment,” he says. “But when you step back and look at it as a long-term trend, in the end nothing replaces human capital.” The most effective way to advise people is the combination of efficiency by way of technology and the adviser’s own human capital, Caplan says.