In Practice December 28, 2016

What's Next for Robo-Advice in the DC Space?

Robo-advisers gained some traction in the DC industry this year, and many have come to see how the technology could work with, rather than against, traditional advisers.
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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.

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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, and Fidelity 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 design. 

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.

Client Service December 28, 2016

Retirement Advisers Can Benefit from Life Insurance Knowhow

Some 40% of investors say they are fundamentally interested in life insurance products—and many are interested in speaking with wealth advisers about how to use them properly. 
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According to LIMRA’s 2016 Life Insurance Ownership Study, financial advisers should consider offering clients an annual review of life insurance needs and strategies.

While the actual sale and service of life insurance may not seem appealing or practical to some advisers, they can still play an important role. Some 40% of investors say they are fundamentally interested in life insurance products—and many are interested in speaking with wealth advisers about how to use them properly.

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Based on LIMRA’s Life Insurance Needs Model, 48% of U.S. households have a life insurance coverage gap below what is considered optimal—$200,000 on average.

“Among households with children under 18, four in 10 say they would be in immediate financial trouble if a primary wage earner died today,” the research explains. “Another three in 10 would have trouble keeping up with basic living expenses after several months. But across all ages under 65, the income replacement rate (number of years covered) has declined since 2010.”

Against this backdrop the role for advisers to play is clear, LIMRA suggests.

“This is an opportunity for financial professionals to reach out to their clients and engage with new prospects,” researchers suggest. “LIMRA’s research shows that the majority of households (56%) said they were more likely to buy when advised by a trusted financial professional. And more than one-third (35%) of married couples with dependent children want to speak with a financial professional about their life insurance needs.”

The data shows six in 10 say they don’t know what to buy or how much they need; one of the biggest obstacles to purchasing is a lack of information.

“More than a third of U.S. households who believe they need more life insurance say they haven’t purchased because they haven’t been approached by a financial professional,” LIMRA finds.

There is also the impending Department of Labor (DOL) fiduciary rule reform to consider, which could impact the balance of assets directed to annuities, life insurance and other investment product silos. In addition, observers have suggested the nature of the new fiduciary rule could create an environment in which more holistic wealth planning is promoted, potentially giving a boost to life insurance sales.  

The full LIMRA analysis is available here. 

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