Robo-Advisers to Expand Deeper into DC Space in 2017

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, 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.