Robo advisors continue to attract headlines and assets. As of late 2016/early 2017, Vanguard Personal Advisor ($52 billion of assets under management), Schwab Intelligent Portfolios ($12.3 billion) and Betterment ($7 billion) led the field, according to a recent Moody’s Investor Services report. Robos are off to a good start with retail investors, but can they convince retirement plan consultants and sponsors to sign on? Industry participants cite several potential benefits to adopting the technology.
Delivering Holistic Advice
Jeffrey Hemker, national sales manager, Retirement Division with Invesco, Ltd. in Houston, says robo technology can offer plan consultants several advantages. The first is that the technology broadens advisors’ reach in a scalable manner. The days of getting plan participants together for a meeting in the lunch room are over, he says, because more employees work from home or are scattered across remote locations. Robo technology can also help advisors servicing multiple plans that have numerous participants provide an acceptable level of service to larger audiences. “It gives you a way to access everybody in the plan without a significant amount of work,” says Hemker. “I might not want to work with 500 people, but 500 people can certainly access my robo.”
Automated account aggregation that collects participants’ information on financial assets outside the plan is another benefit. Having access to that level of detail enables advisors to provide holistic advice more easily. “[Account aggregation] shows me all your assets, if you choose to give that to me,” says Hemker, speaking from the consultant’s perspective. “I’ll make a conscious decision on how to invest your money knowing all the dollars that you have invested without sitting down [and] going through a long, complex situation.”
Having aggregated data also allows consultants to create more sophisticated asset allocation models than the usual off-the-shelf versions. “I can create custom target date funds based upon your information, I can create custom asset allocation funds based upon your mix of investments, and the new thing is to create these trusts and QDIAs (qualified default investment alternatives). I need to see your full investment picture, and this would give me the opportunity truly for the first time to have that used in the asset allocation that we create for you.”
The technology can automate what could otherwise be a labor-intensive follow-up process, he adds. “I would simply take all your information, run it through a system, it would come back based upon the total assets that you have and where they’re invested. This would be the recommended allocation that I would do, and I would default you, in effect, into that allocation.” This ideal of what Hemker calls the fully automated integrated approach doesn’t exist yet, but he suspects that it will arrive relatively quickly.
Robos As Competitors?
Those are enticing benefits, but could robos displace consultants’ advisory roles with sponsors? Unsurprisingly, the technology providers downplay that risk. “The idea that we want to compete, I think, is definitely false,” says Cynthia Loh, CFA, general manager of Betterment for Business in New York City. “We embrace the opportunity to work with plan consultants and advisors, but because of technology and the things you can do with it now, it’s maybe in a different fashion than they are previously accustomed to.”
Betterment for Business works with a mix of brokers, retirement plan consultants and some plan sponsors directly, says Loh. She notes that these early days of robo adoption are like the era when online investment trading arrived; other sources cited online banking as another example of a tech-based disruption. Those technologies initially looked threatening to some advisors and the financial services industry, but now their use is widespread and the wealth management industry continues to thrive. Loh believes the use of robo technology in the retirement space could be producing a similar initial response among some consultants.
Nonetheless, Loh maintains robos will enhance consultants’ productivity. “[Consultants] don’t have to focus as much on fund selection or the tasks that could be automated. They could spend more of their time focusing on higher value-added services,” she says. “For the plan participants and plan sponsors, we see examples of that through estate planning, more complex tax solutions, real estate or alternative solutions. We really believe that the human touch and the human element is key in all of this, and we’re excited to partner with the retirement planning consultant community.”
Hemker agrees that the technology is “more of a delivery system than it is a competition. I’m trying to provide a different level of service, and with the advanced level of service [from the robo] there probably are some costs associated with it, but there’s a value there.”