As Betterment for Business passes 300 401k clients, it raises the question of whether robo record keepers are for real and whether employers should consider them. Are they just for small companies and tech start-ups or will they go mainstream?
With the advent of the internet in the late 1990’s, there were a trio of online record keepers who threatened to blow away mainstream 401k providers. Two of them (Empower and GoldK) went bust and the third (ExpertPlan) was sold after shifting its focus to the micro market and solo 401k plans. So is the current crop of robo record keepers any different or will existing providers incorporate the best practices just like they did in the early 2000’s using the internet?
With growing concern about fees and conflicts of interest as well as rapid tech innovation, robo’s offer some compelling solutions using ETFs (exchange traded funds) within professionally managed investments at a low cost that can ultimately be customized for each employer and potentially incorporate outside assets. Younger workers will be more comfortable with online financial advice whereas older workers may want to work with an advisor – few of the robo’s have the room to incorporate advisors into their model.
Yet robo advisors are attracting lots of attention and money with big financial services companies investing in or buying them. Honest Dollar, a robo record keeper, was bought by Goldman and Betterment attracted $100 million in new capital recently.
The DOL conflict of interest rule many push plan sponsors and advisors to a cleaner model with no commissions or revenue sharing but will those forces alone create a mass movement towards robo record keepers? Only Vestwell seems to be adopting an advisor driven model which is where more robo advisors are headed.
More likely is that traditional record keepers will incorporate some of the best practices of the robos like their easy to use front end or even buy them for smaller plans. Another option is that larger advisory groups will private label them bundling all services including investing which is moving to professional managed accounts like target date funds which will continue to get more customized.
Plan sponsors should look at robo record keepers if only to compare what they have now and what changes they need to make even if they don’t swtich providers. Some of the leading robo record keepers to review include:
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