Plan Fiduciaries Should Again Review the Plan Structure
Retirement Plan Sponsors are grappling with a new question – Does a Robo advisor for the 401(k) Plan make sense for our employees? The answer is, maybe. Perhaps it does make sense. To determine if it makes sense for your plan, it is prudent to ask a couple of questions about your plan. The first question is, “why are you asking? Does your workforce feel they would be better-served by adding a Robo advisor feature? Does the Plan Sponsor agree that the Plan Participants would benefit from such an addition?
Why the Plan Sponsor Should Consider a Robo-advisor Feature
Andrew Meola of Business Insider reports that Robo advisors are facing an overall $8 Trillion opportunity in the next 5 years. The case Mr. Meola makes is that Millennials will drive at least 28% of the flow ($2 Trillion) into Robo advisors – through the confluence of fees and the interest in sustainable investments. The Millennial’s interest in sustainable investments and the complicated nature of structuring sustainable portfolios, which often times carry fees of approximately 1%, will result in Robo advisors flourishing.
Sustainable investments portfolios are difficult to design, structure and manage. However, robo-advisors can make sustainable investing simpler via the use of algorithms to automatically invest in assets based on a user’s preferences. And these automated services can be considerably less expensive than their manager-driven counterparts at fees in the 40 basis point range.
Plan Sponsors Will Experience Change
The change will come in the form of how investment management companies communicate with Plan Sponsors and Plan Participants. Whether it is in the form of Robo advisor for the 401(k) Plan or not, the user experience will improve when connecting and communicating with the investment advisor. The industry is trending toward the service model that Millennials are requesting – one of lower fees and improved electronic support. Service providers, such as record keepers and investment managers are looking to move to a successful Robo-solution as quickly as possible since it supports profitability and simplicity.
