Can technology help 401(k) participants to increase their financial literacy IQ and make better decisions to improve their chances for a successful retirement? There’s a plethora of well-funded robo-advisors that are betting that they can and some employers willing to try as detailed in a recent article.
Technology seems to be able to help consumers do everything including anticipating their needs. Most effective is customizing the advice based on habits of the individual. In addition, more and more people are comfortable with e-learning taking courses on line. Can automated robo advisors step into the 401(k) and defined contribution market and connect with employees who clearly need help and guidance?
There are lots of skeptics.
Some experts suggest that we should just use customizable managed accounts which automatically assigns the proper investment mix based on information readily available from a plan’s record keeper including age, salary, deferral rate and account balance. Someday, we might even be able to pull in other financial data about the participant to create a more holistic financial plan.
Other experts note that people are not comfortable getting financial advice from a computer– they want to speak to or meet with a person much of which may depend on the age of the employees. Younger people may be more comfortable with receiving education and advice through computers and may even prefer not want to meet.
Based on results, robo advisors with a brand fare much better with the offerings by Schwab and Vanguard gathering significantly more assets than very well-funded start up robo advisors, many of whom are looking to partner with well-known names.
The dot com era spawned a slew of online record keepers claiming that they would take over the 401(k) business. And though most fell flat on their face with none making much of an impact individually, they made a huge impact on traditional record keepers forced to adopt some of their methods and technology. We suspect robo advisors with have the same effect on traditional advisors, many of whom are partnering with their robo counterparts, and record keepers looking to keep up in a hyper competitive market.
Plan sponsors need to push their advisors and record keepers to better serve their employees when it comes to financial education and advice using whatever methods and technology available even if it threatens part of their business model. Though technology is not the sole answer to such a big, complicated and personal problem, it seems equally foolish to ignore it.
