Rise of the Machines

Over the last 30 years, there’s been an incredible array of advancements in technology that have impacted various parts of our lives. While not all of them were amazing, many of them inherently improved our quality of life and some allowed us to catapult forward into a world of instantly accessible information on a scale never witnessed. As computer science has seeped into almost every facet of life, there’s been an increase in connectivity, productivity, and efficiency.

The world of investments is no exception. Enter the latest Cyberdyne-esque creation to go mainstream… the Robo-Advisor. While it is not likely that any big budget action movies will be released out of Hollywood on its behalf, its impact on the way people invest their money may prove to be explosive nonetheless.

Robo-advisors are a class of auto-adviser that provide financial advice or portfolio management online with minimal human intervention. These systems provide digital financial advice based on mathematical rules or algorithms. The algorithms are executed by software automatically allocating, managing, and optimizing clients’ assets and thus provides financial advice that does not require a human advisor. The rise of the machines emerged in 2008, most prominently in the States, and today there are over 100 of these services offered to plan sponsors and investment advisors.

Is this something to be truly considered? Could it help participants with their investment decisions? While we know that nothing can replace the knowledge and comfort that participants can get from meeting with a financial advisor, some advisors are considering adding robo-services as a companion option to their financial advice with an aim to further engage participants in the plan and perhaps as a tool for those hard-to-reach workers (remote or field workers, and those that work late night shifts).

While robo-advisors may not be the solution to a universal education on retirement plans, they add an intriguing new option for advisors and sponsors to explore and thereby enhance the engagement of their participants. While the automation of such a cumbersome task is exciting, navigating the investment selections in a retirement plan is not perfected by algorithms. Some of the most important financial decisions require real-life advice from a real-life person, the financial advisor.