Who will help you plan for retirement - a robot or a cyborg?
Pundits have been saying for some time now that the future belongs to “robo-adviser" - automated portfolio services that use algorithms to manage investments. The robo-services have attracted interest as a way to deploy low-cost advice, but retirement planning guru Michael Kitces thinks the real winners will be “cyborgs” - human advisers aided by advanced technology.
Resistance may be futile, as the Borg collective warned the crew of the Enterprise on "Star Trek." Advisers will have little choice but to integrate robo-like technology into their practices, according to Kitces, director of wealth management for Pinnacle Advisory Group and publisher of the widely followed Nerd's Eye View blog.
In a provocative presentation at last week’s Morningstar Investment Conference here, he argued that technology actually will free up advisers to focus on providing more holistic advice to clients and reinforce their value at a time when so much basic planning information is available for free on the internet.
Meanwhile, the new fiduciary standard requiring conflict-free advice on retirement accounts is pushing the planning field toward providing broader services that go well beyond portfolio management.
Market returns are uncertain, but planners can help boost retirement outcomes by helping clients control the factors that are within their control. A 2013 paper by Morningstar researchers found that retirees can generate 23 percent more income by making more intelligent financial planning decisions of the type typically offered by planners, including optimizing asset allocation, fine-tuning their retirement withdrawal strategies and making tax-efficient drawdown decisions.
Kitces thinks the most important strategy for advisers will be to use technology to help clients navigate uncertainty, explore alternatives and help solve complex problems.
The landscape of technology-enabled advice is becoming concentrated in the “cyborg” category, he notes, with players like Betterment, FutureAdvisor and JemStep all adding human advice components to their tech offerings.
“The cyborg category is winning, not robo,” he said.
The big value-add, Kitces said, will be helping clients think through more complex questions. “We can be navigators of uncertainty and explorers of alternatives - what happens to my plan if I retire sooner? What if I want to work in retirement, or find a new career? Technology doesn’t do that, but it can facilitate the conversation if I can use technology to paint the picture for clients.”