Written by Richard Eisenberg for Next Avenue
Ever since robo-advisers hit the scene in 2008, these low-cost online automated investing firms (roughly $67 billion under management) have mostly targeted Millennials. The thinking at the likes of Betterment, Wealthfront and FutureAdvisor: people in their 20s and 30s are tech-savvy, want to keep investing costs down and don’t have enough money to interest human financial advisers.
“The baby boom generation has more money, but they’ve got complicated situations like retirement,” Wealthfront’s founder, Adam Nash, told CNBC.
But now, boomers are increasingly saying: We want in. And one new robo-adviser (True Link Financial, partnering with Schwab) is specifically targeting retirees and people within five years of retirement. Meantime, a startup for 401(k) investors (Dream Forward Financial) is taking robos one mechanical step further with computerized “emotional advice” for employees of all ages.
The Hearts & Wallets financial firm recently held focus groups of people age 53 to 74 (with $500,000 or more in investable assets), to see what they thought of robos. Some, Hearts & Wallets founder and CEO Laura Varas said, answered: What’s a robo? “We got a lot of blank stares,” she told me.
But many who were using human financial advisers had heard of robos. And once all the participants were told how robo-advisers worked — using algorithms to select inexpensive ETFs or index funds, allocating portfolios between stocks and bonds, rebalancing holdings and consolidating holdings — they perked up.
These pre-retirees and retirees said they just might want to try using robo-advisers either to save money (the firms generally charge under 1.0 percent of assets a year, which is less than traditional advisers), out of curiosity or to make their financial lives easier.
“Some said they want to stay with the times,” said Varas. “Some said they might use robo-advisers if their young relatives encouraged them.”
And the trend is heading in this direction. A Hearts & Wallets survey discovered that, among people 53 to 64, usage of digital resources jumped 8 percentage points from a year ago; 50 percent of this group use them. And 30 percent of retirees surveyed do.
This may explain why the new robo-adviser service from True Link Financial (a firm formerly known for its elder fraud prevention) is engineered specifically for retirees and people within five years of retirement — groups that robos have typically ignored. Cost: 0.87 percent of assets managed for accounts of $100,000 or more; $1,000 a year for accounts under $100,000.
“From the inception of our company, we thought seniors are poorly served,” said Kai Stinchcombe, founder and CEO of True Link. “Our strategy has been to get really good at understanding retired people and then build products based on our knowledge of that demo.” He adds: “I don’t understand why other robo-advisers focus on Millennials. I’m baffled by it.”
To use the True Link robo (actually a hybrid robo, with electronic and human financial management), you first answer a few simple questions online. Then, the company sends you a starter, broadbrush financial plan. Next, you answer more probing questions, and the robo gets to work delivering the income you want in retirement based on your assets and age.
True Link buys ETFs and annuities for customers and is big on “bond ladders” — fixed-income securities with significantly different maturity dates so you get a stream of income and manage interest-rate risk. A big plus for boomers: You can also talk with one of True Link’s independent human financial advisers who don’t take commissions or sell proprietary products — albeit not face-to-face. These advisers work with customers over the phone or by email, similar to the Personal Capital hybrid robo.
That might be just what boomers want — or maybe not quite. Varas said she often heard at the Hearts & Wallets focus groups: “I need someone sitting with me.”
For those who’d be content with a Siri/Alexa-type financial consultant, there’s the new “Emotional Advisor” service for employees at firms using the Dream Forward 401(k) plan provider (so far, just in the New York metropolitan area).
It uses Artificial Intelligence (AI) to replicate a financial adviser so employees can stay on track for retirement. This chatbot on steroids steps in “when an employee is about to take a negative action,” says Dream Forward co-founder Grant Easterbrook.
For instance, if you lower the percentage of pay you’ll save through your 401(k), Easterbrook says, the Emotional Advisor will ask: “Why are you doing that? How can I help? What’s on your mind?” Another negative action that triggers emotional advice: when you’re taking more time than average to choose your 401(k) beneficiaries.
Easterbrook says chatbots — all the rage at the Finovate fintech conference I attended this fall — aren’t very sophisticated. They interact with texting customers of financial institutions based on keyword searches. AI, by contrast, “picks up your tone,” says Easterbrook. “It’s almost like having someone next to you.”
What Dream Forward’s Emotional Advisor can’t do, however, is recommend 401(k) investments. At least not yet.
That’s why, like True Link, Dream Forward layers on human advisers. It works with Barnum Financial Group, a holistic financial planning division of Mass Mutual. “AI is the first line of defense to answer on-the-spot questions,” says Easterbrook. “Then, the information is given to the advisers.”
If, for instance, the Dream Forward Emotional Advisor finds a bunch of employees with the same dilemma — such as not understanding their 401(k) investment choices — that might lead the employer to offer an investing seminar taught by a Barnum adviser.
Sometimes, a robo is just a No Go.
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