In retirement, my father picked up Uber driving as a hobby and to make some extra cash. On a recent trip home, I told him about Betterment's partnership with Uber as a way to explain the digital-advice companies I often write about for a living.
My dad is a lifelong do-it-yourself investor who's had mixed results over the years. While he'll now admit that he probably could have used some help, he doesn't trust that a professional advisor could really perform well enough to justify the expense. So the idea of a robo advisor, and getting investment strategies for a fraction of the fees of a human advisor, would be great if he were still saving for retirement, but it just didn't seem relevant to his needs as a retiree.
He’s not wrong. Wealthfront will tell you directly their product is designed with young professionals and investors with less than $1 million in mind because it’s a market traditional advisors aren’t competing for. And while Betterment will say that its tax-coordinated portfolios and retirement income strategies cater to retirees (the company says 30 percent of its AUM comes from customers who are 50+, and around 5,000 users are retired), it’s still based around strategies designed for people in the accumulation phase of their financial life.
As incumbent firms roll out their own digital-advice strategies, the prevailing wisdom is that robo advice is for next-generation clients while older clients prefer a traditional advisor.
Some think they can prove this wrong. Last week, Matt Fellowes, a former Brookings Institution scholar who founded HelloWallet in 2009 before it was acquired by Morningstar in 2014 for $52.5 million, launched United Income, an online service providing budgeting, financial planning, account sequencing and automated investment management for retirees.
Building on research from a team of D.C. policymakers—including a former commissioner of the Bureau of Labor Statistics, a director of policy research at the Social Security Administration, a deputy assistant secretary of Treasury in charge of tax policy, and a deputy chief of staff at the Centers for Medicare and Medicaid—United Income uses data on investment performance, retiree spending, and longevity to simulate millions of client outcomes and create a personalized retirement plan. Fellowes said United Income can predict “when you’re going to die, and how much you’re going to spend before you do.”
United Income also gives advice on retirement age, Social Security claiming, and how to effectively manage different types of spending in order to maximize a nest egg. For example, United Income advises retirees to use safe sources of income like Social Security, pensions or conservative investment profiles to cover essentials like groceries and mortgage, while different goals like an expensive vacation, a grandchild’s college fund and health care costs each get their own account and dedicated investment strategy.
“We are simulating life outcomes alongside market outcomes,” Fellowes said. “This allows us to create much more efficiency in a money management approach.”
United Income isn’t the only company looking to serve retirees with technology. Utah-based Bucket Bliss recently introduced a robo advisor to automate its unique approach to retirement-income distribution. In June, BlackRock announced new features for its iRetire technology, which advisors can use to manage a client’s retirement spending and post-retirement goals. Beyond just helping clients accumulate assets in a retirement fund, advisors can use iRetire to quickly adjust portfolios in case of an immediate need, or demonstrate the effect a major purchase would have on retirement savings.
“The need for financial advice is greater than ever as savers face global and geopolitical uncertainty, prolonged low interest rates, and longer lifespans. At the same time, the wealth management industry is undergoing rapid transformation as a result of changing demographics, new regulations and technological advances,” said Frank Porcelli, the chair of BackRock’s U.S. wealth advisory business.
There’s also data to support the idea that digital tools and robo advice aren’t just for youngsters. A report from Investment Trends found that, counter to traditional thinking about who uses robo advisors, half of the money invested in automated solutions comes from investors over the age of 55. Half of retirement savers also said they want to learn more about using a robo to manage retirement assets.
Investment Trends CEO Michael Blomfield said that while retirement is too complex to put it completely in the hands of a robo, people’s willingness to at least give a portion of assets shows that it has a role to play.
“There’s an emerging appetite in that segment for sure,” Blomfield said. “We talked to a lot of heritage players [that] won’t be doing robo because it’s too risky or not for their clients. The argument generally is they aren’t in the business of serving poor young people, but that’s not what’s in [our report], not what’s driving it.”
But maybe it’s not such a good idea to put something as important and complex as retirement income into the hands of a computer. David Lyon, CEO of Oranj, said because retirement is unique for every person, automating the entire process could be a dangerous proposition.
However, that doesn’t mean that technology providers should avoid older generations in favor of developing tools for young investors. While he doubts that robos are necessarily the right answer, technology absolutely has a role to play in improving how advisors serve retirees.
"Look at the challenge we’re facing with the baby boomer generation—largely, they don’t have enough money to retire on,” Lyon said. “Technology isn’t there to guide through those decisions; financial professionals are. If [baby boomers] can find technology to help them connect with financial professionals with less friction, they’ll be far better off than they would be continuing down the path that they are going down.”
