The robo-advisor trend generates a lot of attention. But in reality, the advisor market remains hesitant, and deployments may be lower than the hype suggests.
Howard Schneider, president of the research and consulting firm Practical Perspectives, outlined these and other trends related to robo-advisors during a session at LIMRA’s Retirement Industry Conference in Boston this week.
Schneider said the current robo-advisor market is primarily focused on accumulation and is targeted mainly at younger and smaller investors. The technology also tends to be more investment-oriented rather than planning-focused, and is not adept at considering specific needs during retirement including health care costs, estate planning and intergenerational issues.
He added that the four primary robo-advisor models in the marketplace today include:
- Direct to consumer;
- Offerings that leverage advisors;
- Defined contribution plan advisors, and;
- Wholesale models.
Within all models, brands that are well established in other product or service categories tend to have higher adoption for their robo-advisor offerings.
The technology so far is not targeting retirement-income planning due to the complexities involved with creating algorithms that can adequately support unique customer needs and customization for multiple goals. Risk management, the emotional aspects of retirement and the great unknowable question of how long one might expect to live also add to the difficulty of addressing retirement income planning with robo-advisors, said Schneider.