“Advisors need to innovate or die, because the change in technology is relentless.”
Jim O’Shaughnessy clearly (and thankfully) meant in a business sense, but the words chosen by the president of Sheridan Road Financial resonated with attendees of Excel 401(k): The Advisors’ Conference in Las Vegas during a session dedicated to the future of the 401(k) space.
A discussion of the future of anything will of course involve technology, and retirement plans are no exception. It’s something 401(k) advisors have heard a gazillion times before, but if so, why are so many still stuck on spreadsheets and calculators (abaci)?
A recent study from Boston-based investment big Fidelity found that only four in 10 advisors are considered tech savvy—or eAdvisors, as the company calls them.
More concerning is the fact that, despite rapid and ongoing increases in innovation, adoption is failing to keep pace, with the number of eAdvisors increasing by a relatively small 10 percent since the study’s last iteration in 2014.
However, not only do tech-savvy advisors report using double the number of technology tools when compared with their more Luddite counterparts, they’re also using said technology more deeply within their businesses. And it’s paying off:
- eAdvisors report 42 percent higher assets under management than tech-indifferent advisors;
- They have 35 percent more AUM per client than tech-indifferent advisors (up from 14 percent more in 2014);
- They have more high-value clients than tech-indifferent advisors;
- On average, they see 24 percent higher compensation than tech-indifferent advisors; and
- They report higher satisfaction with their firm and career than tech-indifferent advisors.
So where does the technology “horse race” reside today? Where are fintech companies focusing their firepower to address 401(k) advisor—and therefore participant—needs to improve the overall experience and outcomes?
Here’s what known providers had to say.
Discussions Over Data Delivery
“It’s currently all about engagement with data-driven technology by advisors so they can do a better job on behalf of sponsors and participants to really prove their value,” says Michael Zimmer, president of Fluent Technologies, a cloud-based solutions provider for 401(k) providers and advisors, when asked what’s currently hitting in fintech.
“It’s also about accessing data anywhere and at any time, at their fingertips, to make the information provided more meaningful to the audience that’s receiving it,” he adds.
Indeed, it’s what’s increasingly expected. And without data, most of the technology tools currently or about-to-be available won’t be of much use anyway.
“We’ve been evangelizing for record keepers to unleash data to help with better advisor practice performance and participant outcomes, and more are now recognizing that the data is really owned by the plan sponsor,” according to Zimmer. “We can release it in a way that does not give up any specific business information or violate privacy. It can be organized at the participant level and then rolled up to expose at the group level.”
Doing so, he claims, would result in better retention, as well as better business building and scalability, one reason he (and others) are calling for a “Switzerland account” where record keepers feel no conflict in sending plan level data.
“When access to data is taken out of the equation, meaning it’s ubiquitous and available to those authorized in the industry, it allows for more of a focus on the things that matter and where advisors can really make a difference, which includes consulting, general support services and to illustrate a better outcome story through superior software.”
Not surprisingly, Fluent’s flagship product, UtopiaAdvisor, is an advisor toolkit that’s data-driven, all of which is derived from a single source across all plan review practices, something Zimmer says, “mitigates risk and simplifies processes.”
“Our tools capture actions and activity, and expedite comments and meeting notes into aggregated records. It includes the conversation, and any imagery, which is reflected in reports. In today’s litigious environment, now capped with the DOL fiduciary rule and with lawyers lining their pockets, this is the automation of evidence.
“Not to be George Orwell,” he concludes, “but aggregated information of this type is good practice management.”
The Problem with Patchwork
Of course, the lack of technology uptake might not be all advisors’ fault, and Aaron Klein is almost as stark as Sheridan Road’s O’Shaughnessy when describing the state of retirement plan offerings.
“I think the industry has been failing advisors in its delivery of 401(k) solutions,” says Klein, CEO of Riskalyze, the California-based tech company built on behavioral finance precepts. “The current state of the 401(k) industry is a patchwork quilt, and it’s such a hassle that many advisors have quit on advising on 401(k)s altogether.”
While we might quibble with his conclusion, the offerings could always be better.
Last year, Riskalyze took it upon itself to develop and release Autopilot for Retirement Plans. It’s a variation of its popular Autopilot platform that includes the “Risk Number” concept it routinely trumpets, meant to simplify and quantify the appropriate amount of risk for a given participant’s portfolio.
The company says Autopilot for Retirement Plans is “the first risk alignment platform that advisors can use to automate the matching of 401(k), 457 and 403B participants with investment allocations.” The service allows financial advisors to deliver “advice at scale” to the desktops and mobile devices of plan participants with just a few clicks.
More recently, the company announced a joint offering with investing and technology company Vestwell. The targeted team effort, which they dubbed Riskalyze Retirement Solutions, allows advisors to access a new version of Vestwell’s retirement planning portal on the Riskalyze platform.
Advisors will be able to log in to generate 401(k) proposals and onboard clients electronically. In addition, 401(k) plan participants will have access to pinpoint their own “Risk Number” to help them get matched with the right asset allocation.
In addition to Vestwell’s 3(38) investment management services, the new platform will include access to several of the asset managers in Riskalyze’s Autopilot Partner Store.
“We created Vestwell with the sole intent of really enabling advisors, through technology, to better serve clients, and to do it with scale,” says Aaron Schumm, the company’s CEO.
Schumm certainly knows a bit about technology, having co-founded tech powerhouse FolioDynamix, which he sold in 2014.
In a nod to small businesses as the engine of the American economy, he argues that “If you look at a small-to-medium-size business space, 90 percent of defined contribution plans in the marketplace are at $5 million and below. Fully 98 percent are at $20 million to $25 million and down.”
Which is why he so vehemently preaches the need for scale, and technology’s role in achieving it. It’s the reason Vestwell created a platform to engage advisors, plan sponsors and participants through one unified technology. The platform allows them to log in and quickly design a customized retirement plan, sometimes in a matter of minutes, with known products with which participants feel comfortable.
“Part of the problem today is that people get scared, and they might worry about the quality of their advice. But to be able to do so with confidence, where they have fiduciary backing behind it through technology, it really changes the construct of the conversation.”