Robo advisers’ efforts have been aimed largely at the retail investor market, but given the estimated $7 trillion held in defined contribution plans, it’s not surprising that robo vendors are also looking to serve plans and plan consultants. My previous column on robos discussed Betterment for Business’s offering; other vendors also are targeting the market with different twists to their automated services.
Eye on the Goal
Unified Trust Co. in Lexington, Kentucky, has offered plan participants digital advice since 2009, according to founder and CEO Gregory Kasten, M.D., CFP. Several goals drove the service’s development. The first was a search for a scalable platform that would allow advisors to effectively and efficiently serve large numbers of plan participants. Kasten cites the example of a plan consultant serving five plans with 100 participants each. “When you work it down per person, the advisor basically has about 15 or 20 minutes a year to spend with each participant,” he says. “So, it’s almost an impossible job to try to figure out what their goal is, how much is their retirement going to cost, are they on track, what things need to be done differently.”
The second objective was to incorporate an income replacement approach versus the prevalent focus on participants’ portfolio allocations. The goal is to “replace 70 percent of their income as near as possible to their Social Security normal retirement age,” Kasten explains. Working back from that goal, the analysis considers retirement plan savings rates, anticipated savings rate escalations and investment allocation to determine whether the participant is on track for fully funding the goal. This approach directly addresses the likelihood of adequate retirement income sources, something other methods overlook, Kasten maintains: “(If you) just build the portfolio in the absence of a goal, in the absence of the proper savings rates, in the absence of the asset-liability funded ratio, quite frankly, it’s pretty useless.” Plan advisors and consultants currently account for 80 to 90 percent of Unified Trust’s new business, he estimates.