Is it Time to Go Robo?

Steff Chalk

Robo-advisers receive a lot of ink/digitized news space today. Plan sponsors are confused. Plan sponsors who have been at the helm of their qualified plan over the last 20 years have observed investment firms, investment manufacturers, regulators and colleagues extolling the virtues of hiring an investment advisor to assist in navigating the turbulent waters of running a retirement plan.

Plan sponsors’ confusion is understandable. They are the customers in an industry where over the last five years, billions have been spent buying platforms, building better algorithms and belittling the historic work product of the financial advisor. Now plan sponsors are being introduced to the concept that they can safely “robo-out” the investment function of their plan to a logarithm they do not understand. Trusting all investment decisions to a robo-adviser translates to a plan sponsor mumbling, “I trust no one” — in other words, “I don’t trust myself and I don’t trust anyone else. Therefore, I am trusting a machine with my employee’s retirement future.”

Is the Robo-adviser an Easy Decision?

The selection of a robo-adviser is a fiduciary decision. At a minimum the retirement committee that is planning to connect investment decisions to a robo-adviser should ask the following questions:

  • To what degree does “back-testing” influence the projected returns (versus actual results)?
  • To what degree does artificial intelligence drive the investment decisions for plan participants?
  • (This one is a question to self:) To what degree do I understand the history and the forecasting accuracy from the above responses?
  • (Another question to self:) How will I measure the success or a lack of success with this robo-adviser?

Is it any wonder plan sponsors are confused and struggle when trying to understand how their company retirement plan improves with the insertion of a robo-adviser?

There is a substantial amount of unpredictable work and also a modicum of stakeholder interaction in the traditional human advisor model. Brexit and the ensuing market volatility resulted in robo-adviser resets for a variety of reasons. It is questionable whether a robo-adviser can properly prepare (i.e., anticipate programming for every possible outcome) a truly automated process. For example, the likelihood of a non-politician candidate winning the U.S. presidency may not have been incorporated in the robo-adviser logic in early 2016. How does a new reality become incorporated into back-tested results?


Read more commentary by Steff Chalk here


There are social and emotional needs being met when a retirement committee employs and interacts with a human investment advisor. A robo-adviser fails to connect with retirement committee members on logical reasoning and problem solving. Perhaps fast-growing robo-adviser start-ups and investment industry stalwarts, each touting the virtues of their own algorithms, are forcing a square peg into a round hole.

A Promo for Robo

Is the retirement industry completely missing an obvious opportunity to utilize robo technology? There is a function where robo technology can deliver a true value-add-service and measurable favorable outcomes to a retirement plan trustee or an investment committee. Consider the introduction of the robo-fiduciary. Yes, a robo-fiduciary can play a valuable role for retirement plan fiduciaries who are 75% certain of their duties. A robo-fiduciary can function within parameters where decisions, processes, actions, inactions and overreactions can be anticipated. If they can be anticipated, then they can likely be planned for successfully.

Serving as a plan fiduciary requires a trustee to process information like a computer, question a scenario like a parent, and act with the combined precision of both an accomplished artist and an experienced engineer. The fiduciary world for qualified plans needs to be driven by process. Adherence to process and the support-structure of corresponding documentation simplify and complement fiduciary decision-making. Documenting processes with flowcharts (structured decision-making) successfully convert complex tasks into yes/no decisions.

The advent of the robo-fiduciary is not a prediction of the death of the robo-adviser, but it is a 30,000-foot view of what makes sense for an industry that is forcing technology where it does not necessarily fit.

Staff C. Chalk is the Executive Director of The Retirement Advisor University (TRAU), The Plan Sponsor University (TPSU) and 401kTV. This column first appeared in the latest issue of NAPA Net the Magazine.

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