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Whither Robo-Advisors?

Has the future of robo-advisors arrived?

Not just yet, according to Howard Schneider, president of the consulting and research firm Practical Perspectives, and Conor McGuinness, director of policy and compliance at Nyhart Actuary and Employee Benefits.

Speaking at a May 4 session at the 2016 Retirement Industry Conference sponsored by the Life Insurance and Market Research Association (LIMRA), Schneider and McGuinness argued that robo-advisors are not as widespread as one may expect, nor are they used in all the ways many people assume — yet.

One reason: Robo-advisors “haven’t branched into holistic advice,” according to Schneider. “It’s really ‘robo-investment.’” McGuinness characterized the current use of robo-advisors as “the first stab at applying software to the challenge of investment.”

So far, Schneider reported, robo-advisors are:


  • showing high growth, but also unproven models;

  • focusing on smaller plans and younger investors;

  • accumulation focused; and

  • investment oriented.


Most advisors are taking a “wait and see” approach toward robo-advisors, Schneider noted. “Most believe it doesn’t meld well with their clients or the clients they want to serve,” he noted, adding that advisors:

  • regard registered investment advisors as ahead of the curve on their use;

  • report that demand for them from clients and prospects is uncertain; and

  • characterize familiarity with leading robo-advisor providers as “modest.”


In addition, regarding retirement income, robo-advisors:

  • offer limited support at present but are adding resources and capabilities;

  • lack a comprehensive approach;

  • are not integrated with key decisions such as those concerning Social Security; and

  • tend to be more generic or educational.


So what are advisors looking for robo-advisors to do? Schneider says that they want them to:

  • help them land new accounts;

  • manage portfolios;

  • service accounts;

  • facilitate client self-service;

  • send alerts; and

  • provide help with operations, such as billing, integration and support.


McGuinness said that Nyhart takes an actuarial approach to robo-advisors. To him, the essential components of a robo-advisor program are that it:

  • has a user-friendly front end;

  • answers "big" questions;

  • can help with one-time shocks that can take place as one ages; and

  • helps with aggregation.

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