Global adoption of artificial intelligence in all industries is happening at a breakneck pace—the retirement plan space included. It’s not a question of if, but how, it will affect plan advisors, sponsors, and participants. We spoke with top advisors and experts about what to expect.
We asked ChatGPT to write an opening paragraph for an article on AI’s effect on 401(k) advisors and received the following response.
“In recent years, the financial industry has experienced a groundbreaking transformation, thanks to the rapid advancement of artificial intelligence technology. As robo-advisors and intelligent algorithms increasingly dominate the financial landscape, traditional 401(k) advisors are facing a paradigm shift in their role and the way they approach wealth management for retirement.”
It pretty much nailed it, and we couldn’t resist using AI to introduce an AI piece. Human nature requires an initial rejection of new technology—electricity was sorcery and automobiles impractical. Even Nobel Prize-winning economist Paul Krugman famously predicted that the Internet “would go the way of the fax machine.”
Not so with AI. Its rapid advancement, especially in the roughly 10 months since the introduction of ChatGPT (an acronym for Chat Generative Pre[1]Trained Transformer), overwhelmed early skepticism. Even before ChatGPT’s release, AI was trending (mostly) positive, with well over half of respondents to an International Science Survey viewing AI as “mostly a good thing for society.”
Its impact on the retirement plan space, specifically, is the proverbial hot topic at many conferences and industry gatherings, with keynotes and breakout sessions dedicated to exploring its potential. That “potential” typically includes, among other things:
- More efficiently performing advisor and home office operational and administrative processes.
- Communicating with clients through next generation chatbots and other automated features.
- Gathering, sorting, and applying industry data.
- Improving regulatory and compliance monitoring and oversight.
- Addressing inherent and detrimental human biases identified with behavioral economics.
Plan Benchmarking on Steroids
Using artificial intelligence to scour, collect, process, and use Form 5500 data?
While most retirement plan firms and advisors are taking a wait-and-see approach to incorporating artificial intelligence (AI), one that aligns with the late adopter attitude for which they’re known, a few firms are racing ahead.
In May, one such company, San Francisco-based Newfront Retirement Services, organized a hackathon, bringing together its engineers, developers, and related personnel to brainstorm new ideas (hacks) to improve efficiency and customer experiences.
“We asked, ‘What can we do?’” Greg Kaplan, the firm’s SVP and Practice Leader, said. “Especially since AI is eating the world and taking over. How do we leverage it in strategic ways for our business, which is very much centered around having human expertise in the loop—not replacing but empowering them to focus on strategic value-adds and figuring out how to leverage technology to get rid of the mundane, boring tactical stuff.’”
The hackathon resulted in roughly 20 project ideas, and seven were selected. Kaplan’s idea, plan benchmarking on steroids, was one.
“We have very detailed information in our book of business,” he explained. “We benchmark clients based on specific peer groups they give us. We generally tease that info from the 5500 and then add it to our database one at a time. It allows us to enrich the database by including 600,000-plus plans. The AI capabilities focus on the audit reports and pulling out unique plan provisions that are unavailable in just the 5500 CSV data exports.”
It’s pretty cool, something Newfront acknowledged with the project’s development code name—Ray-Bans, after the sunglasses.
“We’re already really good, but I said, ‘Let’s prove we can take this to the next level. And in four days, it was born.”
As a wholly owned subsidiary of Newfront, which Kaplan describes as the world’s first “bionic, tech-enabled insurance broker,” it’s not your typical independent RIA and 401(k) advisor shop. It employs 60 engineers as well as insurance and retirement planning professionals, a roster of talent he claims, “come from the unicorns who’ve created the companies that everybody talks about today.”
“On the retirement side, we’re pure-play defined contribution retirement plan consulting with no private wealth management. So, we’re hyper-focused on what we do and do that really well. We’re not trying to build the biggest; we’re trying to build the best. The AI project is just the latest example of what we’ve already been hyper-focused on; always disrupting and figuring out how we be most efficient, deliver the best insights, and build the best retirement services business out there.”
This article first appeared as the cover story in the Fall 2023 NAPA Net the Magazine. To read the remainder of it, click here.
