Skip to main content

You are here

Advertisement

Robo-Record Keepers: Back to the Future?

With retirement front and center for most Americans and economic growth being fueled by smaller businesses — among which the Government Accountability Office says only 14% with 100 or fewer employees offer a retirement plan — there’s either a disconnect or an opportunity, depending on how you look at it.

We all know the stats: When people are offered a retirement plan at work, more than 70% participate, while only 5% save for retirement on their own. No wonder more than half the states are considering options to close that retirement plan coverage gap, mandating that smaller businesses offer payroll deducted retirement plans.

Now online record keepers are emerging that offer low fixed-fee plans, some with no start-up costs (though other providers have been offering these types of plans for a while). At the same time, a slew of robo-record keepers fueled by private equity are popping up to take advantage of the opportunity, according to a recent New York Times article.

But can robo-advisors replace the services of live financial advisors? While the Secretary of Labor is advocating for robo-advisors, some think tanks and policy groups say we should be focused on encouraging people to save rather than getting rid of commission-based advice, which might be less costly than fee-based advice for some investors. Prohibiting commissions, they argue, will likely limit access for lower income savers as well.

So will the new crop of robo-record keepers and robo-advisors be more successful than their predecessors, which claimed during the dot-com boom that online providers would disrupt the industry?

Most times you get what you pay for. In this case, that’s likely to be simple, stripped down index-only investment choices. While that may be enough for many companies and investors, is that right for everyone? Don’t small business need more help with their retirement plan than that?

Advertisement