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Are Your Retirement Plans Ready for the Robot Uprising?

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TerminatorMany smaller businesses that wouldn’t typically be served well by the financial industry are being forced to create pension plans for their employees. Whether this is good or bad, these small businesses will need the absolute cheapest option in order to fulfill their regulatory obligations while simultaneously remaining afloat. Of course, when businesses need cookie cutter service to satisfy regulators, and need it at the lowest possible cost, there’s only one thing to do–hire a robot. The 401(k) advisor industry has been slammed in recent years for high fees and few options, so it’s no surprise competition is creeping into the space. Anne Tergesen writes in The Wall Street Journal that startup companies developing robots for financial advice are multiplying.

The upstarts are pursuing a large market that has been relatively ignored until recently—a vacuum that has prompted some states to start requiring small businesses to offer retirement plans. Among companies with 100 or fewer employees—a group that employs about 42 million people, or one-third of the private-sector workforce—only 14% sponsor a retirement plan, according to an estimate by the Government Accountability Office.

The robos, which feature online service and low-cost indexed investments, are also trying to win business from the insurers and payroll providers that have long dominated the small end of the 401(k) market. Among the smallest plans, fees can run as high as 1.5% of assets or more a year, according to data from 401(k) plan tracker BrightScope Inc. and fund-industry trade group Investment Company Institute. In contrast, fees for participants in plans with more than $1 billion in assets average 0.26% of assets.

“The 401(k) market is ripe for disruption,” said Cynthia Loh, general manager of robo-advisory pioneer Betterment LLC’s 401(k) business. “Everybody is trying to leverage technology to make things more efficient.”

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.
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