Column: Future of retirement planning belongs to the cyborgs

CHICAGO (Reuters) - Who will help you plan for retirement - a robot or a cyborg?

Retirees play poker at a singles club in Sun City, Arizona, January 4, 2013. REUTERS/Lucy Nicholson

Pundits have been saying for some time now that the future belongs to “robo-adviser” - automated portfolio services that use algorithms to manage investments. The robo-services have attracted interest as a way to deploy low-cost advice, but retirement planning guru Michael Kitces thinks the real winners will be “cyborgs” - human advisers aided by advanced technology.

Resistance may be futile, as the Borg collective warned the crew of the Enterprise on "Star Trek." Advisers will have little choice but to integrate robo-like technology into their practices, according to Kitces, director of wealth management for Pinnacle Advisory Group and publisher of the widely followed Nerd's Eye View blog (

In a provocative presentation at last week’s Morningstar Investment Conference here, he argued that technology actually will free up advisers to focus on providing more holistic advice to clients and reinforce their value at a time when so much basic planning information is available for free on the internet.

Meanwhile, the new fiduciary standard requiring conflict-free advice on retirement accounts is pushing the planning field toward providing broader services that go well beyond portfolio management.

Market returns are uncertain, but planners can help boost retirement outcomes by helping clients control the factors that are within their control. A 2013 paper by Morningstar researchers found that retirees can generate 23 percent more income by making more intelligent financial planning decisions of the type typically offered by planners, including optimizing asset allocation, fine-tuning their retirement withdrawal strategies and making tax-efficient drawdown decisions.

Kitces thinks the most important strategy for advisers will be to use technology to help clients navigate uncertainty, explore alternatives and help solve complex problems.

The landscape of technology-enabled advice is becoming concentrated in the “cyborg” category, he notes, with players like Betterment, FutureAdvisor and JemStep all adding human advice components to their tech offerings.

“The cyborg category is winning, not robo,” he said.

The big value-add, Kitces said, will be helping clients think through more complex questions. “We can be navigators of uncertainty and explorers of alternatives - what happens to my plan if I retire sooner? What if I want to work in retirement, or find a new career? Technology doesn’t do that, but it can facilitate the conversation if I can use technology to paint the picture for clients.”


The dominant player in the hybrid cyborg category is mutual fund colossus Vanguard, which launched its Personal Advisor Services (PAS) two years ago this week; at the end of the first quarter this year, PAS had attracted $65 billion in assets. Research firm Cerulli Associates reports that 2016 year-end assets under management at PAS were roughly four times larger than its nearest competitor, Schwab Intelligent Portfolios ($13 billion) and far ahead of Betterment ($6.1 billion), Wealthfront ($4.7 billion) and Personal Capital ($4.3 billion).

PAS benefits from Vanguard’s massive scale - at its launch, $15 billion was transferred from a legacy advisory service for high net-worth clients, and 85 percent of clients already were Vanguard customers before adding PAS. Most are closing in on retirement age, said Frank Kolimago, who heads the service.

“Many of them were comfortable self-directing their investments while they were accumulating assets, but concluded that with the complexities of retirement it’s time to get some professional help,” he said.

PAS advises retirees on tax-efficient drawdown and decumulation strategies. Advisers also help with Social Security optimization, estate planning and nonretirement goals such as college saving, or perhaps saving for a vacation home.

One of the most profound changes, Kolimago said, is the shift away from the old brokerage orientation of beating the market investing to meeting objectives. “We frame the conversation that way - how well are you doing related to your own unique objectives?”

He adds that the human dimension plays an important role in volatile markets. “We can serve as an emotional circuit-breaker, and help people from making short-term decisions that can hurt them in the long run.”

Opponents of the fiduciary standard keep looking for ways to bring it down - an effort that is likely to fail. Meanwhile, the cyborgs (and robos) already are far down the track toward a fiduciary reality. PAS is a registered investment advisory firm that already complies with the conflict-free standard. “It’s straightforward for us,” said Kolimago. “Many things that the rule requires are already built into what we have designed.”

The opinions expressed here are those of the author, a columnist for Reuters.

Editing by Matthew Lewis