Future of retirement planning belongs to the cyborgs

Who will help you plan for retirement — a robot or a cyborg?

Pundits have been saying for some time now that the future belongs to "robo-adviser" — automated portfolio services that use algorithms to manage investments.

Advisers will have little choice but to integrate robo-like technology into their practices, according to Michael Kitces, director of wealth management for Pinnacle Advisory Group.

He argues 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.

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 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.

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.

One of the most profound changes, Kolimago said, is the shift away from 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. 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," Kolimago said. "Many things that the rule requires are already built into what we have designed."