Artificial Intelligence and Blockchain are the Future of Retirement
Artificial intelligence and blockchain technology are going to play a more significant role in retirement planning in the coming years. According to Lew Minsky, President and CEO of the Defined Contribution Institutional Investment Association (DCIIA) and Tim Rouse, SPARK Institute, Executive Director – cybersecurity, artificial intelligence and developments in technology are all likely to become “of paramount importance” in the coming decade. These industry leaders observed that financial services firms are “eagerly investigating and implementing new technology solutions meant to address some of the age-old challenges of the advisory and investment services industries—and to address mounting competition and fee pressures,” as noted in a recent planadviser article.
Artificial intelligence is beginning to catch on in the financial services space, especially among registered investment advisers (RIAs). A survey from Nationwide Advisory Solutions quoted by planadviser found that a third of RIAs and fee-based advisers were already using artificial intelligence in some capacity as of last year. Among those using artificial intelligence, 37% expected their profits to grow significantly over the next few years. In addition, recordkeepers and investment managers are tailoring retirement plan participants’ experience using analytics, artificial intelligence and machine learning to help them make better decisions to improve retirement readiness, planadviser noted.
Nonetheless, artificial intelligence in the investment management space is still in its relative infancy. Already, firms are using artificial intelligence to perform basic tasks such as chat bots or robotic automation — where repeatable, nonjudgmental functions can be enhanced by a computer. Using artificial intelligence, advisors are positioned to perform in minutes, an analysis that used to consume hours – permitting astute advisors to reallocate resources. The reallocated resources could be financial savings driven, operational efficiencies or time saving practices that enable an advisor to properly prepare for client meetings. An increasing number of firms are using artificial intelligence to analyze emails, texts and notes to learn about client sentiment and better anticipate client needs.
DCIIA observed that both recordkeepers and plan sponsors have an interest in artificial intelligence, but they are focusing on different things. Recordkeepers want to use artificial intelligence to improve operational efficiencies, whereas plan sponsors are more concerned with investments and fraud risks. planadviser pointed out, “when asked about how AI might be of most help to the retirement plan industry, plan sponsors and recordkeepers both selected ‘to address participant retirement planning and readiness’ and ‘to address holistic financial wellness’ as their top two choices.” Retirement readiness and financial wellness go hand-in-hand, and as such, they are chief concerns that plan sponsors and recordkeepers need to proactively address. It’s likely that artificial intelligence can play a critical role in helping them do so.
DCIIA and SPARK Institute plan to devote significant resources to artificial intelligence in the coming year and beyond. Blockchain is another area of focus for these organizations. According to planadviser, “a ‘blockchain’ is a series of digital records of data that, in basic terms, cannot be retroactively modified and it is managed across many distributed computers of independent entities. Each of these blocks of data is secured and bound to the others using advanced cryptographic principles, in theory making blockchain records both highly secure and transparent without requiring a centralized clearinghouse to manage the whole process.” The retirement planning industry has shown significant interest in blockchain technology due to its security and potential to help workers save more for retirement by reducing leakage from workplace retirement plans.
Interest in artificial intelligence is growing quickly while gathering broader acceptance and uses; however, caution is the watchword when it comes to blockchain. DCIIA and SPARK continue to learn more about blockchain’s potential. Depending on how it’s adopted, blockchain could supplant many legacy systems, and possibly compromise financial paradigms.
The rise in the acceptance of technology – like artificial intelligence and blockchain in the retirement planning and investment management industries – is worth monitoring for future developments. Change is on the horizon. Plan sponsors and recordkeepers, should keep their eyes wide open, monitor risk and be ready to advance or react when the time is right.
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.