The 401(k) plan market is undergoing a technology makeover, as fintechs offer providers new tools to lower the cost of the plans and boost profits.

With the fiduciary rule adding additional scrutiny to employer plans, traditional providers are under increased pressure to find the best and cheapest vehicles for clients. Startups like Newark, New Jersey-based Dream Forward claim their advisor tech will help lower administration costs and keep retirement plans profitable.

“Fees are going to come down overtime,” says Dream Forward CEO Grant Easterbrook. "Models are changing. It’s going to be a huge price adjustment for companies.”

Dream Forward is offering a new artificial intelligence platform that will help answer simple retirement planning questions and direct customers to the right advisors, he says.

The newest AI technology can explain confusing terms and complex industry jargon to clients, such as defining beneficiaries or a hardship withdrawal, he says. Next, the platform tackles more complex administration questions such as, “Can I borrow from my 401(k)?” Lastly, the AI can act as an “emotional advisor,” Easterbrook says.

‘AI is not going away’: Lightning Round with TD Ameritrade CEO Tim Hockey
Hockey responds to Financial Planning’s rapid-fire questions on artificial intelligence, robo advisors and three must-have skills for financial advisors.

For example, if a client is thinking about starting a college savings account for their child or a retirement account for themselves, the AI could remind the client: “Your child can always get student loans, but no one will give you a loan in retirement,” he says.

The AI is meant to answer simple questions that steal time away from advisors, and can refer clients to the right advisors, he adds. “401(k)s are not a sexy business, or a high-profile business, but it has a lot of challenges that need to be fixed."

A goals-based planning tool on mobile is being offered by Unified Trust Company to bolster its 401(k) platform, the firm says.

“What we’re trying to do is appeal to the digital native consumers that grew up with mobile tech, and who are very comfortable using those platforms,” says Michael Samford, Unified Trust’s digital advice manager.

The Lexington, Kentucky-based firm provides the service to hundreds of RIAs nationwide, Samford says, and has $3.5 billion in assets in retirement plans. The technology helps expedite onboarding processes, improves business intelligence capabilities for advisors and will eventually be able to perform real-time compliance functions, according to the firm.

Stats on defined contribution plan participation

Some firms are partnering with larger networks to expand their reach into the retirement plan business. Last month, Financial Engines, an online 401(k) financial advisory firm, teamed up with human resources giant ADP to offer its digital platform to ADP’s employer network — possibly extending the firm’s reach to 1.7 million new prospective clients.

The platform blends online advice tools — like college-savings planners and retirement calculators — with professional management options and personal financial planners to help 401(k) participants better manage their retirement goals, according to the firm.

The niche for Financial Engines is smaller employers that don’t have the required assets to work with traditional RIAs, says the firm’s COO John Bunch.

“Smaller companies that are just getting started probably don’t have the asset levels that a traditional RIA would look at managing,” Bunch says. “We have built that scale down in the marketplace in a way that’s profitable.”

The Sunnyvale, California-based firm now has more than 1 million clients and manages $160 billion in assets, according to a spokeswoman.

For Easterbrook, technology will continue to drive down prices creating rapid evolution in the digital advisory space.

“Companies can’t just distribute their own products anymore; they’ll have to adjust and deal with a lower-cost world,” Easterbrook says. “Some companies are going to struggle, but AI will drive down a lot of administration costs and help customers save more money.”

The AI advisor of the future customizes client conversations based on the preferences of the human financial advisor, Easterbrook says, creating something that taps the latest advisor tech while keeping humans involved in the process. The new tech will be a first line of defense, he says.

“Some people think about an AI takeover as some kind of dystopian future, like driverless cars automating away all the driver jobs,” Easterbrook says. “Investment advice is not the same thing as ordering socks online. It’s people's net worths that are on the line.”

Sean Allocca

Sean Allocca is an associate editor of Financial Planning, On Wall Street and Bank Investment Consultant.