It’s the 40th anniversary of the 401(k) and retirement planning still hasn’t caught up with millions of savers that can’t afford life after work. But, with digital advice, that may be about to change, says SigFig CEO Mike Sha.
“There’s two generations of people that essentially are the first who are saving for their own retirement,” Sha said at SourceMedia’s annual conference In|Vest held in New York. “When that evolution happened, what didn’t follow was an advice industry that could serve everybody.”
Because of the traditional wealth industry’s obsession with assets under management, up to 90% of people who needed advice historically have not had access, he says.
However, investable assets in digital channels are projected to top $4 trillion by 2022 meaning more savers will have the tools to take on retirement, according to research by the consulting firm Juniper Research. From $330 billion in 2017, AUM on digital platforms could skyrocket twelvefold over the next four years, the study suggests, and combined revenues could top $25 billion. (A study by the research firm Aite Group has assets at $1 trillion by 2021.)
“We’re in the first innings of digital advice and over the next five, 10 years — different research firms put out different numbers — but they’re all in the trillions,” Sha says. “So, we’ve got a huge pile of money coming this way into managed money, into digital advice solutions.”
According to research by Financial Planning, among advisors at large firms — those with more than $500 million in assets under management — 44% say that robo advice is poised to transform wealth management in the next few years. However, only 18% of the 1,000 firms surveyed currently use digital platforms.
The explanation for the coming influx is simple, Sha says. “I think the reason is because it is a better way to manage money — better than individual advisors picking stocks, better than consumers doing it on their own. All the data supports that customers get to better outcomes with these kinds of solutions, and the money is going to follow the quality of the solution.”
However, digital advice platforms shouldn’t be used in isolation, and firms that do risk losing a fertile opportunity for cross pollination, he says. “Islands have a history of being used to isolate things,” Sha says, citing the penal island Alcatraz in San Francisco. “If you look at how our industry is built, we are very channel centric.”
If firms continue to line up assets by these strict channels, robos are going to be a very small piece of the puzzle, Sha warns. “Don’t think that customers stay in their swim lanes,” he says. Digital advice shouldn’t be treated as the be-all and end-all of investing.
While robo advisors can democratize financial advice, digital advice doesn’t have to be positioned to younger clients with fewer investable assets. “Who you would think the customer is of a digital solution, it’s probably not the 20- or 30-year olds. Those people are still figuring out how to balance the check book and pay the bills,” Sha says, adding that the median age of San Francisco-based SigFig’s clients are in their late 40s.
“Sometimes we forget this is our customers’ money,” Sha says. “What they want to do with it is what they care most about.”