How the Retirement Industry can Leverage Artificial Intelligence

The advent of Artificial Intelligence (AI)

AI is a powerful tool that can revolutionize almost any industry and is likewise altering the retirement industry. It has already become evident that firms and industries across the globe will have to brace themselves whether they are ready for this transformation or not. They would need this technology to maximize their efforts in the future, considering we all have limited resources.

How will AI impact the retirement industry in the US?

The retirement industry in the US has traditionally been slow in adopting next-gen technologies. Previously, a retirement plan would be considered tech-savvy if it provided saving tips on the birthday or provided dates when employees were hired. However, things are expected to change. In the last few years, the industry has witnessed control shifting to the plan participants. Employees now seek easy, on-demand access to the information they want, and that too on their preferred channel. As young, tech-savvy individuals are joining the US workforce, the US retirement plan industry has no choice but to adapt to the evolving needs of its customers. Tech-inclined retirement plan providers, recordkeepers, and third-party administrators have started using AI—including machine learning (ML), large language models, and even ChatGPT—to digitize and automate repetitive and mundane administration tasks to reduce plan sponsors’ burdens and costs and also improve the retirement experience for both plan sponsors and participants. It is leading to not just less work for plan sponsors but also making it easier for employees to save for retirement. The asset-weighted average expense ratio of DC plans can be brought down significantly by streamlining backend operations, minimizing errors, and preventing fee leakage. Recordkeepers are the ones most hit by fee due to increased fee disclosure requirements, tightened fiduciary focus, and changes in the recordkeeping payment models.

Various aspects where AI can play a significant role can be broadly categorized under the following categories:

1) Benefits:  The efficiency gained by using AI makes it easier, faster, and cheaper for plan sponsors to provide benefits and also simplifies the process for employees to use them. AI can also help reduce the associated legal and compliance risks when they offer such benefits. Technology can predict and flag other potential risks, such as alerting plan sponsors for late deposits or other issues.

2) Marketing and Engagement: AI can assist in writing codes and personalizing marketing materials to meet the client’s needs and improve the conversion rate. Participant engagement can also be maximized using AI as chatbots, robo-advisors, and other algorithm-based technologies can guide and educate participants on demand and from anywhere using a multi-channel approach. These technologies can also be used for training advisors who educate customers.

3) Retirement Plan Design: AI tools, such as ML and predictive analysis, can be used to make retirement plan designs more customizable and assist plan advisers in creating better savings strategies, even when they do not have all the information related to employees. Data available from other connected data providers and an employee’s unique information can be used to find patterns and create more accurate or tailored offerings.

4) Investment Strategies and Risks: Investments can become more personalized and offer better outcomes. Currently, some retirement plans offer one-size-fits-most investment options (such as target-date funds), which may not be the best fit for employees who have made investments outside their workplace retirement plan or have competing savings goals. AI can be integrated into the firm’s customer relationship management (CRM) system to capture and leverage big data. Generative AI can create an asset allocation from the plan investment menu or suggest the right level of savings without employees even answering the usual risk tolerance questions.

5) Business Development: For retirement players, business development could become easier as AI can help them prospect better by eliminating irrelevant discussions, such as pitching offerings that a plan sponsor may not need.

6) Employee Onboarding: AI can help in onboarding new employees, and accounts and investments can be set up in a few clicks.

For firms, it’s not a choice anymore, as the SECURE 2.0 Act of 2022 mandates actions such as automatic enrollment and escalation, which require updating software.

The US retirement industry has concentrated over the years, with a few top players (such as Fidelity and Empower) dominating the space. In such a scenario, new entrants and smaller retirement plan providers are using technology to get ahead in the game, gain a strong foothold in the industry, and tap more small- and midsize employers. Efficiencies gained could allow such smaller players to scale up their business and spend more time with clients.

How top retirement players across the value chain are embracing AI?

Prominent players in the US retirement industry announced various initiatives, and some have already been using this technology. Such players include the following:

• Is using AI for robo-advisory that uses the company's ETFs to generate personalized retirement portfolios for clients
• Recently launched an AI-powered chatbot for customers to ask questions or request transactions
• "It allows us to communicate quickly and efficiently with participants at scale. We are using AI and machine learning to drive better outcomes. It is nudging participants to the next best action so that they're more apt to follow through with retirement planning suggestions. AI could help us notice when you might take action, and then we could use hyper-personalized digital nudges using texts, emails, and even calls from our advisors," Amber Brestowski, Head of Institutional Investor Advice and Client Experience.
• Partnered with Google Cloud to use its AI technologies for improving client experience, optimizing self-service, and improving analysis for more effective interactions in its National Contact Center (NCC)
• "Has been applying AI for its entire Financial Wellness offering including its 401k platform," Sears Merritt, Head of Technology Strategy, Enterprise Architecture & Data Science.
• Uses AI to help plan participants make well-informed decisions about their financial health and guides employers on the design and structure of their retirement plans
Merrill, a Bank of America company
• Over 19,000 advisors at the firm use AI to respond quickly and accurately to clients
• AI is also being leveraged to boost productivity. Automated reminders reduce paperwork and help make retirement planning decisions
• "AI helps us identify what retirement planning issues might be of value to the client. Then, it helps us see if the advisor brought up these issues with the client, and if not, it can prompt the advisor to bring it up as insights. We have the ability to identify trigger events, like when clients are nearing Social Security age. We can then ask relevant questions around these events. Using Ask Merrill, our natural language search engine, it will come back with forms the client needs, relevant legal or regulatory updates, and other information that answers the advisor's and client's question," Nitesh Kadakia, Head of Innovation and Advisor Platforms at Merrill.
• Launched the Ask Lisa chatbot in 2017, which has been used in over 26 million interactions across the client base ever since, while maintaining a natural language understanding of more than 95%
• Exploring how the latest AI innovations can tap additional business opportunities for the firm, like equipping call centers with AI-enabled product enhancements to help bolster clients and their employees’ overall experience
• Rolled out Voya PAL, an intelligent customer service chatbot, in November 2021 to offer 24/7 service to customers regarding their workplace benefits and savings requirements
• Engaged in over 120,000 customer interactions across wealth and health solutions businesses and resolved over 70% of cases after its launch
• Launched 401kAI, a tool designed to improve the efficiency of advisers’ plans, research, and business development efforts
• Uses a combination of ChatGPT and RiXtrema’s algorithm

What does the future hold for this industry, its players, and its participants?

AI and similar technologies are expected to become more advanced. Industry experts are already bullish on the progress made and AI’s ability to help in various processes and tasks related to the retirement business. It may be able to do things such as easing employees’ access to plans, further personalizing and customizing investment offerings tailored to participant’s behaviors and characteristics, and providing advice. One of the key use cases is plan advisers using AI for asset management decisions, which would be an evolved version of ‘robo-advisory’ and creating a drawdown strategy in retirement.

Retirement firms are currently providing input in the form of humongous data to the systems and teaching large language models how to invest. This is being done to educate models on multiple financial concepts, thus allowing them to better understand, analyze, and solve investment problems.

Despite AI’s present and potential capabilities, relying completely on AI for financial advice might happen sometime in the future, as industry experts feel that the human touch will never get fully eliminated. This is because of the emotions tied up with money.

Also, before jumping on the AI bandwagon, it is imperative for employers to fully understand the risks associated with AI, including data privacy, cybersecurity, and inherent bias. Boundaries need to be set for AI, specifically in a field of complex legal and rigorous compliance regulations. As the retirement industry is highly regulated with strict compliance, there is hardly any room for error when implementing AI in finance or retirement planning. That is because various incidents have been reported where AI has ‘hallucinated,’ or made up answers, or identified investment opportunities using inaccurate criteria. Retirement players would have to consider these points before integrating the technology into their businesses and also stay on top of future developments in order to minimize risks.

How can Evalueserve help?

Evalueserve provides comprehensive market and competitive intelligence solutions for retirement firms focused on the workplace retirement market, helping them to gain timely access to relevant and actionable insights. Such firms can stay updated with the latest industry trends, regulations, market opportunities, and competitor insights. It would help them make strategic business decisions, such as new investments and potential M&As to enter new markets, expand existing suite of product offerings, and others.

Here is how Evalueserve can assist clients in these areas:

  • Industry Research: Evalueserve provides deep industry insights that cover the latest trends, evolving regulatory and investment frameworks, market sizing, and potential opportunities in the industry.
  • Competitor Strategy: Our competitive insights help develop highly focused competitive strategies to counter imminent threats. We also offer strategic business insights, competitor marketing positioning (participant engagement analysis), and earnings coverage of peers to understand management viewpoints and their strategic plans.
  • Product Intelligence: Evalueserve conducts product benchmarking, provides insights that enhance the value proposition of any existing suite of offerings, and helps in launching innovative products to stay ahead in the marketplace.

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Garima Malik
Senior Manager, Asset and Wealth Management Posts

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