The disruptive impact of FinTech on Retirement Systems – A Book Review
The basic role of a "robo-advisor" is to manage the customer's investments while considering all information about the consumer, often gathered by a set of questions when opening an account.”
The disruptive impact of FinTech on Retirement Systems, edited by Julie Agnew and Olivia S. Mitchell, is a book that deals with the development of technology-based solutions called "robo-advisors". According to the authors, the basic role of a "robo-advisor" is to manage the customer's investments while considering all information about the consumer, often gathered by a set of questions when opening an account. In accordance with this information, the robo-advisor uses computer algorithms in order to manage the customer's portfolio. While asset allocation and diversification may be selected by the customer, many of the robo-advisors limit their solutions to stocks, whereas other types of financial planning, such as for retirement, are beyond their scope. Not surprisingly, the authors quote a survey by Wells Fargo from 2016, stating that in the United States only 5 percent used robo-advisors while 55 percent have even not heard about them. As the survey also points out that most of the users of this form of advice are from the younger group of the population, it is indeed noteworthy that mid-life and older adults, who hold the highest share of wealth around the world, are not frequent users of this solution.
The magnitude of the robo-advisory market is huge, with approximately US$1.5trillion of wealth under management with about two thirds in the United States (Statista, 2020). While the complexity of investing is known both from the demand and supply sides, the major questions this book seeks to answer are: What is the role of robot-advisors? Will technology increase awareness and promote financial literacy and saving for retirement? What are the key challenges of robo-advisors that should be addressed in the future?
While the book bases its discussion on the world of investment in the United States, others have much to learn from it as well. Similar to the organization of the book, the market of technological advice requires a multidisciplinary vision. Therefore, authors from multiple fields contribute chapters to the book, including academics from business and economics, insurance and pension consultants, computing and algorithmic experts, and also scholars dealing with machine-to-human relations.
Taking into the account the tension between lowering managing costs and preferring human interactions, human-robo hybrids may provide an answer, as the book claims. By bridging technology and trust, robo-hybrids may be the solution, especially for individuals in late life. Notably, a major issue that emerges from the book is the need for a comprehensive planning platform that considers all households assets on the one hand and all liabilities on the other, including housing value, human capital, and loans.
Importantly, the authors point out the fact that robo-advisors should be sensitive to periods of de-accumulation of capital compared to phases of accumulation. Accumulation is not limited to savings derived from the labor market; rather, accrual may also be due to an increase in housing prices after final retirement is reached. At the same time, de-accumulation is not only a result of on-going household consumption, but also maybe a result of life events such as health shocks, which must be taken into account in planning the de-accumulation period. In other words, the book reminds us clearly that financial planning goes in tandem with life course transitions in the employment, health and family life domains. The last noteworthy subject raised in the book is whether Fintech is an opportunity to promote financial responsibility.
Ultimately, the book does not provide a definitive answer as to whether technology can eliminate barriers, not only through cost-effective robo- or hybrid advisory solutions, but also through articulated user interfaces and user-experiences of the elderly. Ironically, we should not forget that they are the ones who hold the majority of wealth around the world, while they are the least to use technological tools.