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The pandemic has accelerated the use of technology and reshaped the way businesses operate across industries, including the retirement ecosystem. According to a new report by Vestwell, a cloud-based digital recordkeeper, 85 percent of advisors place a greater emphasis on the technology used to run their business today than they did prior to the pandemic.
Vestwell said the majority of existing 401(k) plans are run on outdated recordkeeping technology built in the 1980s. This technology lag can lead to higher costs, administrative headaches and inflexible plan design while creating a barrier to entry for small businesses that might be considering establishing a plan for their employees.
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However, investment dollars have started to flood the industry, which could signal momentum for a technology revolution in the retirement space, the report said. As the retirement industry's technology environment evolves, Vestwell outlined four key trends for advisors to watch.
Trend 1: Technology is changing prospecting.
While referrals remain one of the most important sources of new business for advisors, digital tools are gaining increasing importance, according to the report. When asked how their marketing strategies have changed in the past year, nearly half of respondents to Vestwell's survey said social media has become more valuable. Website traffic and digital advertising were more important to 40 percent and 32 percent of respondents respectively.
Meanwhile, 41 percent of respondents said cold calling diminished in importance during the past year. Strategies focused on events and in-person meetings also were cited as less valuable during the past year, the report found. This shift is not surprising in a remote-first environment with limited in-person contact that has been the norm during the pandemic, said Vestwell.
Trend 2: Clients expect digital solutions.
The world is becoming increasingly digital in all areas, and plan sponsors and participants expect the same for retirement plan solutions. When surveyed about what they think participants most want in their 401(k), 66 percent of advisors responding to Vestwell's survey pointed to personalized advice such as managed accounts. Forty-one percent of respondents said participants want cryptocurrency options in their 401(k) plans.
Personalized advice can add cost to plan administration, but technology can help make these options more affordable, said Vestwell. And the investment in technology to make advice more personalized often pays off. The survey found 68 percent of advisors who offered managed accounts said they have seen an uptick in adoption during the past year, said Vestwell.
Trend 3: Technology creates some challenges.
As with all new things, there are benefits and there are challenges. In the technology realm, cybercrime is a definite challenge. According to Vestwell, cybercrimes have increased 300 percent since early 2020, and alarmingly, nearly half of those attacks have been against small businesses. Furthermore, 401(k) participant data represents an attractive target for hackers.
Nearly three-quarters of respondents to Vestwell's survey indicated that their clients are more interested in cybersecurity measures following a year of uncertainty. The Department of Labor is interested as well.
Not only did it release guidelines around cybersecurity measures for plan fiduciaries earlier this year, but it also is auditing plans to ensure they are following proper security protocols, said Vestwell. As a result, early one-third of advisors listed cybersecurity as their top concern, even more so than prospecting and client retention.
Trend 4: Technology is undervalued in plan purchasing decisions.
Technology can benefit plans in terms of flexibility in plan design and investments, both of which rely on recordkeepers and other tech providers. However, advisors indicated that plan sponsors tend to undervalue these factors when making plan purchasing decisions.
Technology can benefit advisors in plan management as well, the study noted. According to the survey, 93 percent of advisors agreed that working with a tech-forward recordkeeper makes it easier to manage plans.
Vestwell noted a contrast in this data point to a finding in 2020 that only 7 percent of advisors would choose a fintech recordkeeper as their provider of choice. This may be a signal that funding flowing into the fintech space is beginning to accelerate a shift in the industry toward favorable views of technology, Vestwell said.
Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM's Retirement Advisor magazine and LifeHealthPro online channel. She also was a reporter for Business Insurance magazine covering workers compensation topics. Kristen graduated from the University of Missouri with a degree in journalism.
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