De-accumulation: why automated advice delivery makes sense

In my last post, I rap the DoL and other regulatory bodies for focusing on accumulation at the expense of the payout function. The result of this imbalance has been to help blind retirement savers to the risks of running out of money. But it’s not just regulators at fault. Part of the “payout problem” revolves around how the advisor gets paid. Namely, what advisor wants to help draw down client assets when his fee is based on AUM? Some advisors are getting around this conflict or disincentive by working on retainer. But automated delivery of advice (whether via “robo advice” or a hybrid model) represents a cleaner (and ultimately more equitable) solution, in that it allows for low cost, transparent and scalable client servicing. What’s more, the efficiencies inherent to the automated advice model are amplified by actuarial considerations. Today, the post retirement period can last 40 years, in many cases longer than a career. With a three or four decade service runway, the advisor can earn good money (even at reduced fee levels) while building relationships with successive generations. It’s an arrangement that works for all sides.