Artificial intelligence (AI) is starting to change the world of retirement planning, with robo-advisors emerging as one of the hottest trends in this field. Robo-advisors are online services that use algorithms to automatically perform many investment tasks. Initially offered by startups, they are now part of the suite of services offered by major financial institutions. Since they are less expensive than a human advisor, they democratize access to financial advice and can help clients with little funds for such services.
Despite their promise, they have a number of shortcomings, mostly connected to their inability to effectively communicate with clients. For example, robo-advisors are not capable of listening to client concerns, explaining specific situations to worried clients or giving clients the “big picture”. Moreover, there is a lot we don’t know about them, like how effective they are compared to a human counterpart. The initial results have been mixed, with some robo-advisors performing markedly better than others. Perhaps the most important outstanding question is how they will fair in the long run, especially during a crisis or mini-crisis period. Given the uncertainty surrounding them and their performance at this time, robo-advisors are considered as being better for those still in the process of accumulating wealth than they are for those in the “decumulation” stage (i.e. retirees).