The results are leading to massive changes affecting benefits and 401(k) plans
There have been unprecedented boosts in productivity recently for U.S. businesses due to AI and remote workers. According to the Department of Labor, there was a 2% increase in productivity in Q3 compared to 2023 which is fifth quarter in a row of at least 2% increases not seen since the 1990s due to the advent of computers and the internet.
Consequently, benefits of all kinds, including retirement, will have to adjust to accommodate and not only keep up with the changing workplace but also help boost productivity gains.
A recent WSJ article highlighted how AI is increasing productivity, while a Barrons column noted that remote and hybrid workers are not only making businesses more efficient but are also bringing new employees back into the workforce, including 1 million people with disabilities and baby boomers. Workers are willing to take an 8% pay cut to work remotely, even if only part-time.
And while computers and the internet created unprecedented productivity increases for businesses, it might pale in comparison with what AI and remote working could yield.
However, there are potential downsides for employers that do not adjust. The growth of knowledge workers compared to factory workers shifted the power a bit to employees who could walk out at any time with company’s most important assets—knowledge and expertise. That power is tilting even further as the pandemic showed office workers, especially more experienced ones, do not need to come to work every day and can work remotely from almost anywhere, thanks in part to ubiquitous internet access and cheap equipment.
The ultimate remote worker, of course, is the gig economy, which continues to grow at 15% CAGR annually with 30 million gig workers expected in 2026.
Why should advisors and financial service providers care?
First and foremost, the “AI + remote” phenomenon gives them access to more experienced talent even as the war for talent and unprecedented job growth wanes, while AI can free up valuable workers, providing better client service at a much lower cost. While assets have grown and consolidation has increased productivity, more as money flows into index funds and ETFs and fees, especially for 401(k) plans, continue to decline while wealth advisors are being asked to do more.
We are all required to do more with less in a diminishing pool of experienced workers as clients demand more, sometimes at a lower cost. Something has got to give.
Businesses need to offer more competitive benefits to recruit and retain employees, especially skilled workers—AI and outsourcing overseas, as well as immigrants willing to do more mind-numbing tasks free up more experienced workers to do more interesting jobs. Workers expect not just healthcare but also retirement plans at work, with a growing number of states and likely the federal government requiring some sort of savings plan at work.
Workers should be able to leverage AI and personal data to help them select and monitor benefits, while advisors should be able to leverage both to provide advice at scale to the masses as the convergence of wealth, retirement, and benefits converge at the workplace heats up. Human resources and benefits professionals are adopting AI faster than the financial services industry, hindered in part by compliance, and will favor progressive advisors and providers.
The U.S. Census Bureau is reporting a surge in new business formation, which might be more willing to adopt innovations like AI and remote working and to take more risks than established entities. While consolidation is creating larger record keepers, asset managers, and advisory firms who have scale and capital, integration of new firms takes time, and there is an inherent reluctance for the establishment to change what is already working or explore new clients.
The explosion of small plans due to government mandates, tax credits and increased new business formation is drawing in more wealth advisors who want to help clients that run or own a business, mine for new wealth clients while providing advice at scale to the masses and keeping other advisors out.
All of this means more competition for established RPAs, who must migrate from the commoditized Triple Fs (fees, funds and fiduciary), which can be outsourced. The next frontier is helping businesses manage benefits in this new world and offering financial planning services, which will make workers even more productive and bind them more deeply to the company as the power continues to shift from employers to knowledge workers.
Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.