Another critical component of a robo strategy is defining the relationship members will have with the credit union's human advisors, if they are already in place. Some institutions choose to use digital financial advice as an online standalone experience. Others give financial advisors the ability to work with members in setting up and managing the digital advice account.

Defining the member relationship doesn't have to end here. A credit union could also consider the types of securities – stock, mutual funds, ETFs – that will be available, as well as the options that will give members a diversified, tax-efficient portfolio. Using an investor questionnaire can help determine the appropriate portfolio asset mix, as well as a member's risk tolerance and investing knowledge.

A credit union should also think about the business and legal structure of its robo advisor against the desired type of member relationship. A credit union will have different legal and regulatory obligations depending on whether it keeps the service in-house or outsources it to a third party. Importantly, they will have to determine how the Department of Labor's fiduciary duty rule applies to their robo service.

Four Robo Technology Options

The technology choices for a robo service can be confusing. However, when a credit union knows the type of member relationship it wants, selecting a back-end platform becomes easier. The key is finding a flexible solution that can adapt to future growth and members' needs.

Here are the pros and cons of four technology options:

1. Build a robo advisor from scratch.

   • Pros: Offers complete customization and maximum control over the robo advisor's functionality.

   • Cons: It is costly and requires IT infrastructure and ongoing maintenance that many credit unions lack.

2. Build a robo advisor on the front-end and use APIs to tie into an existing broker-dealer or technology provider.

   • Pros: A credit union can remain in charge of the robo advisor's look and feel, and most of the member experience.

   • Cons: Credit unions still need IT expertise to build the front-end website and integrate it with brokerage APIs. However, this is a less expensive option than building the product from scratch.

3. Apply a "custom-build solution," partnering with a broker-dealer or technology provider that provides customizable front-end and back-end brokerage, custody and/or investment management service.

   • Pros: Provides significant control of front-end functionality, speeds up implementation time and reduces IT costs. Credit unions will work with a partner that can provide three critical components to all robo advisors: Brokerage features, a diverse investment program and a digital front end. Also, credit unions can more easily incorporate new features as they become available and not worry about how to "bolt on" the latest technology.

   • Cons: Full branding can be an option, but control of front-end functionality may be limited – unless the credit union involves itself in design and implementation.

4. Partner with a third party to provide the digital investment program, sending members from the credit union to the robo advisor.

   • Pros: Requires the least amount of work and cost. May shift some regulatory responsibilities from the credit union to the third party.

   • Cons: Puts distance between the credit union and its members. Also, the credit union forfeits control over customer service and any organic business growth.

Robo asset management should be a component of every credit union's business model to meet growing member demand. No matter what type of robo advisor a credit union chooses, it should take the time to thoroughly analyze what its members need today and in the future. The payoff: A positive reputation that differentiates a credit union from the competition.

Peter Jacobstein is SVP for Folio Investing. He can be reached at [email protected].