The Emergence of the Robo-Advisor

Fisch, Jill E.; Labouré, Marion; Turner, John A.

doi:10.1093/oso/9780198845553.003.0002

Cited by 57 publications

(38 citation statements)

References 5 publications

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“…Alternatively, in the U.S., Canada and a number of other countries, they can enroll in an individual account pension through a robo advisor. Robo advisors generally charge substantially lower fees than human advisors (Fisch et al 2019).…”

Section: Investment Decisionsmentioning

confidence: 98%

“…Robo advisors have emerged in response to investors' needs for financial advice and the high cost of obtaining advice from human advisors (Fisch et al 2019). Robo advisors are automated on-line services that use computer programs to provide financial advice on investments and manage clients' investment portfolios.…”

Section: Proposal Two: Offer Access To a Robo Advisormentioning

confidence: 99%

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Improving on Defaults: Helping Pension Participants Manage Financial Market Risk in Target Date Funds

Turner¹,

Klein²

2021

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The central issue of this paper is analysis and resulting proposals to help unsophisticated pension participants achieve pension portfolios that match their level of risk aversion when there is a large amount of unexplained heterogeneity in risk aversion. Target date funds are commonly used as the default investment in defined contribution plans in the U.S., UK and other countries. These funds recognize that individuals usually should hold less risky investment portfolios as their expected retirement date approaches because their ability to bear financial market risk declines as the time horizon decreases. However, these funds do not account for differences in risk aversion among people with the same target date. Empirical studies find large amounts of unexplained heterogeneity in risk aversion. Target date funds cannot deal with this issue simply by sorting people into demographic groupings, other than age, that are known to affect risk aversion, such as gender. Financial education can help people do a better job of managing financial market risk in their pension portfolios, but we argue that it is unreasonable to expect millions of pension participants to attain advanced levels of financial literacy. This paper considers three innovations in target date funds that can help individual pension participants do a better job of managing financial market risk. The analysis can be applied to other situations where defaults are used for investing pension participants’ portfolios. The paper suggests new lines of research relating to individual differences in risk aversion.

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Section: Investment Decisionsmentioning

confidence: 98%

Section: Proposal Two: Offer Access To a Robo Advisormentioning

confidence: 99%

Improving on Defaults: Helping Pension Participants Manage Financial Market Risk in Target Date Funds

Turner¹,

Klein²

2021

Risks

Self Cite

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“…RAs must, as such, compete with human, financial agents or advisors (Brenner and Meyll, 2020) within the financial services industry and, insofar as the industry is concerned, do so without disrupting (Jung et al, 2019) the traditional financial service client. Traditional service clients trust the personal relationships they develop with a human advisor or agent (Fisch et al, 2018). While not quite a robot, RAs are a disembodied, technologically assisted advisor or recommender, providing relatively low-cost information to fee-for-service clientele.…”

Section: What Are Ras?mentioning

confidence: 99%

Robo-advisors (RAs): the programmed self-service market for professional advice

Wexler

Oberlander

2021

JSTP

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PurposeThis conceptual paper draws together an interdisciplinary approach to robo-advisors (RAs) as an example of an early and successful example of automated, programmed professional services.Design/methodology/approachLittle is known about the forces driving this change in the delivery of professional service. This work explores the drivers of RAs, the degree of disruption incurred by the introduction of RAs, and how, as RAs advance, trust in algorithmic authority aids in legitimating RAs as smart information.FindingsFrom the firms' perspective, the drivers include rebranding occasioned by the financial crisis (2008), the widening of the client base and the “on-trend” nature of algorithmic authority guided by artificial intelligence (AI) embedded in RAs. This examination of the drivers of RAs indicates that professional service automation is aligned with information society trends and is likely to expand.Practical implicationsExamining RAs as an indicator of the future introduction of programmed professional services suggests that success increases when the algorithmic authority in the programmed serves are minimally disruptive, trustworthy and expand the client base while keeping the knowledge domain of the profession under control of the industry.Originality/valueTreating RAs as an early instance of successfully embedding knowledge in AI and algorithmically based platforms adds to the early stages of theory and practice in the monetization and automation of professional knowledge-based services.

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“…Usually, the Robo-advisors provide advice only concerning the assets that those Robo-advisors manage. However, more fundamental needs of individuals, like the planning of studies, retirement, real estate, are not addressed yet (Fisch et al, 2019). Based on the evolution of Robo-advisors, as presented in Table 1, and taking into account the broad context of investors' needs and future development in intelligent data analysis and machine learning, we suggest the definition of Robo-advisors.…”

Section: Robo-advisors Phenomenon and Its Evolutionmentioning

confidence: 99%

Linking the Robo-advisors Phenomenon and Behavioural Biases in Investment Management: An Interdisciplinary Literature Review and Research Agenda

Lisauskiene

Darškuvienė

2021

OMEE

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Technological advancements bring continuous changes into the investment industry. The paper aims to provide insights on future research agenda based on a review of the current stance of research on the links between the Robo-advisors phenomenon and behavioural biases of individual investors. A qualitative investigation method has been applied for literature review on Robo-advisors and their impact on behavioural biases. The key findings indicate that Robo-advisors can help users to make better informed and less biased decisions. However, Robo-advisors activate the investors’ automatic system processes. The resulting passive investment approach could lead to alienation of the investors from the stock market, decreasing their understanding of the investment process that could widen a gap between different clusters of investors. The paper makes several contributions to the literature. First, it provides arguments on why a dual process theoretical framework in the relationship between financial advisory and investment behavioural biases is applicable. Second, it studies the Robo-advisor phenomenon and proposes a comprehensive definition of Robo-advisors. Third, the literature review suggests drivers of the Robo-advisors effect on the changes of behavioural biases as a future research direction.

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The Emergence of the Robo-Advisor

Cited by 57 publications

References 5 publications

Improving on Defaults: Helping Pension Participants Manage Financial Market Risk in Target Date Funds

Improving on Defaults: Helping Pension Participants Manage Financial Market Risk in Target Date Funds

Robo-advisors (RAs): the programmed self-service market for professional advice

Linking the Robo-advisors Phenomenon and Behavioural Biases in Investment Management: An Interdisciplinary Literature Review and Research Agenda

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