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To Advise, or Not to Advise — How Robo-Advisors Evaluate the Risk Preferences of Private Investors

21 Pages Posted: 8 Feb 2017 Last revised: 13 Jun 2017

Michael Tertilt

Hamburg School of Business Administration

Peter Scholz

Hamburg School of Business Administration

Date Written: June 12, 2017

Abstract

Robo-advisors promise efficient, rational, and transparent investment advisory. We analyze how robo-advisors determine their users' risk tolerance and which equity exposure is derived from the individual risk profile. Our findings indicate significant differences in the quality of offered investment advice. Robo-advisors usually ask relatively few questions in the assessment of their users' risk profile, and it is particularly surprising that some of the questions do not seem to have any impact on the risk categorization. Moreover, the recommended equity exposure is relatively conservative.

Keywords: Investment Advice, Robo-Advisor, FinTech, Digitalization, Risk Budget, Risk Appetite, Banking

JEL Classification: G11, G24

Suggested Citation

Tertilt, Michael and Scholz, Peter, To Advise, or Not to Advise — How Robo-Advisors Evaluate the Risk Preferences of Private Investors (June 12, 2017). Available at SSRN: https://ssrn.com/abstract=2913178

Michael Tertilt

Hamburg School of Business Administration ( email )

Alter Wall 38
Hamburg, 20457
Germany

Peter Scholz (Contact Author)

Hamburg School of Business Administration ( email )

Adolphsplatz 1
Hamburg, 20457
Germany

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