Automation and Inequality in Wealth Management

73 Pages Posted: 28 Jan 2020 Last revised: 8 Oct 2021

See all articles by Michael Reher

Michael Reher

University of California, San Diego (UCSD) - Rady School of Management

Stanislav Sokolinski

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: September 1, 2021

Abstract

We examine how access to automated wealth managers affects households’ investment in financial markets and welfare across the wealth distribution. Our setting features novel microdata from a major U.S. robo advisor and a quasi-experiment in which the advisor reduces its account minimum by 90%. Based on a difference-in-difference estimator, the reduction increases middle-class households’ participation by 110% but does not affect wealthier or poorer households. We rationalize this behavior with a life cycle model calibrated using portfolio-level data. Our calibration suggests that the reduction significantly raises middle-class households’ welfare, and 65% of this gain reflects improved diversification.

Keywords: FinTech, Financial Advice, Portfolio Delegation, Inequality

JEL Classification: G11, G24, D3, O3

Suggested Citation

Reher, Michael and Sokolinski, Stanislav, Automation and Inequality in Wealth Management (September 1, 2021). Available at SSRN: https://ssrn.com/abstract=3515707 or http://dx.doi.org/10.2139/ssrn.3515707

Michael Reher (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Stanislav Sokolinski

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

111 Washington Avenue
Newark, NJ 07102
United States

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