Robo Advisors and Access to Wealth Management

99 Pages Posted: 28 Jan 2020 Last revised: 20 Feb 2024

See all articles by Michael Reher

Michael Reher

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

Stanislav Sokolinski

Michigan State University - Department of Finance

Date Written: January 11, 2024

Abstract

We investigate how access to robo-advisors impacts the financial investment and welfare of less-wealthy investors. We leverage a quasi-experiment where a major U.S. robo-advisor significantly expands access by reducing its account minimum, increasing participation by middle-class investors but not the poor. A benchmark model calibrated to portfolio-level data rationalizes this increase: middle-class investors want sophisticated investing but cannot achieve it themselves. Their welfare rises moderately, driven by advanced features like multi-dimensional glide-paths and additional priced risk factors. Middle-age investors gain three times more than millennials. Our results reveal novel margins of demand for robo-advisors, helping explain their sustained growth.

Keywords: FinTech, Financial Advice, Portfolio Delegation

JEL Classification: G11, G24, D3, O3

Suggested Citation

Reher, Michael and Sokolinski, Stanislav, Robo Advisors and Access to Wealth Management (January 11, 2024). Journal of Financial Economics (JFE), Forthcoming, 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

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

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