Does Automation Democratize Asset Management?

81 Pages Posted: 28 Jan 2020 Last revised: 27 Feb 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: February 25, 2021

Abstract

We show that automation affects wealth inequality by giving middle-class households access to asset management. Using novel microdata from a major U.S. automated asset manager (i.e., robo advisor), we study a quasi-experiment in which the advisor suddenly reduces its account minimum by 90%. The reduction relaxes investment constraints on middle-class households and increases the number who participate with the advisor by 110%. Consequently, their expected return on liquid wealth rises by 1-2 pps relative to upper-class households, reflecting a sustained increase in compensated risk. However, automation may not reduce overall wealth inequality, as the reduction does not affect lower-class households.

Keywords: FinTech, Financial Advice, Portfolio Delegation, Inequality

JEL Classification: G11, G24, D3, O3

Suggested Citation

Reher, Michael and Sokolinski, Stanislav, Does Automation Democratize Asset Management? (February 25, 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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