Automation and Inequality in Wealth Management
73 Pages Posted: 28 Jan 2020 Last revised: 8 Oct 2021
Date Written: September 1, 2021
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: Suggested Citation