Does Automation Democratize Asset Management?

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