The Needs and Wants in Financial Advice: Human versus Robo-advising

76 Pages Posted: 8 Jan 2021

See all articles by Alberto G. Rossi

Alberto G. Rossi

Georgetown University

Stephen P. Utkus

University of Pennsylvania; Center for Financial Markets and Policy, Georgetown University

Date Written: January 3, 2020

Abstract

We use a broad survey to elicit investor needs and their satisfaction in the context of financial advice. We provide evidence that traditionally-advised individuals do not hire financial advisors mainly to maximize portfolio returns. They instead hire financial advisors to satisfy a broader set of needs. These needs include acquiring "peace of mind," having access to the opinions of an expert and delegating financial decisions. We also show the majority of investors do not know how much they pay for financial advice, but the miscalculation of the costs of financial advice are unlikely to drive the decision to hire financial advisors. Robo-advised investors are more interested in the financial performance of their portfolio. They also view robo-advising as an empowering tool that can contribute to their own self-improvement. Even robo-advised investors, however, value greatly the possibility to reach out and interact with humans. Our results provide novel evidence on why individual investors choose to hire financial advisors. They also inform on the optimal design of robo-advisers.

Keywords: Robo-advising; Financial Advice; Emotional Value of Advice

Suggested Citation

Rossi, Alberto G. and Utkus, Stephen P., The Needs and Wants in Financial Advice: Human versus Robo-advising (January 3, 2020). Available at SSRN: https://ssrn.com/abstract=3759041 or http://dx.doi.org/10.2139/ssrn.3759041

Alberto G. Rossi (Contact Author)

Georgetown University ( email )

McDonough School of Business
Georgetown University
Washington, DC 20057
United States

Stephen P. Utkus

University of Pennsylvania ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Center for Financial Markets and Policy, Georgetown University ( email )

Washington, DC 20057
United States

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