The Needs and Wants in Financial Advice: Human versus Robo-advising
76 Pages Posted: 8 Jan 2021
Date Written: January 3, 2020
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
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