Frontiers | How Risk Profiles of Investors Affect Robo-Advised Portfolios | Artificial ... - 1 views
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Automated financial advising (robo-advising) has become an established practice in wealth management, yet very few studies have looked at the cross-section of the robo-advisors and the factors explaining the persistent variability in their portfolio allocation recommendations. Using a sample of 53 advising platforms from the US and Germany, we show that the underlying algorithms manage to identify different risk profiles, although substantial variability is evident even within the same investor types' groups. The robo-advisor expertise in a particular asset class seems to play a significant role, as does the geographical location, while the breadth of the offered investment choice (number of portfolios) across the robo-advisors under study does not seem to have an effect.
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kenzabenessalah on 13 Feb 21Robo-Advisors go way beyond portfolio allocation; they help keep in the company in tact. Investment companies, like EasyEquities, need such expertise to manage all the financial transactions.
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Given the different attitudes of investors toward digitalization, robo-advising can be segmented into two main sectors. The first one is pure robo-advising, which is completely free from human intervention in the advisory process. This results in considerably lower fees compared to traditional advisory services, attracting lower-income clientele. As reported by Ringe and Ruof (2018), pure RAs charged fees ranging between 0.4% (US market) and 0.8% (European markets), compared to human financial advising costing circa 1–2%. Pure RAs have become quite popular due to their propensity to avoid conflict of interests due to automation. Fisch et al. (2017) highlight that RAs are less exposed to conflict of interests due to their higher independence, smaller bias to recommend actively managed funds that generate commissions as a potential additional expense, more transparent cost structures, lower minimum investment requirements, and 24/7 availability.
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This excerpt explains how robo-advising works as well as its positive sides. The most interesting one in my opinion would have to be the avoidance of conflict of interests due to automation which could prove to be very useful in a continent (Africa) that is infested with corruption and nepotism.
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