Robo-advisors as Automated Personal Financial Planners – SWOT Analysis

Krzysztof Waliszewski; Marta Zięba-Szklarska

doi:10.18778/2391-6478.3.27.09

Authors

Krzysztof Waliszewski Poznań University of Economics and Business, Institute of Finance, Department of Money and Banking https://orcid.org/0000-0003-4239-5875
Marta Zięba-Szklarska Europejska Federacja Doradców Finansowych, EFFP Polska

DOI:

https://doi.org/10.18778/2391-6478.3.27.09

Keywords:

digital financial planning, personal financial management, automated financial advisors, fin-tech regulation

Abstract

Automatic financial consulting (robo-advice) is a financial innovation in the area of personal financial planning, and in particular investment consulting classified as fin-tech (financial technology). The main disadvantage of traditional investment advice is limited availability due to the required amount of assets and high management costs. These disadvantages are answered by robo-advice, using artificial intelligence and algorithms without the participation of a physical adviser, thereby reducing or abolishing minimal assets and reducing costs [Kocianski 2016]. The purpose of the article is to analyze strengths and weaknesses as well as opportunities and threats of robo-advisors, especially when compared to traditional financial advisors. This paper is an analysis of a history, regulations, application, functionality and development of Robo-Advice. The concept of Robo-Advice was critically analysed, with presentation of current strength and weaknesses, as well as opportunities and threats. We aimed showing that Robo-Advice should be innovative, feature a new approach, and should transform the current financial consulting. There are still, however, many opportunities and challenges in this field, which await discovering. The article uses the SWOT analysis method, analysis of the literature and reports. As indicated by the analysis, robo-advisors are not a threat to traditional financial advisors, but their complement, which makes the hybrid model connecting a physical advisor assisted by technological solutions (robo-advisors) most likely. This thesis is also confirmed by the small scale of robo-advisors’ activity compared to traditional advisors measured by the market penetration rate (in 2023 about 2% assets under management).

Downloads

Download data is not yet available.

References

Anderson T., 2017, More robo-advisors are adding a human touch to their services, https://www.cnbc.com/2017/01/31/more-robo-advisors-are-adding-that-human-touch.html [access 20.06.2019].
Google Scholar

Arnott R.D., Berkin A.L., Ye J., 2000, How Well Have Taxable Investors Been Served in the 1980s and 1990s?, „The Journal of Portfolio Management”, vol. 4, pp. 84–93.
Google Scholar DOI: https://doi.org/10.3905/jpm.2000.319766

Baker T., Dellaert B., 2017, Regulating robo advice across the financial services industry, ERIM report series research in management in Erasmus Research Institute of Management.
Google Scholar DOI: https://doi.org/10.2139/ssrn.2932189

Cocca T.D., 2016, Potential and Limitations of Virtual Advice in Wealth Management, „The Capco Institute Journal of Financial Transformation”,vol. 44, pp. 45–57.
Google Scholar

Dorfleitner G., Hornuf L., Schmitt M., Weber M., 2017, FinTech in Germany, Springer International Publishing, Cham.
Google Scholar DOI: https://doi.org/10.1007/978-3-319-54666-7

European Securities and Markets Authority, 2007, MIFID and MIFIR.
Google Scholar

Fein M.L., 2015, Robo-Advisors – A Closer Look, SSRN Working Paper 2658701, http://ssrn.com/abstract_2658701 [access 8.06.2019].
Google Scholar DOI: https://doi.org/10.2139/ssrn.2658701

FINRA, 2016, FINRA Reports on Effective Practices for Digital Investment Advice.
Google Scholar

Gauthier V., Laknidhi V., Klein P., Gera R., 2015, Robo-Advisors: Capitalizing on a growing opportunity, Deloitte.
Google Scholar

Jung D., Dorner V., Weinhardt C., Pusmaz H., 2017, Designing a Robo-Advisor for Risk-Averse, Low-Budget Investors, Electronic Markets, doi: 10.1007/s12525-017-0279-9
Google Scholar DOI: https://doi.org/10.1007/s12525-017-0279-9

Jung D., Dorner V., Glaser F., Morana S., 2018, Catchword Robo-Advisory – Digitalization and Automation of Financial Advisory, Business & Information Systems Engineering, BISE, vol. 60, issue 1, doi: 10.1007/s12599-018-0521-9.
Google Scholar DOI: https://doi.org/10.1007/s12599-018-0521-9

Jung D., Glaser F., Köpplin W., 2019, Robo-Advisory – Opportunities and Risks for the Future of Financial Advisory, [in:] V. Nissen, Advances in Consulting Research Recent Findings and Practical Cases, Springer.
Google Scholar DOI: https://doi.org/10.1007/978-3-319-95999-3_20

Kocianski S., 2016, The Robo-Advising Report: Market forecasts, key growth drivers, and how automated asset management will change the advisory industry, Business Insider.
Google Scholar

Lam J.W., 2016, Robo-Advisors: A Portfolio Management Perspective, Yale College.
Google Scholar

Ludden C., Thompson K., Mohsin I., 2015, The Rise of Robo-Advice: Changing the Concept of Wealth Management, Accenture.
Google Scholar

Markowitz H., 1952, Portfolio selection, „The Journal of Finance”, vol. 1, pp. 77–91.
Google Scholar DOI: https://doi.org/10.1111/j.1540-6261.1952.tb01525.x

Nicoletti B., 2017, The Future of FinTech. Integrating Finance and Technology in Financial Services, Palgrave Studies in Financial Services Technology.
Google Scholar DOI: https://doi.org/10.1007/978-3-319-51415-4_2

Novick B., Lu B., Fortin T., Hafizi S., Parkes M., Barry R., 2016, Digital Investment Advice: Robo Advisors Come Of Age, www.blackrock.com/corporate/literature/whitepaper/viewpoint-digital-investment-advice-september-2016.pdf [access 13.03.2020].
Google Scholar

Reher M., Sun C., 2016, Robo Advisers and Mutual Fund Stickiness, January, SSRN Electronic Journal DOI: 10.2139/ssrn.2872134
Google Scholar DOI: https://doi.org/10.2139/ssrn.2872134

Saad L., 2016, Robo-Advice Still a Novelty for U.S. Investors, Marketplace, July 27, https://news.gallup.com/poll/193997/robo-advice-novelty-investors.aspx [access 15.02.2020].
Google Scholar

SEC, FINRA, 2015, Investor Alert: Automated Investment Tools, https://www.sec.gov/oiea/investor-alerts-bulletins/autolistingtoolshtm.html [access 6.06.2018].
Google Scholar

Schapiro K., 2017, Backend Benchmarking – The Robo Report Q1 2017, https://theroboreport.com [access 6.06.2018].
Google Scholar

Sironi P., 2016, FinTech innovation: From robo-advisors to goal based investing and gamification. The Wiley Finance Series: John Wiley & Sons Ltd.
Google Scholar DOI: https://doi.org/10.1002/9781119227205

Tertilt M., Scholz P., 2017, To Advise, or Not to Advise – How Robo-Advisors Evaluate the risk Preferences of Private Investors ,https://ssrn.com/abstract=2913178 [access 10.06.2020].
Google Scholar DOI: https://doi.org/10.2139/ssrn.2913178

Traff J.D., 2016, The Future of the Wealth Management Industry: Evolution or Revolution?, MBA-Submission, Massachusetts Institute of Technology, https://dspace.mit.edu/handle/1721.1/104548 [access 5.06.2017].
Google Scholar

Waliszewski K., 2020, Robo-doradztwo jako przykład fin-tech – problem regulacji i funkcjonowania, „Przegląd Ustawodawstwa Gospodarczego”, nr 7/2020 (865), doi: 10.33226/0137-5490.2020.7.2.
Google Scholar DOI: https://doi.org/10.33226/0137-5490.2020.7.2

Waliszewski K., Warchlewska A., 2020, Attitudes Towards Artificial Intligence in the Area of Personal Financial Planning: A Case Study of Selected Countries, „Entrepreneurship and Sustainability Issues”, vol. 8, no. 2, pp. 399–420, DOI:10.9770/jesi.2020.8.2(24)
Google Scholar DOI: https://doi.org/10.9770/jesi.2020.8.2(24)

Wong M.M., 2015, Hungry Robo-Advisors Are Eyeing Wealth Management Assets: We Believe Wealth Management Moats Can Repel The Fiber-Clad Legion, Morningstar Equity Research, 31 March.
Google Scholar