The Emergence of the Robo-Advisor

Abstract

Abstract Robo-advisors are online services that use computer algorithms to provide financial advice and manage customers’ investment portfolios. This chapter describes the development of the robo-advisor industry and compares robo-advisors to traditional human financial advisors. Robo-advisors emerged in response to people’s need for financial advice and the high cost of obtaining that advice from human advisors. Pure robo-advisors, which offer no direct human contact, are generally substantially less expensive than human advisors, and the use of computer algorithms allows for an increasing degree of personalization of the advice. Nevertheless, robo-advisors do not provide customers with all of the services offered by human advisors and, in particular, human contact. In response, some firms are offering hybrid robo/human services that combine cost savings from a robo-advisor with some human input.

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