This research project is going to examine and evaluate a new phenomenon of the financial advisory services market, the so called Robo-Advisors (RA). They represent the next stage of the evolution in the financial advisory and wealth management industry.
RA are a new type of financial adviser or portfolio manager, which work solely online and with minimal human intervention and they stepped right into competition with human wealth managers. In a generation that grew up with the internet, computers and mobile devices, RA have the potential to start their triumph procession making many jobs of professional human financial consultants obsolete. The main objective of this research project is to sketch an overview of possibilities and disadvantages of Robo-Advisors in the future and give an outline to the academic research that will be needed in the future.
This thesis is one of the first academic papers in English language, examining RA and their possible impact on the industry. As a field study, it delivers a broad overview of a large amount of topics describing the various characteristics of a fully automatic asset management system, and the competitive situation with human consultants or asset managers.
Table of Contents
1. Introduction
1.1 Context and purpose of the study
1.2 Significance of the study
1.3 Research question and objectives
1.4 Structure of the research project
2. Critical review of literature
2.1 Introduction and general comments
2.2 Definition of the term Fintech and Robo-Advisor
2.3 Target audience of Robo-Advisors
2.4 Investing with Robo-Advisors
2.4.1 Questionnaire
2.4.2 The common investment model via ETFs
2.4.3 Diversification
2.4.4 Rebalancing
2.4.5 Cost of Robo-Advisor
2.4.6 Service of Robo-Advisors
2.5 Investment behaviour
2.5.1 Typical mistakes in investing
2.5.2 Investment behaviour during stock crisis
2.6 Professional consultants and their services
2.6.1 Abilities and services of human advisors
2.6.2 Disadvantages of human advisors
2.7 Conclusion of the literature review
3. Methodology
3.1 Research Paradigm and Methodology
3.2 Research design and method
3.3 Expert interviews
3.3.1 Selection of candidates
3.3.2 Type of interview and data collection
3.4 Online questionnaire about Robo-Advisor
3.4.1 Reasons for the questionnaire
3.4.2 General facts
3.4.3 Structure and content
3.5 Ethical considerations
4. Findings
4.1 Outcomes through the expert interviews
4.2 Outcomes through the online questionnaire
5. Analysis and discussion
5.1 Limitations of the primary data collection methods
5.2 Chances in the future
5.2.1 Market potential
5.2.2 Technical development potential
5.2.3 Cost and its impact
5.3 Possible risks
5.3.1 From start-ups to global players
5.3.2 Competition and profits
5.4 Robo-Advisors in crisis
5.4.1 What Behavioural Economics tells us
5.4.2 The fight against customer loss
5.4.3 Risk or opportunity
5.5 Robo-Advisors and professional consultants
6. Conclusions and recommendations
6.1 Conclusion of the main findings
6.2 Limitations of the research project
6.3 Recommendations and future research
7. Reflection on learning
7.1 Concrete experience – What was learned
7.2 Reflective Observation – How learning took place
7. 3 Abstract learning concept and generalization
7.4 Testing the implications in the workplace
Research Goal and Core Topics
The primary research objective is to examine the influence of Robo-Advisors on the services provided by professional human financial consultants and the broader financial industry, specifically evaluating their potential impact and competitive dynamics.
- Evolution of financial advisory services through fully automated Robo-Advisor systems
- Comparative analysis of Robo-Advisors versus human financial consultants
- Behavioral finance and investment patterns during periods of stock market volatility
- Future market potential, technical developments, and potential for industry consolidation
Excerpt from the Book
2.4.4 Rebalancing
Every RA found during the research were all rebalancing. Rebalancing is the mechanism to restore the original share/bond ratio after significant value changes. Rebalancing is not a tool to increase profits but to reduce risks in the first place (Jaconetti et al., 2010; Barber and Odean, 2000; Charles Schwab, 2017a; Jordan and Miller, 2009). Private investors usually increase risk over time and get more adventurous with growing wealth, which is shown in an evaluation done in Sweden (Calvet et al., 2009). Even if it is a relatively small market, it gets supported by several authors who mention that investors are actively mismanaging their portfolio over time (Shefrin and Statman, 1985; Kahnemann and Tversky, 1979; Shefrin, 2001; Schuster, 2013; Malkiel, 2016). An example how rebalancing works is shown in Figure 5, where the shares increase in value until they have 60% of the value of the portfolio. Shares are known for having a higher volatility and risk than bonds. The investor has now a higher risk in his original risk profile. Therefore, parts of the shares will be sold and invested into bonds to rebalance the investment again.
Summary of Chapters
1. Introduction: This chapter outlines the emergence of Robo-Advisors as a competitive phenomenon in the wealth management industry and defines the research scope.
2. Critical review of literature: The literature review examines the theoretical foundations of Robo-Advisors, investment behavior, and the services provided by human financial advisors.
3. Methodology: This chapter justifies the choice of a multi-method research design, including expert interviews and an online questionnaire.
4. Findings: The findings present the gathered empirical data from both qualitative interviews and the quantitative survey.
5. Analysis and discussion: This section triangulates the secondary literature and primary findings to evaluate future risks, opportunities, and the potential for market change.
6. Conclusions and recommendations: The final chapter summarizes the research results and provides strategic recommendations for both Robo-Advisors and human consultants.
7. Reflection on learning: The author reflects on the research process and personal learning outcomes using Kolb’s experiential learning theory.
Keywords
Robo-Advisor, Financial Industry, Asset Management, ETFs, Rebalancing, Behavioral Finance, Investment Behavior, Human Financial Consultants, Fintech, Market Volatility, Investment Strategies, Wealth Management, Digital Transformation, Portfolio Management, Cost Efficiency
Frequently Asked Questions
What is the core focus of this research project?
The research examines the emergence of Robo-Advisors and their potential influence on the services of professional financial consultants and the traditional financial advisory industry.
What are the central thematic fields covered in the work?
The study covers the technological capabilities of Robo-Advisors, behavioral finance and investor psychology, the comparison with human consultants, and the impact of market crises on investment behavior.
What is the main research question of the thesis?
The thesis aims to answer: "What influences may Robo-Advisors have on the service of professional financial consultants and the financial industry?"
Which scientific methodology was utilized?
The research employs a multi-method approach, combining qualitative semi-structured expert interviews with a quantitative online questionnaire distributed among a broad international participant group.
What topics are addressed in the analysis section?
The analysis investigates the market potential of Robo-Advisors, the risks associated with financial crises, technical development potentials (such as Artificial Intelligence), and cost impacts on investment performance.
Which keywords best describe this study?
The study is characterized by terms such as Robo-Advisor, Fintech, Portfolio Management, Behavioral Finance, and Wealth Management.
How do investors typically react to stock market downturns according to the research?
The findings indicate that while many investors claim they would stick to their strategy in bull markets, they show significantly more uncertainty and a higher tendency to consider human advice or change strategies during market declines.
What is the main advantage of human advisors over Robo-Advisors?
The study identifies the ability to provide individualized, personal face-to-face service and emotional support as the primary comparative advantage of human financial consultants.
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- Patrick Reverchon (Autor:in), 2017, What Influences May Robo-Advisors Have on the Service of Professional Financial Consultants and the Financial Industry?, München, GRIN Verlag, https://www.grin.com/document/378460
