Demystifying Robo-Advisors: Benefits and Limitations

Abstract

In recent years, investing with robo-advisors has gained momentum and is seen as a simplifying approach for individual investors to participate in financial markets. This chapter contributes to a better understanding of the concept of a robo-advisory and its implications for private investors by discussing its past, present, and future. It explores key issues, like cost-efficiency, historical performance, and automation levels, based on research and industry insights. Moreover, this chapter examines a robo-advisor's benefits, limitations, and challenges, like behavioral biases, regulation, and risk profiling. Finally, the importance of the ongoing megatrends of AI and green investing is examined concerning a robo-advisory.

Citation

Scholz, P. (2024), "Demystifying Robo-Advisors: Benefits and Limitations", Baker, H.K., Filbeck, G. and Black, K. (Ed.) The Emerald Handbook of Fintech, Emerald Publishing Limited, Leeds, pp. 191-206. https://doi.org/10.1108/978-1-83753-608-520241020