Robo-Advising for Small Investors: Evidence from Employee Savings Plans

June 7, 2021

We study the introduction of robo-advising on a large representative sample of Employees Saving Plans. The robo-advisor proposes a portfolio allocation and alerts investors if their allocation gets too far from the target, while investors remain free to follow or ignore the advices.
We find that relative to self-managing, accessing the roboservice increases the amount of money invested in the plan, and the exposure to equity. Investors also experience higher risk-adjusted returns, and this is mostly driven by a change in their rebalancing behaviors that keeps them closer to the target. These effects are stronger for investors with smaller portfolios, lower returns and stock market participation, suggesting that automated advice can promote financial inclusion. Our results also highlight the importance of human-robo interactions for influencing investors’ portfolio decisions and possibly as a first step towards improved financial capability.

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