Cross-Firm Variations in Portfolio Recommendations for Robo-Advisors

Sammanfattning: We show that there are significant differences in the consistency of advice across robo-advisors to different investors seeking advice. By comparing the recommended portfolios for three generic investors across a large share of actors on the U.S., U.K. and Canadian markets for robo-advisors we found that the generic aggressive investor with a high level of financial literacy received largely consistent portfolio recommendations across the robo-advisors while the generic moderate investor with a moderate level of financial literacy received slightly less consistent recommendations. In turn, the generic conservative investor in our sample received much less consistent recommendations. The conservative investor also had the lowest financial literacy by our measurement. The combination of receiving high variations of portfolio recommendations in combination with low financial literacy might suggest that this conservative investor is not having his best interests sought after in the robo-advisor environment. This should be investigated further by future research. Our study also shows that the cross-firm variations across all three investors can be explained to some part by the robo-advisor's country of origin and exposure to fixed income products in their underlying offering.