College

Orfalea College of Business

Department

Finance Department

Degree Name

BS in Business Administration

Date

12-2018

Advisor(s)

Mahdi Rastad

Abstract/Summary

Research Question: Are robo-advisors the future of investing?

As the capabilities of technology continue to advance, alternatives to conventional practices are created in an attempt to boost convenience and efficiency. This paper will focus on one such alternative, robo-advisors, an automated investment advisor platform. The technology is evaluated to answer the research question above and to assess whether it holds promise in the world of finance as well as the potential to ultimately outpace traditional forms of investment advice. To accomplish this goal, in-depth research is provided covering a broad range of topics concerning robo-advisors including the platform’s history, analysis of the industries it falls under, underlying mechanics, firms, its regulatory framework, and comparisons to traditional financial advisors. Next, knowledge from this preliminary research was used to report additional insights gained from interviews conducted with one representative of a robo-advisor platform and another representing a traditional financial advising firm. The paper then provides a cost-benefit analysis quantifying the tangible historical gains and losses clients have experienced from using both robo-advisors and financial advisors. Finally, personal investments were made with one robo-advisor platform to test the effectiveness of the technology over the course of 1.5 months in order to share user experiences, feedback, suggestions, recommendations and to reconfirm earlier insights reported in the paper.

To assist in writing the report, websites, peer-reviewed journals and scholarly articles, data sources such as Statista and Morningstar, tools like Portfolio Visualizer and Excel, phone calls, emails, web portals, and an app were utilized.

In the end, it was found that robo-advisors have a strong, positive outlook in terms of future growth. However, hybrid robo-advisors and models of investing were determined to be the norm looking ahead since they effectively integrate the advantages of both robo-advisors and traditional financial advisors as well as address the downsides with each approach. Furthermore, it was concluded that there was no clear answer whether robo-advisors in their current state are better than conventional practices since it all depended on a client’s financial situation and needs. Still, potential college entrants and those looking to generate retirement savings were deemed best fits for the technology. Regardless, it was discovered that robo-advisors would continue to improve in the future by expanding their investment offerings, strategies, plans, making significant strides in artificial intelligence, and continuing to remain cost-efficient.

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