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Meet the Researcher: Vincent Skiera

Posted on August 22, 2019

End of 2018, Vincent Skiera was awarded a TFI long-term research grant to study whether retail investors could benefit from using a robo-advisor. What motivates him to conduct this study and how will it help people making better financial decisions?

A robo-advisor is a software that manages an investor’s assets with little to no human intervention. Nowadays many low cost robo-advisors exist, enabling more retail investors to access formerly exclusive wealth management services. One of them is the access to exchange-traded funds (ETFs) through which diversified portfolios are now more easily available. This development is promising, as retail investors have long struggled to invest well in financial markets. Many investors have not even participated in the stock market, particularly in Germany.

Little is known about what kind of investors are attracted to robo-advisers and whether robo-advice is beneficial to them. The aim of our research is to close this gap in the literature. We empirically study whether and how retail investors could benefit from using a robo-advisor. This research project builds upon a rich data set of the online wealth manager Scalable, market leader in robo-advising in Germany. With a minimum investment of €10,000 customers can ask Scalable to invest on their behalf. The partnership with ING allows Scalable customers to monitor their portfolios and account details on both their online Scalable portal and ING portal.

Using this data set, we first investigate who exactly uses a robo-advisor. Are the robo-adviser’s customers skilled investors or are they new to the financial markets? We then examine whether the investment decision of a robo-advisor differs from customers’ personal investment decisions. In case the investment decisions differ, we examine whether observing the robo-advisor has an effect on customers’ future investment decisions. Finally, we will discuss the implications of our results for consumers, banks and policy makers.

“It is currently unknown and hard to estimate whether robo-advisors would also be suitable to the general public”

What was your motivation to apply for the Think Forward Initiative research grant?

Retail investors often make bad financial decisions. For example, they only invest into saving funds that provide low financial returns. Or, if they invest in the financial market, they purchase expensive financial instruments such as certificates. Others simply trade too much. These financial decisions could have adverse consequences such as a lack of retirement savings or small buffers in case of unemployment or sick leave. The Think Forward Initiative research grant enables me to study whether robo-advisors help retail investors make better financial decisions. It also provides me with a venue to distribute the findings of my study among non-academics. This will not only increase the visibility of this research, but also the impact of the findings.

How do you expect that your research will contribute to people’s financial well-being?

Thanks to the emergence of automated and algorithmic investment processes, the general public now has access to many previously “exclusive” financial services. For example in the form of personalized financial advice from robo-advisers. Yet, it is currently unknown and hard to estimate whether these types of services would be suitable to the general public. This research aims to investigate whether this is the case. Knowing this not only allows to evaluate the business model, but also opens up the opportunity to incorporate these services into retirement programs that are available to the general public.

Furthermore, it may be that investors are afraid of losing investment control when a robo-advisor takes over. Investors need to be comfortable with the risks taken by an automated process. This research aims to provide investors with more certainty about how robo-advisors invest and whether the advice suits investors’ situations. It will also investigate how the robo-advice affects investors’ portfolios. Knowing this may ultimately encourage widespread adoption of robo-advisors.

Vincent Skiera is a Doctoral Candidate of Finance at Haas School of Business at UC Berkeley. In 2018 he was invited to the Princeton Initiative: Macro, Money and Finance Conference at Princeton University, Bendheim Center for Finance. Before studying at Berkeley, he studied Mathematics at University of Bonn, Germany and received an "Award for an outstanding Bachelor's degree" from the Mathematical Society as one of the four best graduates of the year 2015/16.