The Promises and Pitfalls of Robo-Advising

We study the introduction of a wealth-management robo-adviser that constructs portfolios tailored to investors’ holdings and preferences. Adopters are similar to non-adopters in terms of demographics and prior interactions with human advisers but tend to be more active and have greater assets under management. Investors adopting robo-advising experience diversification benefits. Ex ante undiversified investors increase stock holdings and hold portfolios with less volatility and better returns. Already well-diversified investors hold fewer stocks, yet see some reduction in volatility, and trade more after adoption. All investors increase attention based on online account logins. We find that adopters exhibit…