Robo-advisors as a form of artificial intelligence in private customers’ investment advisory services
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School of Business |
Bachelor's thesis
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Date
2019
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Mcode
Degree programme
Tieto- ja palvelujohtaminen
Language
en
Pages
34
Series
Abstract
The rapid expansion of artificial intelligence (AI) application areas is having a major impact on the environment that companies are operating in. AI offers many possibilities on revolutionising the wealth management industry. The utilisation of robots in wealth management and investment advising is an emerging trend across the industry. This paper focuses on personalised banking, examining the possibilities that artificial intelligence, more specifically robo-advisors, can offer in wealth management and investment advisory processes. The objective of this thesis is to provide the reader with a comprehensive understanding of the advantages and disadvantages in implementing an artificial intelligence-based investment advisory system taking also ethical aspects into account. This thesis is to a large extent a literature review where objective observations are made based on existing literature. Moreover, Henri Kotiaho, who has worked on the development of investment and savings services at Nordea bank, was interviewed to gain empirical knowledge on how robo-advisors work in a real business environment. This interview provides insights on the empirical side throughout the thesis. Considering the research question of investigating the advantages and disadvantages of AI application in investment advisory services for both the customer and the service provider, the following findings can be derived. For the customer, robo-advisors offer a better access to investment services, more convenient user experience and more affordable advisory service. However, there are some disadvantages for the customer related to these services, such as lack of personal contact and insufficient assessment of risk tolerance. On the other hand, for the service provider, robo-advisors provide cost-efficiency, enlarged customer base, steady income in terms of management fees, better service quality and easier trackability of transactions and procedures. Nevertheless, service providers also face certain challenges with these services, as the competition is increasing, the service requires high marketing investments and it is hard to predict whether there will be acceptance among customers for the automated services Based on the discussed benefits and challenges a potential customer group for this kind of service can be found and a possibly best fitting model for arranging these services distinguished. The primary target group for these services is millennials who are starting to invest and save. The target group includes cost-conscious, underserved and long-term customers. Regarding the service-model different hybrid models seem to be the best solution, where the simplest services are provided by using automated services, but the more complicated advice is delivered as a personal service seems to have the highest potential in the foreseeable future. When designing robo-advisory based investment advisory services, ethical questions in the advisory process, transparency and ethical investment recommendations must be taken into consideration. Suggestions for further research include user interface design, impacts on customer satisfaction and robo-advisors’ performance in the long run and in volatile market conditions.Description
Thesis advisor
Bragge, JohannaKeywords
artificial intelligence, investment advisory, robo-advisor, ethical investing