Digital innovation in wealth management landscape: the moderating role of robo advisors in behavioural biases and investment decision-making

Abstract

PurposeInnovation is the way of life and we see various innovative techniques and methods being introduced in our daily life. This study aims to focus on digital innovation in the wealth management domain. This study examines the effect of usage of robo-advisory services in investment decision-making and behavioural biases, i.e. overconfidence and loss aversion. Such studies are more pronounced in developed countries and little has been studied about investor behaviour in association with advisory services in developing countries such as India.Design/methodology/approachOverconfidence and loss-aversion biases, investment decision-making and advisory services questions are measured using a five-point Likert scale. The number of respondents was 172 investors. A purposive sampling is used for gathering responses from investors. Structural equation modeling model was run using AMOS 22 version software package.FindingsThe authors found that behavioural biases positively and significantly influence the irrationalities of investment decision-making. The findings of this study also provide empirical evidence that the usage of robo-advisory services, by individual investors, is still incapable of mitigating behavioural biases, such as overconfidence bias and loss-aversion bias.Research limitations/implicationsThe sample size of this study could be a limiting factor. This study is limited only to two biases, while other behavioural biases affect the investment decision-making of the investors, which can be considered for future research along with the impact of robo-advisory services in different socio-cultural backgrounds.Practical implicationsThis study will assist fintech start-ups, banks, architecture of robo advisors, product owners and wealth management service providers improvise their products, platforms and offerings of these automated advisory services. This could help individual investors to mitigate their behavioural biases in investment decision-making.Social implicationsThis study is useful to society as the awareness of robo-advisory services is very less, at present, and there is a need to increase the usage of these services to extend the benefit of this to the lower stratum of society. These services would be useful to all investors who find it difficult to afford financial advisors and help them mitigate their behavioural biases for investment decision-making.Originality/valueThis study is the first of its type that establishes the linkage between behavioural biases, digital innovation in fintech, i.e. robo-advisory services and individual investor’s investment decision-making in individual investor of the Indian stock market.