Robo advisory and its potential in addressing the behavioral biases of investors — A qualitative study in Indian context

Abstract

Technological developments have given shape to robotic services which have forayed in the finance and investment industry in the form of Robo-advisors. Robo-advisors are in use in the developed nations since over a decade but have recently entered the developing nations, like India, since early 2015. This research explores the present state of Robo-advisory services in the Indian context and investigates how Robo-advisors can help in mitigating behavioral biases of a retail investor.The present study gives an in-depth understanding about the ability of Robo-advisory to mitigate behavioral biases from the perspective of experts. These experts are from the product development team, quality control team, middleware, or at top management level from BFSI (Banking and Financial Services Industry), IT (Information Technology), FINTECH (Finance Technology) and NBFCs (Non-Banking Finance Companies) in India. The researchers have adopted a qualitative approach, of interviewing these experts, to discover the phenomenon and gain insight about Robo-advisory services. Each interview was recorded and transcribed on word-for-word basis. The transcribed content underwent a structured content analysis, using different categories, resulting from the conducted literature review. The intent is not to generalize the findings, since the field of Robo-advisory is at a nascent stage as far as Indian market is concerned.The key findings indicate that the current focus is to increase awareness level amongst investors, by educating them and by building trust. Our conclusion emphasizes the fact that Robo-advisors still need to mitigate investor’s biases while performing risk analysis and profiling the investors. Robo-advisory platforms are not yet comprehensively self-sufficient to accurately perform risk analysis for retail investors.