How do robo-advisors fulfill their practical and legal duties to retail investors

Abstract

Pushed by various economic, regulatory and technological developments, robo-advisors are meanwhile considered one of the most important disruptive trends in the asset and wealth management industry. To evaluate the potential of robo-advisors to provide a new perspective to retail investors on the capital markets in the European Union, a systematic literature review was carried out on a practical and regulatory level with respect to selected criteria. Semi-structured interviews with experts from different fields allowed to get more in-depth and comparative information to be included in the research design. Results indicate that there is first and foremost a lack of consensus on the term "robo-advisory" on behalf of finance, as well as legal experts. Nevertheless, on a practical level, robo-advisors have the potential to attract retail investors back into capital markets, above all thanks to their simple and low-cost fee structure. On a regulatory level, robo-advisors in the European Union are embedded in a resilient framework - with MiFID II as its corner stone - which, however, needs clarification or guidance in certain regards, for example by ESMA, to ensure that risks for retail clients are mitigated.