To Advise, or Not to Advise — How Robo-Advisors Evaluate the Risk Preferences of Private Investors

Robo-advisors promise efficient, rational, and transparent investment advisory. We analyze how robo-advisors determine their users' risk tolerance and which equity exposure is derived from the individual risk profile. Our findings indicate significant differences in the quality of offered investment advice. Robo-advisors usually ask relatively few questions in the assessment of their users' risk profile, and it is particularly surprising that some of the questions do not seem to have any impact on the risk categorization. Moreover, the recommended equity exposure is relatively conservative