Question: Robo-Advice for Millennials

Your investment firm has been working hard to develop a robo-adviser service that uses computer algorithms to provide financial planning for its millennial clients. There is widespread consensus across the investment community that millennials raised in an environment of video games and social networks are looking for just this kind of investment robo-advice service. You are a member of a field test unit for the robo-advice service. Your team of 12 people has trained some 250 people (in the 25 to 35 target age range) in the basics of investing and how to take best advantage of the robo-advice service. The trial results have been discouraging. Many of the trial clients ignored the robo-advice completely and simply turned into hyperactive traders, executing multiple trades per week. Alarmingly, even those who followed the robo-advice did not fare well, losing an average of 5 percent on their investments even though the market (as measured by the S&P 500) increased nearly 4 percent during the six-month trial period.

Review Questions

1. What other fields besides investing might benefit from the use of a roboadvice system?

2. What sort of legal, ethical, and social issues are raised when creating a roboadvice type of system? Do the builders of such a robo-advice system owe a special duty or responsibility to its users?

Critical Thinking Questions

The members of the field trial team are gathered to discuss their findings and develop conclusions in advance of a meeting next week with the firm's senior management team. Just 10 minutes into the meeting, it is clear that none of the field trial team members feels confident that the new service is offering sound advice. However, some members of the trial team argue that the roll-out of the service should commence as planned; they maintain that problems can be identified and fixed as more users come on board and the firm gains more experience working with investors and the robo-advice system. Their rationale is based at least in part on self-survival-to recommend against roll-out is probably a career-ending move, as the firm has already invested so much in the program, which it has already begun promoting to customers. Others members of the team argue that the product is simply not ready for large-scale use. They argue that the current system should be scrapped and the firm should forget about the idea of a robo-advice service.

1. Are there other alternative strategies for the robo-advice service that make sense? Which approach would you recommend and why?

2. How might you present your approach to senior management in such a way that it has a good chance of being accepted-and that the risk to your future employment is minimized?