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0 comments / 10/05/2019 / the JOIM / Archives, Articles

Automated Financial Management: Diversification and Account Size Flexibility

Volume 17, No. 2, 2019
Michael Reher and Celine Sun

We study the value added of automated financial management (AFM) services along two dimensions: diversification and account size exibility. First, using a company-specific experiment with matched AFM and traditional portfolios, we find that AFM portfolios are significantly better diversified. Underdiversified investors are more likely to set up an AFM account, with a 1 standard deviation increase in underdiversification raising the probability of doing so 3 percentage points. Next, we study account size flexibility using an exogenous reduction in minimum account size. The reduction led to a net increase in total deposit inflows and disproportionately raised new account formation by less-wealthy investors.

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