The average wiliness of a borrower to pay for robo-advice is higher than the monetary benefits they receive from the advice given, according to a new study from the Financial Conduct Authority (FCA).
Demand for robo-advice was also inversely related to financial and numerical literacy.
Those with higher confidence in their financial and numerical skills were also less likely to trust robo-advice, as were those with a low trust in algorithms.
FCA Economists worked alongside Georgetown University and Boston College to examine if robo-advice can improve borrower repayment decisions.
The study of 3,500 UK participants were given nine hypothetical debt repayment scenarios involving between two and four debts including mortgages, personal loans and credit cards. The control group were asked to make repayment decisions without access to robo-advice, other groups were offered free robo-advice, free robo-advice with debt management tips, paid-for robo-advice, or paid-for robo-advice with debt management tips.
Subjects given free robo-advice improved their repayment decisions significantly relative to the control group.
Among those who accepted help from the robo-advice tool, aggerate savings foregone declined from 21.9% to 2.4%.
Roughly 25% of cases declined free robo-advice.
One reason why consumers were reluctant to take advice of robo-advice, even when told it will clearly make them better off, was a distrust of algorithms and concerns around data privacy.
Most participants in the FCA study were not willing to pay more to receive education that explained what the robo-advisor was doing alongside robo-advice itself.
The study detected no learning by imitation or from the educational tips bundled with robo-advice, suggesting that robo-advice needs to be repeated each time borrowers and savers make choices.
However, the FCA said that low cost means that repeated interventions may well be feasible and that debt management may be a “particularly promising” domain for robo-advice.
