Investigating The Role of Trust and Behavioral Barriers in Shaping Investor’s Decision to Delegate Portfolio Management to AI-Driven Robo-Advisors

Abstract

AI-based Robo-advisors have emerged at a striking pace across the Indian financial landscape, with disciplined, low-cost investment management options increasingly becoming accessible to a diverse retail investor market. Yet the decision to relinquish portfolio management to these algorithms is one substantial psychological hurdle that many still face. This paper aims to assess the role of trust dimensions and behavioral obstacles in adopting Robo-advisory services among Indian investors. Using secondary data from market research reports, academic papers, and fintech analyses, this paper outlines an important distinction in how trust dimensions impact adoption among the Indian investor population. Many factors become significant – three trust dimensions of algorithmic performance assessment, privacy reassurance and communication dissimilarity stand out, as well as three behavioral biases of algorithm aversion, loss aversion, and socio-emotional attachment. In this instance, algorithmic aversion refers to a distaste for Robo-advisor services despite evidence supporting the potential advantages of algorithmic performance over human-driven performance. Additionally, loss aversion means the risks of making financial sacrifices to an algorithm are more tangible than making sacrifices to a human endeavor. Finally, socio-emotional attachment refers to India’s reliance on interpersonal investment services and the challenge of overcoming such in-built historical behavior. Ultimately, this paper argues that potential Robo-advisory providers must adopt strategies that build trust to reach the average Indian investor beyond efficiency concerns. They must be demystified, privacy policies made more robust, and a hybrid approach that combines all benefits with easy-to-access human support might be best for a cultural image. Ultimately, this paper sets the foundation for understanding new markets regarding adoption and provides valuable insights for fintech startups and stakeholders seeking meaningful implementation to bridge the trust gap.