This working paper surveys the decumulation services offered by investment robo-advisors as a case study with which to examine regulatory and market structure issues raised by automated financial advice. We provide a short introduction to decumulation, describing some of the uncertainties involved in identifying optimal decumulation strategies and sketching a few of the ‘rules of thumb’ that financial advisors have developed in this area in the face of this uncertainty. Next we describe behavioral effects that could inhibit consumers from following an optimal decumulation strategy, concluding that, left to their own devices, consumers are likely to make sub-optimal decumulation decisions. Then we describe some potentially useful automated decumulation services that are available on the market and present the results of a survey assessing whether those services are offered by investment robo-advisors. Finally, we discuss market structures that may inhibit financial advisors from implementing optimal decumulation strategies for their clients and explore whether there are regulatory strategies that could encourage financial advisors to provide better decumulation services. Two promising strategies are (1) adopting a record-keeping requirement for robo-advisors that is conceptually similar to the ‘black box’ requirement for commercial airlines, and (2) developing a set of robo-advice ‘do’s and don’ts’ and related input/output tests to confirm that these requirements are met.

Investment advice, financial services, automated decumulation, retirement planning, robo advisers, robo-advisers, roboadvisers, longevity risk management, consumer protection, behavioral effects, regulatory requirements
Personal Finance (jel D14), Consumer Protection (jel D18), Pension Funds; Other Private Financial Institutions (jel G23), Government Policy and Regulation (jel G28), Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets (jel G41), Regulated Industries and Administrative Law (jel K23), Cyber Law (jel K24)
U of Penn, Inst for Law & Econ Research Paper
Erasmus School of Economics

Baker, T, & Dellaert, B.G.C. (2018). Behavioral Finance, Decumulation and the Regulatory Strategy for Robo-Advice. U of Penn, Inst for Law & Econ Research Paper. Retrieved from