Competition in the Financial Advisory Market: Robo versus Traditional Advisors

We propose first a static and then a dynamic infinite-horizon model of the financial advisory market and show how to compute equilibrium solutions. Unregulated, market features are likely to result in high levels of concentration and a small number of dominant firms, with the speed of convergence towards dominance increased by the reinforcing interactions between firm size and profitability. Our goal is to provide regulators and market participants with a framework and tool kit that offers insights into how firm behavior in the financial advisory market may evolve as new digital technologies emerge and new entrants disrupt the market.