IDEAS home Printed from https://ideas.repec.org/a/kap/jbuset/v198y2025i1d10.1007_s10551-024-05753-5.html
   My bibliography  Save this article

Scoring the Ethics of AI Robo-Advice: Why We Need Gateways and Ratings

Author

Listed:
  • Paul Kofman

    (The University of Melbourne)

Abstract

Unlike the many services already transformed by artificial intelligence (AI), the financial advice sector remains committed to a human interface. That is surprising as an AI-powered financial advisor (a robo-advisor) can offer personalised financial advice at much lower cost than traditional human advice. This is particularly important for those who need but cannot afford or access traditional financial advice. Robo-advice is easily accessible, available on-demand, and pools all relevant information in finding and implementing an optimal financial plan. In a perfectly competitive market for financial advice, robo-advice should prevail. Unfortunately, this market is imperfect with asymmetric information causing generalised advice aversion with a disproportionate lack of trust in robo-advice. Initial distrust makes advice clients reluctant to use, or switch to, robo-advice. This paper investigates the ethical concerns specific to robo-advice underpinning this lack of trust. We propose a regulatory framework addressing these concerns to ensure robo-advice can be an ethical resource for good, resolving the increasing complexity of financial decision-making. Fit for purpose regulation augments initial trust in robo-advice and supports advice clients in discriminating between high-trust and low-trust robo-advisors. Aspiring robo-advisors need to clear four licensing gateways to qualify for an AI Robo-Advice License (AIRAL). Licensed robo-advisors should then be monitored for ethical compliance. Using a balanced score card for ethical performance generates an ethics rating. This gateways-and-ratings methodology builds trust in the robo-advisory market through improved transparency, reduced information asymmetry, and lower risk of adverse selection.

Suggested Citation

  • Paul Kofman, 2025. "Scoring the Ethics of AI Robo-Advice: Why We Need Gateways and Ratings," Journal of Business Ethics, Springer, vol. 198(1), pages 21-33, April.
    • Handle: RePEc:kap:jbuset:v:198:y:2025:i:1:d:10.1007_s10551-024-05753-5
    DOI: 10.1007/s10551-024-05753-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10551-024-05753-5
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10551-024-05753-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Keren Naa Abeka Arthur & Richard Owen, 2019. "A Micro-ethnographic Study of Big Data-Based Innovation in the Financial Services Sector: Governance, Ethics and Organisational Practices," Journal of Business Ethics, Springer, vol. 160(2), pages 363-375, December.
    2. Francesco D’Acunto & Nagpurnanand Prabhala & Alberto G Rossi, 2019. "The Promises and Pitfalls of Robo-Advising," The Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1983-2020.
    3. Nourallah, Mustafa, 2023. "One size does not fit all: Young retail investors’ initial trust in financial robo-advisors," Journal of Business Research, Elsevier, vol. 156(C).
    4. Marilyn Giroux & Jungkeun Kim & Jacob C. Lee & Jongwon Park, 2022. "Artificial Intelligence and Declined Guilt: Retailing Morality Comparison Between Human and AI," Journal of Business Ethics, Springer, vol. 178(4), pages 1027-1041, July.
    5. Kirsten Martin & Ari Waldman, 2023. "Are Algorithmic Decisions Legitimate? The Effect of Process and Outcomes on Perceptions of Legitimacy of AI Decisions," Journal of Business Ethics, Springer, vol. 183(3), pages 653-670, March.
    6. Michael Haenlein & Ming-Hui Huang & Andreas Kaplan, 2022. "Guest Editorial: Business Ethics in the Era of Artificial Intelligence," Journal of Business Ethics, Springer, vol. 178(4), pages 867-869, July.
    7. van der Cruijsen, Carin & de Haan, Jakob & Jonker, Nicole, 2022. "Has the COVID-19 pandemic affected public trust? Evidence for the US and the Netherlands," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1010-1024.
    8. Limbach, Peter & Rau, P. Raghavendra & Schürmann, Henrik, 2023. "The decline of trust across the U.S. finance industry," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 324-344.
    9. Florian Pethig & Julia Kroenung, 2023. "Biased Humans, (Un)Biased Algorithms?," Journal of Business Ethics, Springer, vol. 183(3), pages 637-652, March.
    10. Michel W. Lander & Linda Kooning, 2013. "Boarding the Aircraft: Trust Development Amongst Negotiators of a Complex Merger," Journal of Management Studies, Wiley Blackwell, vol. 50(1), pages 1-30, January.
    11. Sendhil Mullainathan & Markus Noeth & Antoinette Schoar, 2012. "The Market for Financial Advice: An Audit Study," NBER Working Papers 17929, National Bureau of Economic Research, Inc.
    12. Zsófia Tóth & Robert Caruana & Thorsten Gruber & Claudia Loebbecke, 2022. "The Dawn of the AI Robots: Towards a New Framework of AI Robot Accountability," Journal of Business Ethics, Springer, vol. 178(4), pages 895-916, July.
    13. Ivy Munoko & Helen L. Brown-Liburd & Miklos Vasarhelyi, 2020. "The Ethical Implications of Using Artificial Intelligence in Auditing," Journal of Business Ethics, Springer, vol. 167(2), pages 209-234, November.
    14. Jake B. Telkamp & Marc H. Anderson, 2022. "The Implications of Diverse Human Moral Foundations for Assessing the Ethicality of Artificial Intelligence," Journal of Business Ethics, Springer, vol. 178(4), pages 961-976, July.
    15. Hanisch, Marvin & Goldsby, Curtis M. & Fabian, Nicolai E. & Oehmichen, Jana, 2023. "Digital governance: A conceptual framework and research agenda," Journal of Business Research, Elsevier, vol. 162(C).
    16. Mark Egan & Gregor Matvos & Amit Seru, 2019. "The Market for Financial Adviser Misconduct," Journal of Political Economy, University of Chicago Press, vol. 127(1), pages 233-295.
    17. Kirsten Martin, 2019. "Ethical Implications and Accountability of Algorithms," Journal of Business Ethics, Springer, vol. 160(4), pages 835-850, December.
    18. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    19. Yuanyuan Zhou & Zhuoying Fei & Yuanqiong He & Zhilin Yang, 2022. "How Human–Chatbot Interaction Impairs Charitable Giving: The Role of Moral Judgment," Journal of Business Ethics, Springer, vol. 178(3), pages 849-865, July.
    20. Elena Ivona DUMITRESCU & Sullivan HUE & Christophe HURLIN & Sessi TOKPAVI, 2020. "Machine Learning or Econometrics for Credit Scoring: Let’s Get the Best of Both Worlds," LEO Working Papers / DR LEO 2839, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    21. Michel Lander & Linda Kooning, 2013. "Boarding the Aircraft: Trust Development Amongst Negotiators of a Complex Merger," Post-Print hal-00772063, HAL.
    22. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(3), pages 355-374.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. deHaan, Ed & Li, Jiacui & Watts, Edward M., 2023. "Retail bond investors and credit ratings," Journal of Accounting and Economics, Elsevier, vol. 76(1).
    2. Maria Figueroa-Armijos & Brent B. Clark & Serge P. da Motta Veiga, 2023. "Ethical Perceptions of AI in Hiring and Organizational Trust: The Role of Performance Expectancy and Social Influence," Journal of Business Ethics, Springer, vol. 186(1), pages 179-197, August.
    3. Anton Klarin & Hossein Ali Abadi & Rifat Sharmelly, 2024. "Professionalism in artificial intelligence: The link between technology and ethics," Systems Research and Behavioral Science, Wiley Blackwell, vol. 41(4), pages 557-580, July.
    4. Serge P. da Motta Veiga & Maria Figueroa-Armijos & Brent B. Clark, 2023. "Seeming Ethical Makes You Attractive: Unraveling How Ethical Perceptions of AI in Hiring Impacts Organizational Innovativeness and Attractiveness," Journal of Business Ethics, Springer, vol. 186(1), pages 199-216, August.
    5. Michael Haenlein & Ming-Hui Huang & Andreas Kaplan, 2022. "Guest Editorial: Business Ethics in the Era of Artificial Intelligence," Journal of Business Ethics, Springer, vol. 178(4), pages 867-869, July.
    6. Narcyz Roztocki & Heinz Roland Weistroffer, 2015. "Investments in enterprise integration technology: An event study," Information Systems Frontiers, Springer, vol. 17(3), pages 659-672, June.
    7. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    8. Scherer, Bernd & Lehner, Sebastian, 2025. "What drives robo-advice?," Journal of Empirical Finance, Elsevier, vol. 80(C).
    9. Felix Holzmeister & Martin Holmén & Michael Kirchler & Matthias Stefan & Erik Wengström, 2023. "Delegation Decisions in Finance," Management Science, INFORMS, vol. 69(8), pages 4828-4844, August.
    10. Felix Gottschalk, 2021. "Regulating Markets with Advice: An Experimental Study," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(1), pages 1-31, February.
    11. Diana W.P. Kwok, 2018. "Boundary spanning and subordinate—leader trust: A tale of two acquisitions in a multicultural emerging economy," Post-Print hal-01744451, HAL.
    12. Jannik Gerwanski, 2020. "Does it pay off? Integrated reporting and cost of debt: European evidence," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(5), pages 2299-2319, September.
    13. Carole Couper & A. Rebecca Reuber & Shameen Prashantham, 2020. "Lost that lovin’ feeling: The erosion of trust between small, high-distance partners," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(3), pages 326-352, April.
    14. Bo Becker & Victoria Ivashina, 2023. "Disruption and Credit Markets," Journal of Finance, American Finance Association, vol. 78(1), pages 105-139, February.
    15. Weitzel, Utz & Kirchler, Michael, 2023. "The Banker’s oath and financial advice," Journal of Banking & Finance, Elsevier, vol. 148(C).
    16. Nilsson, Magnus & Mattes, Jannika, 2015. "The spatiality of trust: Factors influencing the creation of trust and the role of face-to-face contacts," European Management Journal, Elsevier, vol. 33(4), pages 230-244.
    17. Chenfeng Yan & Quan Chen & Xinyue Zhou & Xin Dai & Zhilin Yang, 2024. "When the Automated fire Backfires: The Adoption of Algorithm-based HR Decision-making Could Induce Consumer’s Unfavorable Ethicality Inferences of the Company," Journal of Business Ethics, Springer, vol. 190(4), pages 841-859, April.
    18. Gurun, Umit G. & Stoffman, Noah & Yonker, Scott E., 2021. "Unlocking clients: The importance of relationships in the financial advisory industry," Journal of Financial Economics, Elsevier, vol. 141(3), pages 1218-1243.
    19. Jun Xia & David D. Dawley & Han Jiang & Rong Ma & Kimberly B. Boal, 2016. "Resolving a dilemma of signaling bankrupt-firm emergence: A dynamic integrative view," Strategic Management Journal, Wiley Blackwell, vol. 37(8), pages 1754-1764, August.
    20. repec:osf:osfxxx:3umdf_v1 is not listed on IDEAS
    21. Vivek Bhattacharya & Gastón Illanes & Manisha Padi, 2019. "Fiduciary Duty and the Market for Financial Advice," NBER Working Papers 25861, National Bureau of Economic Research, Inc.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jbuset:v:198:y:2025:i:1:d:10.1007_s10551-024-05753-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.