Influence of AI-Driven Investment Advisory Services on Portfolio Performance of Retail Investors

Abstract

The study explores the impact of AI-driven investment advisory services on the portfolio performance of retail investors in Pakistan. Traditionally, retail investors faced challenges in accessing high-quality investment advice due to high costs and limited resources. The advent of AI technologies, particularly robo-advisors, has democratized investment management by providing cost-effective, scalable, and automated solutions that optimize portfolio outcomes. To empirically examine this impact, data were collected through a structured questionnaire from a sample of 350 retail investors across Karachi, Lahore, and Islamabad, with purposive sampling ensuring participants had experience with either traditional or AI-based advisory services. The study investigates the effects of AI tools on average returns, risk management, and portfolio diversification, employing descriptive statistics, correlation analysis, and multiple regression to analyze the data. The results suggest that AI tools significantly enhance returns, reduce risk, and improve diversification compared to traditional investment methods. Furthermore, the findings highlight the benefits of AI in automating portfolio rebalancing and risk assessments, enabling investors to make informed decisions without requiring expert knowledge. Despite these advantages, challenges related to trust, algorithm transparency, and system complexity persist. The study recommends further research on the long-term implications of AI for retail investors and its integration with other financial technologies. The findings hold practical significance for retail investors and financial advisors, emphasizing the growing role of AI in enhancing portfolio management and investment decision-making.