FinTech-Driven Portfolio Optimization: The Role of AI in Smart Investment Advisory Systems

Abstract

FinTech has accelerated change in the investment management industry as it facilitates data-driven and tailored investment products and services. In the environment of widespread application of AI-enabled investment platforms, however, few studies have examined the effects of investor behavioral attributes on investment portfolio optimization and the construction of smart investment advisory services. This study aims to examine the driving factors of portfolio optimization in the FinTech investment environment. The study adopts a quantitative research design, using the publicly available Financial Trends & Behavior Dataset consisting of around 12,000 records. Factors such as individual attributes, investment goals, savings goals, information acquisition behavior, investment monitoring behavior, and expected return preferences are considered. Descriptive analysis and multiple regression analysis are used to test the relationship between investor behavior and portfolio diversification. It was found that behavioral characteristics of investors can be a significant driver in investment portfolio optimization. The regression model performed reasonably well with R of 0.683 and adjusted R2 of 0.677, revealing that about 68.3% of variance in portfolio diversification is accounted for by variables that were chosen. The results confirmed that investors' expected return preferences were the most potent contributor (β = 0.354) to portfolio diversification, followed by investment monitoring behavior (β = 0.312), investment goals (β = 0.271), savings goals (β = 0.236), sources of information (β = 0.198), and demographic data (β = 0.142). In general, the whole model is statistically significant (F = 186.54, p < 0.001). The study shows that investor behaviors, rather than demographics, play a dominant role in portfolio diversification. Based on this finding, it is concluded that behavioral analytics should be integrated into AI-enabled smart investment advisory services to provide more accurate investment recommendations, improve investors' engagement, and generate optimal wealth management outcomes. Managerial implications for FinTech firms to develop smart investment advisory services are discussed.