Robo Advisors vs. Financial Advisors: Which One Is Right for You?

Robo Advisors automatically manage investments on your behalf, while human advisors take a hands-on approach to your investments and provide holistic financial planning services.

What is a robo-advisor?

Robo advisors have become a popular option in the financial advising landscape with their easy-to-use platforms and cost-effective fees. Rather than having a financial advisor decide which investments to put your money in, a robo-advisor uses algorithms and proven strategies to determine how to allocate your funds. They often have lower account minimums, making them more accessible.

What is a financial advisor?

Like robo-advisors, financial advisors offer investment management services, but they also provide more in-depth financial planning. Traditional financial advisors look at your entire financial picture and customize your investing strategies to your specific goals and needs. They can advise you on other aspects of your finances, including retirement, estate planning, exit planning, taxes, life insurance, budgeting, and more. If you’re planning for a major life event, like buying a house, getting married, or having a child, a financial advisor can offer personalization that robo-advisors cannot. They can also adapt to changing market conditions or personal circumstances with strategies that go beyond the rigid algorithms of robo-advisors.

Differences in services and support chart

Fee structure comparison

It is common for both robo-advisors and financial advisors to charge a percentage of the assets they manage for you.

According to Wall Street Journal, the typical fee for assets under management (AUM) is the equivalent of 1%. Robo advisors typically charge less than this. Often, a robo advisor AUM fees range between 0.25% and 1.00%.  This means if you were to invest $500,000, you would pay $5,000 annually with a traditional advisor and between $1,250 and $5,000 a year investing with a robo-advisor.

Which option is best?

Whether a robo-advisor or a financial advisor is best for you depends on what you’re looking to get out of an advising relationship.

As an individual’s wealth grows, they tend to want more hands-on advising.

When should I consider a human financial advisor?

Robo-advisors and financial advisors can both help you invest successfully. Ultimately, the right choice comes down to your financial complexity, desired level of support, and long-term goals. Here are some services a traditional financial advisor can provide that you might not get with a robo advisor:

• Customize your portfolio with a wider range of strategies, including individual stocks or alternative investments like commodities or real estate.
• Craft a holistic financial plan tailored to your needs and adjust it as your circumstances change.
• Work directly with your CPA or attorney to ensure no part of your plan exists in a vacuum.
• Evaluate your insurance needs and ensure you and your assets are sufficiently protected.
• Provide comprehensive retirement planning that includes understanding your required minimum distributions, creating an income strategy that ensures your savings last throughout your retirement, and planning for your healthcare needs.
• Assist with estate planning and recommend strategies for passing assets to your heirs, such as through a trust or beneficiary designations.
• Help you avoid making emotional decisions with your money during market volatility.
• Strategize your charitable giving to maximize impact and tax benefits.

Making the Right Choice for Your Financial Future

Deciding whether to use a robo-advisor or financial advisor depends on which option fits your situation. If you have complex finances involving various asset types and accounts, high-dollar balances to optimize for tax savings or other specialized needs, you’ll get the most personalized advice by working with a financial advisor.

In addition to portfolio management, many advisors provide comprehensive, holistic financial guidance and ongoing advice. Working one-on-one you’re able to establish a dedicated relationship with a professional who knows your specific circumstances and can help you plan accordingly.

Whichever you choose, the most important decision is to start putting your money to work. Whether you begin with the cost-effective automation of a robo-advisor or the personalized advice of a financial advisor, professional portfolio management can help you stay on track to reach your financial goals.

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