Robo-advisor vs. financial advisor: Which is best?

Automated advisers are a key player in financial portfolios — but are machines better than people?

Robo-advisors choose investment opportunities based on computer algorithms programmed with your portfolio preferences and financial goals. They can manage basic portfolios at a lower cost than human financial advisers — and may pick up on investment trends faster, thanks to specialized technology that works for you.

If you want individual, personalized advice, though — and even a little hand-holding — consider a human advisor. But expect to pay more for the privilege.

What is a robo-advisor?

A robo-advisor is an algorithm-driven digital service designed to create and manage your investment portfolio on your behalf. A robo-advisor asks you a bunch of questions when you sign up to determine your investment goals and risk tolerance. Using your responses, it drafts a portfolio and manages it on your behalf, moving investments in and out of your portfolio to keep it balanced and in line with your goals.

Although “robo-advisors” sounds like something out of The Terminator, there’s nothing cheesy about these technology-based financial players. In fact, assets under management by robo-advisors worldwide was projected to hit $8.1 trillion in 2020, reports Statista.

What does a financial advisor do?

Financial advisors are people who provide professional financial services. They may work independently or as a part of a larger financial organization, like a bank or investment brokerage. The title can apply to many financial professionals, including Certified Financial Planners, registered investment advisors, wealth managers and more.

Generally speaking, a financial advisor can help you:

  • Plan for retirement.
  • Create a budget.
  • Pay down debt.
  • Create an investment portfolio.
  • Save for a child’s college education.

Before engaging with a financial advisor, ask about their credentials and professional experience. Certified Financial Planners and registered investment advisors must fulfill educational requirements and register with state and federal regulatory authorities to hold their designated titles.

Which should I choose?

Robo-advisors work well for basic portfolios that aren’t overly complex. They are also helpful if you’re on a budget, typically offering lower fees than human advising services.

But if you have a sizable investment, complex investment goals or simply prefer to do business face to face, a human advisor might be a better fit. Financial advisors are more flexible and adaptive than robo-advisors, and they can help you with various financial goals. So if your long-term financial goals extend beyond a diversified portfolio, consider a human advisor. Your portfolio’s size should also factor into this decision: If you’ve got assets of six figures or more, a human may be your better bet.

That said, there are situations in which using both a robo- and human advisor may be advantageous. As your portfolio grows, so will your goals. Hedging your bets and splitting your investments between an algorithm-driven service and a human advisor could help diversify your interests.

How do robo-advisors work?

When you sign up for an account with a robo-advisor, you’ll need to fill out a financial questionnaire to help “program” the software with your investment preferences.

Your preferences can include:

  • Your personal risk tolerance. You specify whether you’re looking for high-risk investments, lower-risk opportunities or something in-between.
  • Your age and investment timeline. If you’re a 22-year-old college student, you’ll have different financial needs than, say, a 60-year-old who’s ready to retire.
  • Your retirement goals. Aiming to be a millionaire by retirement? Your robo-advisor needs to plan how to get you there.
  • Your current portfolio information. Folding in your current investments results in a fully informed adviser — and decisions that successfully dovetail with your goals.

What are the benefits of a robo-advisor?

Many people value the ease of a robo-advisor’s automation when it comes to managing and growing their investments, among other benefits that include:

  • Minimal human error. Leaving a “robot” to manage your money might feel strange. But fewer human errors is an inarguable upside to using a robo-advisor. Forget panic selling or impulse buys — robo-advisors don’t have messy human emotions to interfere with long-term financial growth.
  • Lower fees. The cost of an automated adviser is typically less than what you’d pay for a human one.
  • No awkwardness. If you’ve ever been in the uncomfortable situation of not getting along with your financial adviser, you’ll appreciate this benefit. Turns out, robots don’t mind being fired when it’s not a suitable match.

What are the drawbacks of a robo-advisor?

Robo-advisors have their perks, but there are a number of potential drawbacks to consider. For example:

  • Automated advisers can’t get to know you. Even the most sophisticated computer algorithm is still an algorithm. It can’t sit down with you, it can’t explain things to you and it certainly can’t listen to your dreams about the future.
  • Robo-advisors can’t handle complex portfolios. These advisers aren’t best for large, complicated portfolios. The rule of thumb is that assets of six figures or more need the human touch.
  • Questions may cost you. If you work with a human adviser, it often doesn’t cost you more to actually talk to them. Unless you subscribe to hybrid human–robo management, you might have to pay to speak with a real person.
  • You might find it difficult to lose control. You’re always in control of your finances technically, but you might not be ready to hand over the reins of your portfolio to a robot. If you prefer a more hands-on approach to digital guidance, a robo-advisor might not be a great fit.
  • You can’t auto-manage employer retirement plans. This software can’t do much with retirement plans like 401(k)s, so putting any money in a robo-advisor for a plan like that won’t do you much good.

Who offers lower fees?

Fees for using a robo-advisor or human adviser vary based on the company you go with — and even vary among human advisers.

Top-level private advisers, for example, tend to charge a lot more than beginning or standard firm advisers. Some companies charge fees that reflect a percentage of your assets, while others may impose an annual or initial investment fee.

Still, robo-advisors are typically more affordable than human advisers. Here’s what you’ll pay for automated advisers through big-name providers.

Options or portfoliosMinimum investmentAnnual percentage or fee
VanguardIncludes a personal human adviser for the best of both worlds$50,0000.30%
SchwabInvestor ratio$5,000$0
BettermentAdd-on human adviser option$00.25%
WealthfrontAdvanced Indexing for accounts of $500,000+$5000.25%
Assets management human adviserHuman management$01.25% to 1.75%
Fee-only human adviserHuman managementVaries$1,000 to $5,000

Compare robo-advisors

Consider your options by comparing minimum deposit, annual fees or asset types. Choose the Go to site button for more information about a particular service.

Name Product Available asset types Annual fee
Bonds, ETFs
Easy to use diversified portfolios designed and managed by experts.
M1 Finance
Invest in your favorite stocks or in curated portfolios with automatic rebalancing.
Xantos Labs
Xantos Labs
Xantos Labs offers fully-managed investment portfolios for a hands-off approach to wealth building.
Stash Invest
Stocks, ETFs
$1 per month
Stash is more than an investment app. You’ll have access to tools that can help you become a confident investor.
$1 per month
Invest your spare change. Anyone can grow wealth.
SoFi Automated
$0 per month
Put your money to work. Let SoFi build and manage a portfolio for you. Pay zero SoFi management fees.

Compare up to 4 providers

Bottom line

To manage a basic financial portfolio, a robo-advisor can offer automated management and lower fees. These automated advisers also remove the human elements of error and fear that might hurt long-term financial growth and gain.

However, human management of financial portfolios might be what makes for individualized and customized options. Only a human can get to know you, listen to your gut feelings on investment and understand your dreams for a tropical retirement.

Many popular robo-advisor platforms offer consumers the option to combine both a robo and human adviser for the best of both worlds. You can also hire a financial advisor for a limited period or a specific plan, while relying on a bot long term. In the end, choosing one over the other depends on your personal preferences, goals and assets.

If you’re a college grad simply looking for basic portfolio management with fees that won’t eat away your profits, look into a robo-advisor while you get your feet wet. But if you’re staring down retirement and a six-figure investment, the human touch may get you the most bang for your buck.

Frequently asked questions

How much will I pay to use a robo-advisor?

Fees depend on the company or provider. For example, some companies charge a management fee — usually a percentage of your assets — as well as annual fees for mutual, index and exchange-traded funds.

What kind of accounts can a robo-advisor manage?

An automated adviser can manage simple financial accounts that include:

  • 401(k)s, IRAs and other accounts
  • Nonretirement accounts
  • Index funds
  • Mutual funds
  • Exchange-traded funds

How can I “fire” my robo-advisor?

Overall, saying goodbye to a robo-advisor is no different — and possibly less awkward — than firing a human financial adviser.

When you’re ready to part ways with your robot, talk to a representative with your provider to manage your affairs. You might want to upgrade your account to a hybrid human-robo management system, switch to a solely person-managed account or transfer to another company.

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