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What is a Robo-Advisor? (And are they right for me?)

What is a Robo-Advisor? (And are they right for me?)

| May 30, 2023

Whether using artificial intelligence or human brainpower, the right financial advisor will help find the best investments for your personal portfolio.

AI is grabbing a lot of attention lately, as people are learning the implications of using ordinary, natural language to communicate with a computer. A question that could only be answered by a human with years of experience in a specialized field can now get an answer back in seconds. It seems too good to be true – and in some cases, the fast, convenient process of using an algorithm-guided robo-advisor can actually cost you more than utilizing a traditional, human advisor. But like everything else, there are pros and cons to using a robo-advisor that are worth investigating.  


How does a robo-advisor work?

A robo-advisor is usually a kind of website – a digital platform that offers algorithm-driven financial planning services automatically. A user fills in a survey about spending habits, goals, and general financial situation, then the program uses that data to offer advice and, if you like, will automatically invest for you as well, tweaking your portfolio to keep it balanced as situations change.

However, robo-advisors generally offer fewer services and their fees may vary widely. While some platforms may offer cheaper or similar pricing as a traditional advisor, some tools charge even more than a traditional financial advisor would cost.


How does a traditional financial advisor work?

Personal financial advisors are professionals who can help you manage your finances as well as provide emotional support alongside analytical support with decision making. You might hire them for advice on investments, planning for retirement, wealth management, and more. Usually, you would meet face-to-face and get to know each other as you collaborate to create a personalized financial plan. Having a personal relationship with your advisor gives you a resource to check in with when you have questions, decisions, and concerns. Your advisor can help you to stay disciplined and focused on your financial goals, especially during volatile times when it is easy to get off-track due to emotional responses to the market.

The fees are comparable to most robo-advisors and grant you the increased availability of an advisor who can offer you dedicated attention and active investment management rather than just a ‘set it and forget it’ approach. This level of expertise and care can help with a wide range of services like determining the best time to buy a house, planning for your kids’ college, tax planning, your retirement, or even the disposition of your estate.


How do the two compare?

The algorithmic advice of a robo-advisor may work well for some investors looking to manage a portfolio. But the lack of human touch means the automatic approach is less helpful when it comes to identifying other financial challenges that face you and your family… and recommending opportunities for getting beyond them. They tend to excel at picking and managing investments, but are unable to give sensitive, in-depth advice on estate planning needs or personal budgeting issues. Perhaps significantly, one of the services that robo-advisors can offer is recommending particular traditional advisors for your general situation.

On the other hand, a traditional financial advisor offers a human touch and human expertise, which means you get a flexible approach and detailed attention to your personal needs. This professional can look over assets in all your various accounts to get a broader picture of your financial outlook. Your real estate assets, business assets, family goals, and even intangibles like patents or creative partnerships can all contribute to a total financial picture. A human financial advisor can not only help with managing your investments but also with caring for your complete wealth needs, for now and for years to come. A traditional advisor can also excel at picking and managing investments and many utilize complex models and technology as part of their asset management and fund selection process.

And in the long run, this might pay dividends. A Vanguard report from February 2022 found that investors using human advisors estimated that they were $160,000 closer to reaching their goals – a figure three times higher than reported by those who used robo-advisors.

Whether you’d like to experiment with a robo-advisor or are more interested in the detailed attention of a traditional financial advisor, consult with us and devise the right strategy for your financial situation.