Robo advisors vs financial advisors

Robo advisor vs. financial advisor: What’s the difference?

The main difference between robo-advisors and financial advisors is that the first is a fully automated computer algorithm that trades and balances your portfolio on your behalf, while the latter is a person who helps you organize your finances from investments to retirement and children’s education plans.

Robo-advisors cost less than financial advisors, mostly because they’re automated and can perform only one task: to automate investment strategies. All you have to do is set up specific parameters, such as your financial goals and risk, and the algorithm will allocate your funds accordingly.

Financial advisors, on the other hand, can provide tailored financial plans for your situation. On top of investment advice, they can provide services such as debt management, budgeting, tax management and estate planning.

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Benefits and drawbacks of robo-advisors

Benefits and drawbacks of financial advisors

Robo-advisor vs. financial advisor: fees

Fees for using a robo-advisor or human advisor vary based on the company you go with — and even vary among human advisors.
Top-level private advisors, for example, tend to charge a lot more than beginning or standard firm advisors. 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 advisors. Here’s what you’ll pay for automated advisors through big-name providers.

	Options or portfolios	Minimum investment	Annual percentage or fee
Vanguard	Includes a personal human advisor for the best of both worlds	$50,000	0.30%
Charles Schwab	Investor ratio	$0	0%
Betterment	Add-on human advisor option	$10	0.25%
Wealthfront	Advanced Indexing for accounts of $500,000+	$500	0.25%
Assets management human advisor	Human management	$0	1.25% to 1.75%
Fee-only human advisor	Human management	Varies	$1,000 to $5,000

Robo-advisor vs. financial advisor: Which one 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.

Compare robo-advisors

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Bottom line

• Robo-advisors are automated computer algorithms that allocate your funds and constantly rebalance your portfolio.
• Financial advisors are humans who help you with your finances from investments to retirement and children’s education plans.
• Robo-advisors are typically better suited for smaller portfolios and cost less to operate.
• Financial advisors are typically better for larger portfolios and for complex financial planning.

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 advisor can manage simple financial accounts that include:

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

• Are financial advisors better than robo-advisors?

  If you have a six-figure portfolio or if you need a more complex financial plan for your retirement, children's education or even tax and debt management, financial advisors are the better choice.