Robo-Advisors vs. Financial Advisors: Which option is the best for you?
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Artificial Intelligence or AI has taken the world by a storm. Going by the recent trends in technology and human acceptance and dependence on it, the time when robots completely and automatically devise financial plans is not too far away. British physicist, Stephen Hawking, once said, “The development of full artificial intelligence could spell the end of the human race. It would take off on its own, and re-design itself at an ever increasing rate. Humans, who are limited by slow biological evolution, couldn’t compete, and would be superseded.”
Let’s see if robo-advisors can indeed take over financial advisors and if they are the best option for you.
Table of Contents
Advantages of Robo-Advisors
1. Easy and convenient
Unlike financial advisors, Robo- advisors don’t require you to make appointments and schedule meetings. They are similar to an online course that you can take while sitting at home.
2. Low investment
Robo-advisors allow you to invest with as little as $ 10. In fact, there are many websites like Betterment and Acorns that encourage their clients to invest small amounts of money.
3. Budget-friendly
Robo-advisors offer affordable monthly packages. Most websites offer free trial periods. Paid packages start from $8 – $10 a month.
4. Time management
Robo-advisors let you learn and grasp information at your own pace. You have ample time to think and decide your investment strategies.
Disadvantages of Robo- Advisors
1. No personal touch
Robo-advisors lack compassion. They are not designed to consider your personal situations or financial crisis.
2. A false illusion
They can create a false sense of security that may result in some procrastination and ignorance from your side. Robo-advisors present an easy and convenient picture, but they do require regular attention from you.
3. Increased mistakes
While a financial advisor can warn or stop you from making investment mistakes, robo-advisors may not be able to catch your errors or offer you guidance.
Advantages of Financial Advisors
1. Continuity
Just like a family doctor or lawyer, you can appoint a financial advisor who is well acquainted with your financial history, family situation, future goals, etc. Such an advisor can devise and keep updating your financial plan over the years, as per changes in your personal and professional life.
2. Personalization
A financial advisor can gauge your temperament and personality and offer suitable investment propositions. If you are someone who’s willing to take a risk, your advisor can suggest investing in the stock market. However, if you like to play it safe, they would recommend a retirement account or mutual funds.
3. Constant improvement
A financial advisor can regularly update and advise you to modify your portfolio as per the recent federal and state rules, and the condition of the market. As professionals they are always on the top of their game and can help you implement these changes, keeping in mind your preferences.
Disadvantages of Financial Advisors
1. Expensive
Having a personal financial advisor is not as cost-friendly as a robo-advisor. Financial advisors can charge hefty fees for their guidance. It is also important to appoint an advisor who you can trust. Some advisors also charge extra for investments that seem more complex.
2. Differing opinions
You and your advisor may not always have the same opinion on matters. They may persistently advise you to go a certain way even if you don’t agree with them.
3. Inconvenient
Unlike a robo-advisor, you cannot simply open your laptop anywhere and anytime you want. You need to align your time with a financial advisor and make sure to book prior appointments.
Both these advisors have their pros and cons. But you don’t always have to stick to just one. Here’s when you can use each of them:
Robo-advisors: when to use
- If you want to save up on costs, then you should consider a robo-advisor. Investment advisors can charge up to 3 % of the total value of your portfolio, whereas, most robo-advisors charge only 1 % of the total value or a total fee of less than 1 % yearly.
- If you don’t want the nuisance of regular meetings and constant communications, you can go in for a robo-advisor. This is ideal for small investments that come with little risks. You can save up on time and energy and at the same time, invest your money.
- Many financial advisors have minimum balance requirements, for example, a portfolio of $ 1,00,000, before they agree to work with you. If you don’t have such a portfolio, but still wish to invest, you can opt for a robo-advisor. Most robo-advisors start with a portfolio of $ 5,000.
Financial Advisor: when to use
- If you are looking for human contact and don’t feel comfortable handing over all your investments to a website, you should opt for a financial advisor.
- If you are trying out a new investment vehicle and feel the need to ask questions and clear your doubts from an expert.
- Robo-advisors usually ask you to fill a questionnaire based on which they offer investment guidance. A questionnaire may not completely align with your thoughts and preferences. If you want customized attention, you should consult a financial advisor.
- If you have a significant portfolio of $ 2,00,000 or more, it is better to consult a financial advisor instead of a robo-advisor.
- A robo- advisor is not the best option if a major chunk of your money is invested in an employee retirement account. Such accounts are managed by an investment trustee and are not included in your robo-advisor portfolio.
To sum it up
Robo-advisors are undoubtedly fascinating and brilliant, but they may lack in some components. They are automated and by and large lack flexibility and empathy that a financial advisor can offer. Technology is a dynamic facet and has something new to offer every day. Let’s wait to see what the future holds.
Do you feel that professional experts are better than robo-advisors? Then approach a financial advisor today and get personalized guidance on your portfolio.
