Robo-advisor vs Financial advisor


Robo-advisors are a classic example of industry disruption: a pairing of non-traditional thinking and new technology that turned a sector on its head. After the arrival of the first robo-advisors it took time for people to make sense of what these virtual brokerages would mean to their investments in the long term. 

But once the robo-advisor established legitimacy with consumers it was game on. Low opening balances, minimal fees and set-it-and-forget it investing became an enticing alternative to the status quo. Investors started shifting their money such that as of 2019, robos held roughly $1 trillion in assets under management (AUM) worldwide.

 

Not a clean sweep

But for all of the promise of a new age brought by these AI insurgents, traditional financial advisors and planners haven’t exactly disappeared. In fact, they’ve flourished, with a new cohort of investors, primed by positive early experiences with robos, ready for a more personalized experience. Also, a healthy dose of discomfort and distrust, particularly among established, affluent investors, has kept robo-advisors from truly taking off. 

 

Which one to choose?

Disrupting an industry means offering customers more choice, which is exactly what robo-advisors have done. And it’s led to the question, “Robo-advisor vs  financial advisor?”

Each option has its merits and drawbacks, its adherents and detractors. In the next few pages we’re going to look at the attributes of the financial advisor versus a robo advisor, and do our best to determine which choice is right for you.

 

Advantages of robo advisors

Access

Robo advisors rarely require a minimum opening balance, which opens the world of investing to a huge number of people who don’t have the high five-figure to six-figure stake required by many financial advisors.

 

Technology

The power and speed of the AI employed by robo advisors is such that the chances of an error being made in optimizing and balancing portfolios across thousands of accounts is virtually zero. Good news for nervous investors.

 

Low fees

And it’s because technology manages a huge volume of portfolios while minimizing human involvement that robo-advisor annual management fees stay so low (typically 0.25% on AUM) - a substantial difference compared to the 1% fee charged by many advisors.

 

Money at your fingertips

Easy to use mobile apps and desktop dashboards keep finances at your fingertips. Many robo advisors allow you to link and view outside accounts, giving you a more complete picture of your financial situation.

 

Education

Many robos offer extensive resources that are written clearly and concisely to give users the chance to be as active in their financial education as they care to be.

 

Advantages of financial advisors

Personalized planning

Many financial advisors are trained CFPs, with expertise in building personalized financial plans for the short, medium and long term. This type of attention is time intensive, but typically forms the basis of client relationships that last for many years.

 

Presence and Communication

A good advisor is in regular contact with clients, discussing milestones, and identifying opportunities and things to look out for. This interaction, often in the form of a call, text, or meeting, is something that robo-advisors are only starting to offer in some capacity.

 

Coaching and education

The giddiness and disappointment of the market’s changing phases need to be managed by experienced hands. Money is emotional, and the actions attached to these emotions can be dangerous particularly in a self-serve investing environment. Experienced financial advisors educate clients on the nature of their investments and risk profiles, and prep clients for the eventualities attached.

 

Relationship

A financial advisor who is - pardon the pun - invested in client relationships will make sure their clients understand this commitment. Robo advisors don’t typically take you out to lunch or send you a gift on your birthday.

 

So, who has the edge?

In our opinion, nothing beats the service, advice and customization offered by a qualified financial advisor- and that’s not to mention human-to-human contact. With that said, there’s a highly regarded place for the robo-advisor in any investment situation, particularly if you’re just getting started, or don’t want to think too hard about your investments.

 

A last word

We encourage you to research different investment options before settling on a robo-advisor, financial advisor, or a mixture of both. Particularly if you’re younger you should explore your options. With some research, you’ll understand the pros and cons, and make the right choice for you.

If and when you find yourself ready to speak with a financial advisor, contact us to get connected with advisors in your area that can help you to take control of your financial future.

 

How it works

Here’s what you can do next:

Step One - Search for your desired financial resource

Step Two - Review wimple’s firm reviews and educational content to understand how these resources can impact your financial decisions

Step Three - Engage with a wimple firm and take steps to a brighter financial future

 

Disclosure: This article is not to be taken as investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal, insurance, or financial professional. The observations made in external articles are independent of Wimple and should not be read as financial recommendations.

Robo-advisor vs Financial advisor