Robo Advisors vs. Financial Advisors – Compare & Find out which one is Best for You

Compare Robo Advisors vs Financial Advisors here & Find out which types of advisor is best suited for you. Back in 2014, the world’s first Robo Advisor was launched.

The main agenda of the Robo Advisors is to serve ordinary people who either don’t have a plethora of assets to invest in or don’t have enough knowledge about investing.

The financial advisors mainly charge 1% or more each year in assets under management (AUM).

The best solution comes into play here as a mix of both technology and market structure is available for the clients.

On the part of technology, Robo advisors mainly use algorithmic trading, mobile apps, and digital signatures.

They use these technology features for account opening, and it doesn’t require any paperwork.

Above all, computers can sanction paperwork without any mistakes and also continuously monitor the portfolio.

It is something that financial advisors can take a lot of time to complete. Lastly, Robo advisors can manage client’s funds at just  0.25% annually of AUM.

With only $5, users can open accounts with Robo Advisors.

Compare Robo Advisor vs Financial Advisor

Ideally, the Robo advisors use computer algorithms to both build and manage the portfolios of the clients.

They either require little or no human intervention. Some parameters, including time horizon and your risk-taking appetite, can be set.

Additionally, they are also an amazingly low-cost option if you need investment management.

On the other hand, the financial advisors are experts that you can hire either on an ongoing or current basis. The professionals are most likely to help you in managing all aspects of your financial life.

You can create a financial plan by meeting the financial advisor directly. But there are some companies who also offer virtual access to financial advisors for a minimum amount of money.

You can connect with the financial advisors through video or phone. Investment services are also included in the services.

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Cost Difference – Robo Advisor vs Financial Advisor

Generally, Robo Advisors charge fees from 0.25% to 0.50% of the AUM yearly. To open an account, many will take new clients by setting $0.

On the other hand, almost all financial advisors charge 1% of your assets, but it can vary from account to account. Some financial advisors also charge an hourly fee or flat rate.

Before hiring any financial advisor, you must ensure that you ask some critical questions, including the qualifications and fee structure.

Benefits of Robo Advisors

Besides minimum cost and easy account opening process, the automated advisors have a plethora of advantages as they rely heavily on technology.

As Robo advisors use modern portfolio theory, they can automate investing strategies. These calculations are most likely prone to errors and are also laborious.

On the other hand, a machine can optimize several portfolios instantly without any mistake. Above all, the algorithms can monitor and rebalance a plethora of portfolios, that too immediately.

Similarly, the algorithms also offer a real-time tax-loss harvesting strategy, which helps in selling stocks that have undergone loss in the market.

Under this strategy, the securities which have lost money are replaced with similar securities. The best part about using Robo Advisors is the completely set-it-and-forget-it strategy.

Above all, if you are quite busy in your life, then these Robo advisors are your best bet.

Benefits of Financial Advisors

The human element is the main thing about financial advisors. Ideally, financial advisors are way more than just investment managers.

These professionals tend to play different roles, including educators, planners, communicators, and coaches to their users.

The core agenda of any financial advisor is relationship-building. The automated advisor will never take you out for lunch or send you a condolence card for all the fees you pay.

Often, the accounting opening process with a financial advisor is time-consuming. It is mainly because you need to have a meeting with the financial advisor.

The advisor then grasps all your goals, including short term, long term, and medium-term goals.

Through the meeting, the advisor understands your risk-taking appetite and also helps you set your goals, which then leads to the development of customized plans.

However, to get the human touch, you need to shell out some extra money.

When should you hire a Robo Advisors?

You should surely hire Robo Advisor when you ultimately learn about the impact your investment fees have on the investment performance.

Your investment performance is most likely to have a material effect based on how much you pay in the investment fees, especially in the long term.

Typically, the traditional investment advisors charge somewhere from 1% to 3%, of the portfolio’s value.

On the other hand, you can get Robo advisors for as low as 0.15%. Besides everything, this can enhance your investment performance majorly.

If you are someone who doesn’t like to make any direct contacts, then you should hire Robo Advisors.

All you need to ensure is that you should be okay with not having a human professional to hold your hand if the smart market crashes.

You need to hire a Robo Advisor if you are not able to maintain the minimum requirements of a typical advisor.

One of the most common limitations of the usual investment advisors is the account minimum balance requirement.

To work with financial advisors, you need to have a minimum balance of $200,000 in your portfolio.

In contrast, Robo Advisors can offer the same service with a minimum balance of $5,000, and some advisors provide services without charging anything.

The big catch here is Robo advisors are more popular than financial advisors mainly because of this reason.

If you are willing to allow someone else to do all your investing, you should hire a Robo Advisor.

When you choose to hire a Robo Advisor, then you can be stress-free as the platform does all the financing on your behalf.

You need to fund your account if you prefer to hire a Robo Advisor.

When should you hire a Financial Advisor?

If you are not comfortable making transactions online, then you should hire a financial advisor.

Some people, including gen X people, are comfortable making transactions on the web, but not everyone is. You should probably hire a financial advisor if you are someone like this.

If you are someone who prefers human contact directly, then you should hire a typical financial advisor.

Besides managing your portfolio, these professionals will also help you in offering solutions with regards to your queries.

No doubt Robo advisors also solve queries, but they are more likely to answer questions about the platform.

You want at least some amount of control over your portfolio; then, a financial advisor is your best bet. On this platform, you can customize your portfolio as per your risk-taking appetite.

Besides having some control over your investments, the financial advisors also offer some kind of flexibility, which allows you to change the investment allocation.

Conclusion – Robo Advisors vs Financial Advisors

If you are confused about switching to Robo Advisors, then you should know one thing for sure that it all depends on the money you are willing to invest.

No doubt, Robo advisors work well in a plethora of situations.

Still, everyone’s temperament is not the same, so you need to weigh the options of whether you should hire a traditional advisor or an automated advisor.

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