Will robo advisors replace financial advisors?
This seems to be a real issue for any smart investor. The question of which is better for your money is on everyone’s mind. Investing is fun and more likely to pay off than riskier bets like online gambling.
Robo advisors are convenient and don’t require you to do much checking in. However, in times of crisis, you usually don’t have a friendly face to talk to. How do you sort the real from the hype when it comes to robo advisors versus financial advisors?
If you have ever wondered which to choose, this article is for you. Keep reading to find out the pros and cons of robo advisors vs financial advisors.
Robo Advisors vs Financial Advisors Fees
The fees you pay to manage a portfolio are a large part of its long-term value.
Robo advisor fees are usually less than 1% of your portfolio’s value. When you compare that financial advisors, there’s a clear advantage in favor of the robo advisor.
When it comes to managing your finances, automation is always smart. A simple example is depositing your payroll in your account every two weeks.
Financial advisors are human and prone to human error. This means they can sell at the wrong time or chase returns while risking long-term profit. Using a robo advisor eliminates these often emotional decisions that are made out of fear or greed.
Emotional Decision Making
Even financial advisors can have cognitive biases. They can also make up patterns where they shouldn’t. This can lead them to make poor decisions about your investments.
A robo advisor bases its decision making on an algorithm. They rely on processes, not emotions. This leads to risk and reward being balanced perfectly.
New and Young Investors
If you’re young or new to investing you may not initially qualify to hire a financial advisor. Often they impose minimum requirements and you can’t become a client.
The best robo advisors don’t require as much. Some can even get you started investing with no minimum balance. You get the same professional investment management without the excessive start-up obligations.
Direct Human Contact
Robo advisors aren’t into personal service. If you want one on one support, they aren’t for you. If you have a hands-off approach and like to know someone else is running your investments though, they can work.
If you want to be able to speak to a real person in a crisis, a financial advisor is a better option. However, they work regular business hours, and robo advisors are always online. This means you can check your investments 24 hours a day.
Some robo advisors like Betterment allow you to speak to human advisors for a fee with a premium service. The Betterment definition of a robo advisor is an advanced hybrid model that has financial advisors as well.
Deciding How to Invest
When it comes to choosing robo advisors vs financial advisors, it’s best to do your research. However, if you are just starting out and don’t mind not having constant contact with your advisor, robo advisors are a better choice.
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