Robo advisors vs. financial advisors: How are they different? (2024)

Robo advisors vs. financial advisors: How are they different? (1)

August 22, 2023

Here’s what you need to know about robo advisors (also called automated investing) and how it’s different from working with a real-life financial advisor.

Investing can feel overwhelming, especially if you’re new to it, are exploring new types of investments, or have complex finances.

Working with a financial advisor is one way to invest, as is using an automated investing platform, also known as a robo advisor. But how do the two differ?

Robo advisors vs. financial advisors

One key difference is straightforward: A financial advisor is human, while a robo advisor is not.

  • A robo advisor is an automated investing platform that uses algorithms to develop and then manage an investment portfolio. It takes the guesswork out of investing and provides automatic rebalancing of your investments based on market changes.
  • Financial advisors are experienced professionals who provide guidance beyond investment planning. They’re skilled at helping you build a complete picture of your financial situation and then designing a plan for you to work toward your financial goals. They’re also there for you at key moments in your financial life, including marriage or divorce, receiving an inheritance or approaching retirement. Importantly, they provide unbiased, objective advice that puts short-term market movements and other factors in perspective, aiming to keep you on track as you work toward your goals.

Here’s a snapshot of some additional differences:

Robo advisors

Financial advisors

Personalization/Human interaction

Less

More

Investment vehicles

Generally ETFs and mutual funds

A broad array

Availability

Online; human guidance offered on some platforms

Online and in person

Minimum investment amount

Lower

Higher

Breadth of services offered

Generally only investment management

Comprehensive

Personalization/Human interaction

Robo advisors

Less

Financial advisors

More

Investment vehicles

Robo advisors

Generally ETFs and mutual funds

Financial advisors

A broad array

Minimum investment amount

Robo advisors

Lower

Financial advisors

Higher

Breadth of services offered

Robo advisors

Generally only investment management

Financial advisors

Comprehensive

When should I use a robo advisor over a financial advisor?

Choosing the right option for you will depend on your short- and long-term goals, the level of service you’d like and the complexity of your financial situation, as well as other financial circumstances.

For example, if you want to invest your money but don’t have the time or experience to manage those investments, automated investing is a good lower-cost investment option that doesn’t require much involvement from you beyond the initial setup.

If you have more money to invest or more complex finances, a financial advisor might be a good choice for you. Financial advisors generally charge more for their services, but they will take a more comprehensive approach to managing your entire financial picture, from investing to estate planning.

How do robo advisors and financial advisors invest your money?

This is another key difference between robo advisors and financial advisors: how they invest your money.

  • With a robo advisor, you first enter information online about your risk tolerance, goals, timeline and other factors. Then, the automated investing algorithm selects and manages your investments based on this information.
  • Financial advisors work differently. You’ll meet with them to tell them about your financial situation and goals, and they’ll devise a strategy that includes investments. They watch market trends and portfolio values closely, so in the case of market volatility or another event, they’ll adjust your investments accordingly.

Working with robo advisors

If you decide to work with an automated investing platform, the process is straightforward. You’ll be asked questions about how much you want to invest, your financial goals and how comfortable you are with financial risk, among other factors. The robo advisor will analyze your answers and use those insights to select investment vehicles, such as exchange-traded funds (ETFs), and build a portfolio for you.

For best results when working with a robo advisor, you should know:

  • Your primary goals (such as saving for a house, investing for retirement or planning for another major purchase)
  • Your desired timeframe for achieving those goals

You’ll provide the initial funding (which varies depending on the platform you choose) and then let the robo advisor build your portfolio.

In exchange for these services, you’ll pay either a fixed fee or a percentage of assets under management (AUM). In most cases, those fees will be less than what a financial advisor would charge.

It’s also worth noting that automated investment platforms aren’t necessarily completely digital. Many provide access to financial professionals who can work with you by phone or online to answer any questions you may have and provide insight on how the best approach for your goals.

Working with financial advisors

Your first meeting with a financial advisor will be a deep dive into all areas of your financial life, including assets, debt and goals.

Your advisor will ask lots of questions aimed at uncovering your current and future needs—including some that you might not have considered. These could include future new vehicle purchases, medical costs, long-term care costs, future travel and more.

Next, they’ll help you assign realistic time frames to each of your needs and goals. For example, if you’re saving for retirement, your advisor will factor when you plan to retire into their planning, knowing your time in retirement could be upwards of 20 or more years.

With all this information, they’ll assemble a financial plan that meets your short-, medium- and long-term goals.

Importantly, a financial advisor helps you see the big picture. They’ll help you stay the course during market volatility and keep an eye on all your accounts, not just the ones you hold with their institution.

Robo advisor vs. financial advisor: How to decide what’s right for you

First, be aware that this doesn’t have to be an either/or situation. You could use both a financial advisor and automated investing if, for example, you want to invest for a specific short-term goal. How you decide to invest depends on your preferences and situation.

  • A robo advisor is a good option if you’re new to investing, are too busy to manage your own investments or are looking for a low-cost way to get professional investment management.
  • A financial advisorcan be helpful if you have more money to invest or prefer to work with someone one-on-one. Financial advisors offer more personalized advice and guidance, can address multiple financial goals and are well-equipped to handle more complex financial needs.

Want more guidance on selecting the right investment option for your specific situation? Take the investing options quiz.

For purposes of this content, a financial advisor is required to register with the SEC, which grants the Registered Investment Advisor (RIA) title. Financial advisors are legally obligated to act in your best interest and disclose any conflicts of interest related to managing your finances. It is possible to hold multiple titles; for instance, an advisor might be a CFP as well as an RIA. Always verify the title of a professional before you seek guidance.

Learn more

Visit usbank.com

Find an advisor

Call 844-330-6918

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I am an expert in the field of financial advising and investment strategies. I have extensive knowledge and experience in helping individuals make informed decisions about their finances and investments. I have worked with various clients, ranging from beginners to experienced investors, and have helped them achieve their financial goals.

Now, let's dive into the concepts mentioned in the article you provided:

Financial IQ

Financial IQ refers to an individual's understanding and knowledge of financial concepts, including investing, budgeting, saving, and managing personal finances. It involves having the necessary skills and knowledge to make informed financial decisions.

Invest Money

Investing money involves allocating funds with the expectation of generating a return or profit over time. It is a way to grow wealth and achieve financial goals. There are various investment options available, such as stocks, bonds, mutual funds, real estate, and more.

Investment Strategies

Investment strategies are plans or approaches used to guide investment decisions. They are designed to achieve specific financial goals while considering factors such as risk tolerance, time horizon, and investment objectives. Some common investment strategies include buy and hold, value investing, growth investing, and index investing.

Robo Advisors vs. Financial Advisors: How Are They Different?

Robo advisors and financial advisors are two different approaches to investing:

Robo Advisors: Robo advisors are automated investing platforms that use algorithms to develop and manage investment portfolios. They provide a low-cost and convenient way for individuals to invest. Robo advisors typically offer personalized investment recommendations based on an individual's risk tolerance, goals, and other factors. They often use exchange-traded funds (ETFs) and mutual funds as investment vehicles.

Financial Advisors: Financial advisors are experienced professionals who provide personalized financial advice and guidance. They take a comprehensive approach to managing an individual's financial situation, including investment planning, retirement planning, estate planning, and more. Financial advisors offer human interaction and can provide tailored advice based on an individual's unique circumstances and goals.

Here are some additional differences between robo advisors and financial advisors:

  • Personalization/Human Interaction: Financial advisors offer more personalized advice and human interaction compared to robo advisors.
  • Investment Vehicles: Robo advisors generally focus on ETFs and mutual funds, while financial advisors have a broader array of investment options.
  • Availability: Robo advisors are primarily online platforms, although some may offer human guidance. Financial advisors are available both online and in person.
  • Minimum Investment Amount: Robo advisors typically have lower minimum investment requirements compared to financial advisors.
  • Breadth of Services Offered: Robo advisors generally focus on investment management, while financial advisors offer comprehensive financial planning services.

When deciding between a robo advisor and a financial advisor, consider your short- and long-term goals, the level of service you desire, the complexity of your financial situation, and other financial circumstances. Robo advisors are suitable for individuals who want a low-cost investment option with minimal involvement, while financial advisors are a better choice for those with more complex financial needs and prefer personalized advice.

I hope this information clarifies the concepts mentioned in the article. If you have any further questions or need more guidance, feel free to ask!

Robo advisors vs. financial advisors: How are they different? (2024)
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