How do you choose between robo-advisors and traditional advisors? (2024)

Key takeaways from this article

• Understand your goals:

  Before choosing between robo-advisors and traditional advisors, have a clear understanding of your financial goals and needs. This will guide you to the right type of advisor who can best support your investment journey.

• Consult a human advisor:

  Even if you lean towards automation, consulting a human financial advisor at certain points can provide personalized insights that an algorithm might miss. It's about finding the right balance that fits your comfort level and financial complexity.

This summary is powered by AI and these experts

• Taras Rybak Partner at Fusion Group ✧ Making…
• ✔Karl "Doug" Hering, CMA, CRPC™, AAMS™ SE-AWMA™ 🏖I empower hardworking Americans to…

• Roman Kosarenko Senior Director, Pension Investments at Loblaw Companies Limited

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  The important parts of the robo-advisor definition is that they automate client data collection and portfolio construction. The lower cost usually comes from using passively managed building blocks of the portfolio, although that's just a common business strategy decision and not a fundamental element of what robo-advisors are. They choose to use indexed components because robo-advisors in their current form are unable to oversee active managers.

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  The choice between a robo-advisor or a traditional advisor completely depends on: 1. the individual preferences2. the complexity of financial needs 3. the level of human interaction desiredRobo-advisors rely heavily on algorithms, and their performance may get impacted during periods of market volatility or unprecedented events that the algorithms would not have anticipated. They don't have the ability to understand and respond to our emotions or circ*mstances that may affect financial decisions.On the other hand Traditional advisors build long-term relationships with clients, offers emotional support and provides better understanding to navigate financial decisions.Me being an emotional being would choose for a traditional advisor.

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• Samuel Scherer Financial Advisor | Merrill Lynch Wealth Management

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  Needing financial advice is like a 3 legged stool. The legs are 1) will to DIY, 2) time to DIY, and 3) skill to DIY. If you don’t have one (will, skill, or time) to do everything that comes with DIY planning and investing, the stool falls, and hiring an advisor becomes worth it. Some people are all about DIY, and that’s fine! But client experience is often worth more than “low-cost” solution….

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  I agree and want to elaborate on theirs advantages:1. Cost-Effective: They typically have lower fees compared to traditional financial advisors.2. Accessibility: They are available 24/7 and accessible to anyone with an internet connection.3. Diversification: Robo advisors use algorithms to create diversified portfolios. Taking bias out of the selection process. 4. Automation: They automate the investment process.5. Risk Tolerance: They assess your risk tolerance and tailor investments accordingly.6. Transparency: Most robo advisors provide clear information about portfolio holdings and performance.7. Low Minimums: Many have low minimum investment requirements.8. Tax Efficiency: Some robo advisors offer tax-efficient strategies.

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• Taras Rybak Partner at Fusion Group ✧ Making independent financial advice better, more affordable and accessible to everyone

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  Robo-advisors don't provide financial advice, so to some extent the name is a bit misleading. They help to create a portfolio based on individual's risk profile and investment goal. The range of investment options is limited, but they are implemented through low cost trackers and automatically rebalanced. Another advantage of robo-advisers is that people can start investing with as little as $100 and set up regular monthly contributions.

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• Taras Rybak Partner at Fusion Group ✧ Making independent financial advice better, more affordable and accessible to everyone

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  Traditional financial advisers, or financial planners, provide holistic advice on a wide range of topics - investing, retirement, estate planning, mortgages and insurance, taxes, inheritance planning etc. In the past, advisers were compensated by investment product providers (getting commissions), which many saw as a conflict of interest (and rightly so). Today, advisers charge initial and ongoing fees, usually linked to AUA. Financial advisers usually work with people with at least $100,000 of investible assets (usually higher, like $250k plus).

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• Roman Kosarenko Senior Director, Pension Investments at Loblaw Companies Limited

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  Traditional advisors operate in a well-defined legal area, with clear allocation of responsibilities. They rely on tge totality of available client information, not just what is collected through a survey. Because of this "high touch" approach, there is a material cost to portfolio construction.

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  Traditional advisors are professionals who gather information on your current financial state, goals, risk tolerance, and any other information they see pertinent. There are many different types of traditional advisors with different specialties, licenses and access to investments and planning resources. Different types of traditional advisors tend to be suitable for different types of investors, depending on their needs and financial resources. Traditional advisors are suitable for investors who prefer speaking to a human, want to invest in a broader range of asset classes, and have more complex financial planning requirements that may not be understood by the robo-advisor's algorithms.

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• Leandro Lima, CEA Santander AAA | LinkedIn Creator

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  Um planejador financeiro é um profissional especializado em ajudar indivíduos e famílias a atingirem seus objetivos financeiros por meio de um planejamento completo. Esse profissional assessora seus clientes em diversas áreas financeiras, incluindo investimentos, orçamento, seguros, aposentadoria, planejamento tributário e outros aspectos relacionados ao dinheiro.

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• Adrian Johnson I help Lawyers in London achieve financial success without the stress | Independent Financial Planner and Adviser

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  The key thing here, albeit the most obvious, is "human". Finance is emotional. A person can read, empathise and sometimes help you confront your emotions.The role if technology in personal finance should be to automate the mundane or the emotionally difficult aspects of a plan.

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• Shinobu Hindert CFP® | Author | Money Expert | Speaker

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  The pros of a robo-advisor is accessibility. Many investors don't have access to certain money / portfolio managers because they don't meet the account size minimums. Previously, these investors were not given an alternative option. They had to rely on building an investment strategy on their own or using a diversified mutual fund or a fund of funds. Robo-advisors give these investors access to diversification and automation which is extremely helpful for busy people. The cons of a robo-advisor is that it is limited in its customization and you don't get the personalized touch of human interaction.

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• ✔Karl "Doug" Hering, CMA, CRPC™, AAMS™ SE-AWMA™ 🏖I empower hardworking Americans to lay an unshakeable financial foundation for prosperity using my 3E planning system designed to build millionaire money habits 🙌🏻 Philanthropy 🐕Dog Lover ⚔ Multiple Myeloma Warrior

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  In my life as a DIY investor prior to becoming licensed, I thought about using a robo-advisor. They can be great for some people. However, using them can be dangerous for people who don't understand the way robo-advisors work. Robo-advisors are not emotionial or biased to their own preferences. Unfortunately, because robo-advisors are so efficient, this is a case of the old phrase "garbage in, garbage out." The results can give clients a false sense of confidence that since the advisor said it, they are OK.

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• Roman Kosarenko Senior Director, Pension Investments at Loblaw Companies Limited

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  The key market advantages are lower cost (due to automation of data collection and portfolio construction + use of passive components) and 24/7 convenience of an app. Works great for young people with no complications. The cons are mostly the same things - data collection is rigid and may not capture important facts. Portfolio construction is based on a pre-defined model, which may not address the client's future needs. It is basically trade-off between simplicity/cost and universality/results.

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• Taras Rybak Partner at Fusion Group ✧ Making independent financial advice better, more affordable and accessible to everyone

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  Robo-advisers are generally good for people with smaller investment portfolios, those who want to start investing, and those with straightforward needs. They are less expensive but also very limited in terms of options. On the other hand, financial advisers look at the overall financial situation and provide holistic financial advice considering all aspects of one's financial life. It is important to remember, that while both businesses are regulated, robo-advisors are essentially self-directed investment options so people can't complain to a financial regulator (unless there was a blunt fraud). With financial advisers, people can complain to an ombudsman and can be compensated if the advice provided is not appropriate.

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  Robo-advisors are great at financial planning, budgeting and recommending investments for those who do not have complex financial needs and are comfortable investing in the investment options provided by the service.Robo-advisors, however do not provide advice on aspects that many investors require or could benefit from, and may come with limited investment options. For some investors, their cost-savings may be negated by higher legal and accounting costs, lower long-term returns, and missed tax-planning opportunities.

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• ✔Karl "Doug" Hering, CMA, CRPC™, AAMS™ SE-AWMA™ 🏖I empower hardworking Americans to lay an unshakeable financial foundation for prosperity using my 3E planning system designed to build millionaire money habits 🙌🏻 Philanthropy 🐕Dog Lover ⚔ Multiple Myeloma Warrior

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  As a DIY investor turned financial professional, I think that every one needs to consult a human being for financial planning help at some point. In terms of investment advising, that is not as clear. A human advisor has the benefit of being able to bring out needs and goals that you may not even realize yourself. A human advisor can read body language, ask probing questions, and work to understand a client in ways that a robo-advisor can't. However, a human advisor can also be subject to their own biases or company restrictions. Human advisors also may put increasing their fees above the good of the client. Because of biases or lack of knowledge, a human advisor can make mistakes that a robo-advisor wouldn't.

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• Taras Rybak Partner at Fusion Group ✧ Making independent financial advice better, more affordable and accessible to everyone

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  Traditional financial advisers provide very useful services and help manage all aspects of your financial life that go way beyond the investment side. I don't see any cons when using a financial adviser. Some might say they are more expensive, which is true. But you pay for what you get, and they provide value for their money.

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  Traditional advisors are great for investors who have more complex financial planning needs, such as:- Business owners, especially with complex ownership structures- Investors with significant wealth who can benefit from more complex tax-planning strategies- Investors with complex estate planning needsTraditional advisors sometimes come at a higher cost than robo-advisors, depending on the type of investor.Some traditional advisors facilitate investment into investment vehicles that are not available through robo-advisors, such as insurance-based solutions, individual stocks and bonds, private equity, debt and real estate.Traditional advisors can also help investors better understand their financial plans through 1-on-1 reviews.

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• Roman Kosarenko Senior Director, Pension Investments at Loblaw Companies Limited

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  Human advisors operate in a well-defined legal field and there is usually no confusion about who is responsible for what. Experienced advisors develop many useful heuristics that are difficult to translate into a typical robo-advisory system. Human advisors don't have consistent competence, experience of fat tails or lack of bias. Humans are more expensive.

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• Leandro Lima, CEA Santander AAA | LinkedIn Creator

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  A escolha entre um robo-advisor e um conselheiro financeiro tradicional dependerá das preferências individuais, objetivos financeiros e da complexidade da situação financeira de cada investidor. Se o indivíduo quer se isentar 100% de possíveis conflitos de interesse, um custo eventualmente mais elevado, e mais disponibilidade o robo pode ser mais útil, porém nada substituiu um humano em termos de um aconselhamento personalizado, adaptação a Situações Complexas e inclusive entendendo o sentimento do cliente.

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• Taras Rybak Partner at Fusion Group ✧ Making independent financial advice better, more affordable and accessible to everyone

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  Comparing robo-advisors and traditional advisors like comparing apples and oranges. I strongly believe that if you have reasonable amount of money to invest, or want to have your financial life in order, it is definitely worth paying for financial advice. If you don't have money yet, then robo-advisors is your only option and it's better to start somewhere.

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  When deciding whether to use a robo-advisor or traditional advisor, consider the complexity of your situation, and whether a robo-advisor has the resources to provide the advice and investment options that are best for you. If you're the type of investor who needs coaching to adhere to your goals, consider whether automated reminders from a robo-advisor, or personal communication with a traditional advisor is more suitable for you.

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• ✔Karl "Doug" Hering, CMA, CRPC™, AAMS™ SE-AWMA™ 🏖I empower hardworking Americans to lay an unshakeable financial foundation for prosperity using my 3E planning system designed to build millionaire money habits 🙌🏻 Philanthropy 🐕Dog Lover ⚔ Multiple Myeloma Warrior

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  If you really can't afford a financial planner or advisor (and most people can even if they don't know it), then a robo-advisor can be helpful. A person should ask, "Can I be trusted with my own emotions and current financial knowledge to use a robo-advisor effectively?" If so, then it could be a great choice and save the investor in fees. However, for most people that have a complex plan or need accountability, a traditional advisor is often the way to go. As long as the advisor is a fiduciary and not simply trying to get more assets under management, then an advisor can be helpful, especially if that advisor provides holistic and detailed financial planning, which is critical to any investment strategy.

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• William Kim Wealth Advisor | Guiding Clients To Make Thoughtful Financial Decisions Today, For Better Choices Tomorrow

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  When deciding between robo-advisors and traditional advisors, it's essential to evaluate your specific needs, preferences, and the level of service you require for your financial goals. Some investors may prefer the personal touch and emotional understanding of a traditional advisor, while others may prioritize cost efficiency and accessibility offered by robo-advisors.

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• Leandro Lima, CEA Santander AAA | LinkedIn Creator

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  Assim como na organização de uma festa de aniversário, escolher entre um robo-advisor e um consultor tradicional depende do que é mais importante para você: se quer algo simples e acessível ou se valoriza um toque mais personalizado e a possibilidade de aprender mais com um humano. Acredito que a mistura dos dois é o ideal.

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• Taras Rybak Partner at Fusion Group ✧ Making independent financial advice better, more affordable and accessible to everyone

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  First, you need to understand your goals, and based on how much money you have, you choose which route to take - use a robo-advisor or work with a traditional advisor. When choosing a robo-advice platform, research, look for reviews and ask for recommendations from friends and family. When choosing a traditional adviser, the approach is the same. Still, you must also remember that you will need to meet your financial adviser in person (unless they can provide service online, which is also called hybrid advice).

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• Quang Nguyen

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  In today's complex financial markets, combining the strengths of AI-powered robo-advisors and the expertise of traditional advisors is key. Robo-advisors excel in processing vast amounts of data quickly, offering efficient recommendations. However, their accuracy depends on the quality of input data. Traditional advisors bring invaluable human insight, especially in interpreting nuanced market trends. By integrating these two approaches, financial firms can enhance decision-making. Robo-advisors can provide rapid, data-driven suggestions, while traditional advisors apply their experience and understanding to make final, well-informed decisions. This synergy ensures more reliable and holistic financial guidance.

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• Adrian Johnson I help Lawyers in London achieve financial success without the stress | Independent Financial Planner and Adviser

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  Use the tech as a tool to inform decision making. Use it to help implement strategies by reducing friction and forming good habits.Do not use it to understand and calibrate risk as this is something that is very dangerous.

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• ✔Karl "Doug" Hering, CMA, CRPC™, AAMS™ SE-AWMA™ 🏖I empower hardworking Americans to lay an unshakeable financial foundation for prosperity using my 3E planning system designed to build millionaire money habits 🙌🏻 Philanthropy 🐕Dog Lover ⚔ Multiple Myeloma Warrior

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  Often people are more comfortable switching robo-advisors because they don't have to look a person in the eye. I often tell people that if you don't like me, please tell me. If we can't work things out, then seek another planner or advisor. A person should choose based on their abilities and their confidence in using automated tools. There is also no harm in beginning with a human advisor or planner, then switching to a robo-advisor later once an investor gains the confidence to manage their own plan or investments. Either choice is reversable. Looking for an advisor that also educates is key as then you'll have the opportunity to decide later if you want to take on your own investment and planning decisions.

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• Jono Randell-Nash IFA specialising in the legal profession | I help you reach financial independence, providing clarity, security and peace of mind | Dad to 3 boys under 5 | Reformed lawyer

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  Robo advice vs personal advice - the key difference is usually that an adviser will understand your circ*mstances better and advise between two difficult choices. Based on experience and actively listening to what you say, but also what you didn’t say. A human will challenge your assumptions, whereas a Robo adviser will take everything you say at face value. Therein lies a big danger.

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• ✔Karl "Doug" Hering, CMA, CRPC™, AAMS™ SE-AWMA™ 🏖I empower hardworking Americans to lay an unshakeable financial foundation for prosperity using my 3E planning system designed to build millionaire money habits 🙌🏻 Philanthropy 🐕Dog Lover ⚔ Multiple Myeloma Warrior

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  Ultimately, the challenge of using any investment advice is credibility and suitability of the advice. A robo-advisor gives you advice based on your input. It is objective and unbiased. However, if your input is wrong, then the advice will be wrong. A robo-advisor also cannot give you accountability.A good human advisor will delve into your deepest desires and goals and create a detailed plan that will help you decide how to invest your money. A good human advisor will also provide accountabilty for you to stay the course. Robo-advisors are best for those who already have a good handle on their plan, a good handle on their emotions, and a good handle on knowing when to adjust their plan.

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