Robo Advisors vs. Financial Advisors: How to Choose the Right Solution

Written by Mayowa Koiki on December 21, 2017

Who, or what, should you trust? When it comes to robo advisors vs. financial advisors, it’s a tough choice. Do you turn your investments over to a program, or do you stick with a traditional human consultant?

Technology aficionados might find robo advisors more appealing — especially millennials, who make up the largest demographic of the gig economy workforce — while older freelancers may lean toward the human option. But which should you choose? Let’s look at what both options bring to the table.

When Your Business Is at an Early Stage

Wealth is built over time. As the proverb says, “The best time to plant a tree was 20 years ago. The second best time is now.” Unfortunately, many human consultants expect a minimum investment, which usually ranges somewhere between $1,000 (for online advisors) and $5,000 (with brick-and-mortar companies).

Robo advisors often require as little as $100, and some have no minimum at all. If you’re a new, cash-challenged entrepreneur, artificial intelligence could be your best option. So make sure you’re looking for the best robo advisors possible, and consider options like Wealthfront and Betterment to get you through the financial planning stage.

But what about the learning curve? If you understand basic investment, want a standard portfolio and your financial situation is fairly simple (you have no complex debts or loans), you probably don’t need a real-life advisor. The technological alternative will likely be able to handle your financial needs, and will even ask similar questions to an in-person consultant. And getting started is super easy and straightforward. As Steve Kovach said in his recent review of robo advisors in Business Insider, the setup is “no more complicated than signing up for a Facebook account.”

When making your decision, it’s also important to consider fees. If you’re a small investor, traditional management fees are a killer. They sound low — usually 1 percent of your portfolio’s value per year — but that’s huge compared to robo advisor charges, which could be as low as .09 percent per annum (depending on where you pitch your tent).

When Your Business Is Better Established

When your business starts growing, your financial matters will get increasingly complicated. As you scale up, you’ll be talking to investors and worrying about extra staff, extra funding and a million other issues. You’ll probably be going through major life changes, too: Success means you can afford a mortgage, a new car, etc. And all of these choices will make your portfolio increasingly complicated.

At this stage, you’ll have money, but time will be a luxury. Robo advisors will be less attractive because you’ll have to invest time into researching answers to your complex life requirements. This means that you’ll have to face a learning curve on current investments, upcoming options and impending changes.

When your time is limited, a human expert is a better choice. By tapping into an advisor’s knowledge and experience, you can free up time to concentrate on your own business.

Granted, human advisors are more financially demanding, but they also bring more to the table. Robo advisors rely on pre-configured algorithms to perform. They’re more accurate and less error-prone than humans, but they lack insight and intuition. They can only recommend options based on past performance and available data, not the current buzz, a gut feeling and years of experience.

Don’t forget: Robo advisors only offer support within the platform, not on your investments. And a human financial advisor is available to talk when things are unclear. In a fast-paced period of business growth, you’ll need someone to make intelligent decisions based on their expertise and knowledge of your life, your needs and market conditions.

So, Which Should You Go For?

There’s a reason financial algorithms and apps haven’t taken over (yet), and that’s because they’re not human. A real-life advisor not only monitors your investments and gives you feedback, but also helps you plan out major financial decisions. You can tell your financial advioer your long-term financial goals and trust they’ll find a way to make those goals a reality, regardless of how many twists and turns your life takes along the way. They can help you plan for the long-term through insight, intuition and experience that no robo advisor can match.

But there’s no doubt that robo advisors are great substitutes for financial advisors. In fact, they offer their own slew of perks and advantages. These services allow you to start investing right away, and they don’t charge as much in fees. Using robo advisors also allows you to avoid making the types of mistakes that stem from human error.

Of course, when it comes to the robo advisors vs. financial advisors debate, the final decision is ultimately up to you. Making the right choice involves evaluating your current financial situation. Choose the right advisor for your current needs, and then be prepared to adjust your strategy down the line.

Leave a Reply