Humans vs. Robots: Americans Prefer Financial Advisors Over Algorithms

Technology is ubiquitous in American life — we use it to keep in touch with our loved ones, manage our schedules, check our bank balances and find out how our favorite celebrities feel about current events. What about letting technology decide how we invest?

Investors have the option to sign up with a robo-advisor, which uses computer algorithms to manage an investment portfolio. The formulas are often based on factors selected by the client, such as their tolerance for risk and how much time they have to invest. Robo-advisors have a lower barrier to entry compared with a lot of human advisors — many allow you to start investing with a small amount of money — and fees tend to be lower, too.

Still, most Americans prefer human advisors. Given the option, 84% would rather work with a human financial advisor to invest their money compared with 16% who would prefer to use a robo-advisor, according to a new NerdWallet survey.

In a survey of over 2,000 U.S. adults — including 1,213 who have investment accounts — commissioned by NerdWallet and conducted online by The Harris Poll, we asked Americans how they manage their investments, how they feel about using human financial advisors and/or robo-advisors, and what concerns they have about using a robo-advisor.

Key findings

• Robo-advisors are less popular than human counterparts. More than 2 in 5 investors (44%) use a human financial advisor to manage their investment accounts, while less than 1 in 5 investors (15%) say they use a robo-advisor to manage them, the survey found.

• The benefits and drawbacks of each are a mystery. Close to two-thirds of Americans (64%) say they don’t fully understand all of the advantages and disadvantages of working with a robo-advisor versus a human financial advisor.

• Confidence is higher with human advisors. Around half of Americans who use a human advisor to manage their investment accounts (51%) say they feel very confident about the growth of those investments, compared with only about a third of Americans who use a robo-advisor to manage their investment accounts (34%), according to the survey.

• Human contact is a sticking point for those who don’t use robo-advisors. Among Americans who don’t use a robo-advisor, just more than half (51%) say they don't because they want the ability to communicate with a live person, and about one-third (31%) say it’s because robo-advisors don't take into account individual life situations.

Investors prefer humans, but they’re often expensive

About two-thirds of U.S. adults (65%) have investment accounts, such as 401(k)s (39%), IRAs (33%) and brokerage accounts (28%), according to the survey. These Americans have $368,619 invested, on average, but close to half of investors (47%) have less than $50,000 invested.

The proportion of investors and the amount invested varies a lot across demographics. For example, 2 in 5 Americans with an annual household income of less than $50,000 (40%) have investment accounts, compared with almost 9 in 10 Americans with an annual household income of $100,000 or more (87%). Men are also more likely than women to have investment accounts (72% vs. 58%), according to the survey.

The charts below show the variations in investment portfolio size across genders, household incomes and generations.

More than 2 in 5 Americans who have investment accounts (44%) use a human financial advisor to manage these accounts, while less than 1 in 5 (15%) use a robo-advisor. More than half of investors with an annual household income of $100,000 or more (51%) use a human advisor to manage their investments compared with a third of those with an annual household income of less than $50,000 (33%), according to the survey.

The majority of Americans who don’t use a human advisor to manage their investments (65%) say they would hire a human advisor to manage them if they could afford to. But of those who don’t use a human financial advisor, 35% don’t think they can afford to have a human advisor to manage all of their investments and another 25% aren’t at all sure.

What consumers should do: Assess your financial situation to figure out which type of advisor is best for you

Nearly two-thirds of Americans (64%) say they don’t fully understand all of the advantages and disadvantages of working with a robo-advisor versus a human financial advisor. The benefits and drawbacks of each are highly dependent on your financial situation.

“When deciding between a robo-advisor and a human advisor, consider how much money you have to invest, the level of personalization you require and how much you want to pay for financial advice,” says Arielle O’Shea, NerdWallet’s investing and retirement specialist. “If you only want investment management, a robo-advisor is typically the most cost-effective option. But if you also need full-service, holistic financial planning, you might consider a human.”

It’s likely that cost is a big factor in your decision. To get a better idea about how much you can expect to pay with different types of financial advisors, check out our guide comparing the prices of robo-advisors, online financial planners and traditional human financial advisors.

Many Americans may not know options for interaction online

It might cost more, but many Americans who use human advisors do so for face-to-face contact and to get the knowledge that they lack. Around two-thirds of Americans who use a human financial advisor to manage their investments (66%) say they do so because they want to be able to discuss their investments with an actual person, the survey found.

Close to 2 in 5 Americans (39%) think that human advisors are only accessible to the wealthy. Among those who don’t use a robo-advisor, just more than half (51%) say they don't because they want the ability to communicate with a live person, and about one-third each say that robo-advisors are not personalized (34%) and don't take into account individual life situations (31%).

What consumers should do: Know your options for money management

Many human financial advisors require clients to have a certain amount in investments to manage, then charge them a percentage of their portfolio balance each year. Some advisors opt for an annual or hourly rate, commissions or retainers. Regardless, human advisors usually make more sense for high-asset clients — many require clients to have $250,000 or more in assets. (If you want to explore this route, here are 10 questions to ask prospective advisors.)

But you can still get access to personalized advice if you have a tight budget or less than $250,000 in assets.

“Online financial planning services tend to be a less-expensive way to access a human advisor, as advisor meetings are done virtually over phone or video conference,” says O’Shea. “As with a traditional advisor, the best online planning services offer investing and financial planning advice tailored to you specifically.”

Robo-advisors are cheaper still, and while you often won’t get a relationship with a dedicated human advisor, some offer access to advisors for one-off questions.

Investors have more confidence in humans

For those who can't or don’t want to pay the higher fees of a human financial advisor, or don’t value the face-to-face contact that differentiates them, robo-advisors might be the way to go. Of those who use a robo-advisor to manage their investment accounts, 60% say they use them because they’re easy to use, 56% say they’re cost-effective and 44% say it’s because there’s a low barrier to entry, according to the survey.

There may be a mental barrier to clear, though. Nearly 3 in 4 Americans (74%) think using a human financial advisor would be the best way to get the highest return on an investment. Around half of Americans who use a human advisor to manage their investment accounts (51%) say they feel very confident about the growth of those investments, whereas only about a third of those who use robo-advisors to manage their investments (34%) feel very confident about their investment growth.

But widening the pool to include those who say they were very confident or somewhat confident, the numbers are 96% for those who use a human advisor and 94% among those who use a robo-advisor, the survey found.

And what's more, investment growth is likely tied less to whether you work with a human advisor or a robo-advisor and more to whether your investments are actively managed (where the goal often is to beat the market) or passively run (where the aim usually is simply to match the market). Human advisors often use passive strategies when managing investors' money, but those kinds of strategies are available from robo-advisors as well and often at a lower cost.

What consumers should do: Consider the pros and cons of a robo-advisor

Close to half of those who don’t use a robo-advisor to manage their investments (45%) are open to it. In addition to low fees and initial deposit requirements, many robo-advisors help you get started by identifying your goals and understanding what kind of investor you are. They also handle tasks such as rebalancing your portfolio and applying smart tax strategies.

“Robo-advisors aren’t just for investors with smaller balances — they can be a good fit for anyone who wants to take a hands-off approach to managing their investments,” O’Shea says.

If you decide to go the robo-advisor route, check out NerdWallet’s best robo-advisors for the pros and cons of each of our favorites in the industry.

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