What Is a Robo-Advisor and Is One Right for You?

These online services make it easier to get started planning for your financial goals by providing investment help at low cost and with low or no account minimums.
Arielle O'SheaSep 1, 2021

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If you’ve ever wished for a robot to clean your house or walk your dog, you’ll likely understand the appeal of a robo-advisor. These services don’t do windows or pet-sit, but what they offer is arguably more valuable: a relatively hands-off way to invest.

Robo-advisors — also known as automated investing services or online advisors — use computer algorithms and advanced software to build and manage your investment portfolio. Services range from automatic rebalancing to tax optimization, and require little to no human interaction — but many providers have human advisors available for questions.

Traditional services often require high balances; robo-advisors typically have low or no minimum requirement. Because of that and their low costs, robo-advisors let you get started investing quickly — in many cases, within a matter of minutes.

» Not sure which type of advisor is right for you?

Robo-advisors are much cheaper than an-person human financial advisor. Most companies charge between 0.25% and 0.50% as an annual management fee, though there are even free options like .

As with many other financial advisors, fees are paid as a percentage of your assets under the robo-advisor’s care. For an account balance of $10,000, you might pay as little as $25 a year. The fee typically is swept from your account, prorated and charged monthly or quarterly.

You won’t usually pay transaction fees with a robo-advisor. In a standard brokerage account, you might pay a commission to buy or sell investments, both during a rebalancing of your portfolio and when you deposit or withdraw money. Robo-advisors frequently waive these charges.

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When considering whether a robo-advisor is right for you, take into account the following:

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The formula for many advisors is the same: automate  so it can be done by a computer at a lower cost. At most robo-advisors, you can expect:

If you want or need more comprehensive financial planning, or you're hesitant to leave your portfolio in the hands of a computer, you might be more interested in online financial planning services.

These companies operate as online financial advisors, and they're sort of a robo-advisor, traditional advisor hybrid: You'll receive unlimited access to a team of financial planners (or in many cases, your own dedicated financial advisor), but you'll meet virtually via phone or video rather than in-person. This model means you get human oversight and interaction at a lower cost than a traditional financial .

You can expect the cost and minimum investment requirements of online financial advisors to increase with the level of human involvement, certification (such as access to a ) and personalization:

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These hybrid services can be a good option because they at least partially fill in the major gap left by strictly digital robo-advisors: Some investors want, and need, human interaction.

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