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Robo-Advisor vs. Personal Financial Advisor: How to Decide

The choice depends on what kind of help you need and, often, on how much cash you have to invest. But human advisors always cost more.
Oct. 8, 2018
Advisors, Investing, Investing Strategy
Do You Need a Personal Financial Advisor — or Will a Robo Do?-story
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We adhere to strict standards of editorial integrity. Some of the products we feature are from our partners. Here’s how we make money.

The robo-advisor revolution has changed the choices and, importantly, the cost for investment management and advice.

Here’s what to consider when choosing between a robo-advisor and a human financial advisor. (And keep in mind, you can get started now with a robo-advisor — which offer low costs and low or no account minimums — then hire an advisor later for comprehensive financial planning.)

Robo-advisor vs. financial advisor: What’s the difference?

Robo-advisors are online services that use computer algorithms to build and manage a client’s investment portfolio. They require little human interaction. You set your parameters, such as your time horizon and how much investment risk you’ll accept, and let the computer models do the rest. They’re great when you want help choosing investments and managing your portfolio.

Personal financial advisors are professionals you can hire, on an ongoing or temporary basis, to help manage aspects of your financial life — from investing to estate planning and more. The more complicated your financial situation, the more likely you’ll benefit from a human financial advisor.

Increasingly, companies are blending the two: Hybrid robo-advisors pair automated investing with access to human advice as needed. It usually costs a bit more than basic robo-advisor service but less than a full-service human financial advisor.

Robo-advisor vs. financial advisor costs

Generally speaking, the more human touch required, the higher the cost for investment advice, and the higher the account minimum required to get started.

Robo-advisors charge fees from 0.25% to 0.89% of the amount managed. Many will take on new clients with $0 to open an account.

» Learn about NerdWallet’s top robo-advisor picks

At the other end of the spectrum, some personal financial advisors charge an annual fee plus a percentage of your assets they manage; the median is 1% but it can range higher for small accounts and lower for big ones. Some advisors require that new clients have a balance of $250,000 or more to manage.

But you can also find financial advisors that charge a flat-rate or hourly fee and lower or no minimums to begin.

» Find out how to choose a financial advisor

Here’s a way to visualize the differences between the digital advisors called robos and human financial advisors:

Digital advisors
Human advisors
Fees: Many 0.50% or less
Fees: Median of 1%
  • Provide investment guidance and portfolio management
  • Many offer access to human advisors when you have questions
  • Good when starting out or if your situation is not complex
  • Provide investment guidance and portolio management
  • Can offer comprehensive financial advice on topics like estate planning
  • Good for more complex situations and/or higher wealth ($250,000+)

Where robo-advisors shine

Be cautious about financial advisors who attempt to beat the market with their investing picks. “They charge a lot more and usually do no better — and often worse — than robo-advisors,” says certified financial planner Meg Bartelt of Flow Financial Planning.

» MORE: How to tell which robo-advisor is right for you 

The robo-advisor industry was built on passive investing: using low-cost funds linked to a preset mix of investments; for example, the S&P 500 index of large companies. Rather than beat the market, which is extremely hard to do, these funds simply aim to match whole market gains over time.

“To a large extent, passive investing — the strategy to buy and hold a broadly diversified portfolio and don’t mess with it — has won the day,” Bartelt says.

Among NerdWallet’s picks for the top robo-advisors, the following offer the most robust tools and management for the lowest cost and lowest account minimums:

Management Fee

0.25%

0.25%

Account Minimum

$0

$0

Promotion

Up to 1 year

Up to 1 year

of free management with a qualifying deposit

Management Fee

0.25%

0.25%

Account Minimum

$500

$500

Promotion

$5,000

$5,000

amount of assets managed for free

Management Fee

0.40%-0.50%

0.40%-0.50%

Account Minimum

$0

$0

Promotion

Up to $1,000

Up to $1,000

cash bonus with a qualifying deposit

Where personal financial advisors shine

Robots are great at using software to automatically buy and sell assets and rebalance your portfolio over time. They aren’t as great at helping you and your family diagnose your personal financial problems and opportunities for improvement, Bartelt says.

“Where a human financial advisor really thrives is addressing the other 90% of your financial life,” she says. “The big questions like how to buy a house, a car, quit your job and start your own business, or have a baby in the next five or 10 years.”

If a full-service financial advisor is outside your needs or cost level, most fee-only certified financial advisors offer hourly rates to help you create a financial plan, or give financial advice when a major life event is on the horizon.

“Financial advisors are great [at] understand[ing] your attitude on debt, what savings choices are important … and what your financial pain points are,” Bartelt says.

How personal financial advisors get paid can vary, as do their qualifications. Fee structure and professional qualifications are among the important questions to ask before you hire a financial advisor.

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