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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. Human advisors typically cost more, but new online planning services offer lower costs.
Nov. 21, 2019
Advisors, Investing, Investing Strategy
Do You Need a Personal Financial Advisor — or Will a Robo Do?-story
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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 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 a great, low-cost option, especially when you only want or need investment management rather than comprehensive financial planning.

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. You’ll generally meet your advisor locally, at his or her office, to create and go over your financial plan. However, several companies offer virtual access to financial advisors for less than you’d pay a traditional in-person advisor: Two examples are Facet Wealth and Personal Capital, which both pair clients with a dedicated financial advisor. Meetings are held via video or phone, and the services include investment management.

Robo-advisor vs. financial advisor costs

Generally speaking, the more human touch required, the higher the cost for financial advice.

Robo-advisors charge fees from 0.25% to 0.50% of the amount managed per year, though most services fall toward the bottom of that range. Many will take on new clients with $0 to open an account.

» Learn about NerdWallet’s recommended robo-advisors

At the other end of the spectrum, many personal financial advisors also charge a percentage of your assets — the median is 1% per year but it can range higher for small accounts and lower for big ones. Some traditional advisors require that new clients have a balance of $250,000 or more to manage. However, there are financial advisors who charge a flat-rate or hourly fee and require lower or no minimums to begin. Fee structure and professional qualifications are among the important questions to ask before you hire a financial advisor.

Online financial planning services also structure their fees in various ways, but they are generally cheaper than a traditional, in-person financial planner. Some charge a monthly or annual fee that may increase based on the complexity of the financial advice you need; others charge a percentage of your account balance. One innovative model is Betterment, which is a robo-advisor but offers hourly financial-planning packages for a flat fee.

» Find out how to choose a financial advisor

Here’s a way to visualize the differences between robo-advisors, online planning services and traditional financial advisors:

Robo- advisors
Online planning services
Traditional in-person financial advisors
Fees: Many 0.50% or less.
Fees: Percentage of assets managed (0.30% to 0.89%) or flat fee (starting around $400 a year). Fees: Median of 1% of assets managed.
  • Provide investment guidance and portfolio management.
  • Some offer access to human advisors who can answer one-off questions.
  • Good when starting out or if your situation is not complex.
  • Provide investment guidance and portfolio management.
  • Most services pair each client with a dedicated advisor.
  • Good if you don't mind meeting your advisor via phone or video.
  • 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

0.0%

0.0%

Account Minimum

$100

$100

Promotion

None

None

Where personal financial advisors shine

Robots are great at portfolio management — 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 traditional, in-person financial advisor is outside your needs or budget, an online planning service can help you answer the above questions, create a financial plan and manage your investments for less. Here are two online planning services NerdWallet has reviewed and recommends:

Management Fee

$480 and up

$480 and up

Account Minimum

$0

$0

Promotion

None

None

No promotion available at this time

Management Fee

0.49% - 0.89%

0.49% - 0.89%

Account Minimum

$100,000

$100,000

Promotion

2 Free Months

2 Free Months

of financial advisory services for NerdWallet users

» View our full list of the best financial advisors

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