A financial advisor can be anything from a human offering personalized, hands-on management to a so-called robo-advisor offering automated, computer-based solutions. That wide range includes the increasingly popular hybrid model, which pairs automated robo-advisory services with human advisors you can contact when you have questions.
Here’s what each type of financial advisor does, and how to tell whether you need one:
What a human financial advisor does
The catch-all term “financial advisor” refers to people with a variety of designations, including certified financial planner or registered investment advisor. Here’s what to expect from a human advisor:
- This professional provides the hands-on planning and assistance necessary to help you achieve financial goals. Hiring one lets you delegate some (if not all) of the duties inherent in managing your finances.
- You’ll have in-depth conversations about your finances, short- and long-term goals, existing investments and tolerance for investing risk, among other topics.
- Your advisor will work with you to create a plan tailored to your needs: retirement planning, investment help, insurance coverage, etc.
Signs you may need a human financial advisor
You’re undergoing or planning a big life change, such as getting married or divorced, having a baby, buying a house, taking care of aging parents or starting a business.
Your investments have grown or your financial life has gained complexity beyond what a robo-advisor or hybrid can handle.
You want someone to hold you accountable or reality-check whether your financial plan is comprehensive enough.
Hire an advisor you’ll be comfortable working with and, of course, one who’s qualified — ideally a fiduciary, meaning she’s required to put your interests first.
» Where should you begin? Read more about how to choose a financial advisor.
What a robo-advisor does
If you’re looking to invest for retirement or another goal, a robo-advisor can be a great solution. They’re almost always the lowest-cost option, and their computer algorithms will set up and manage an investment portfolio for you. Here’s what to expect from a robo-advisor:
- Your first interaction will most likely be a questionnaire from the company you’ve selected as your provider. Be honest, just as you would with a human advisor, because the questions are designed to identify the same issues: your goals, investing preferences and risk tolerance.
- Based on the information you provide, the robo-advisor’s algorithm will recommend an investment portfolio that’s typically built using low-cost exchange-traded funds and index funds.
- Some robo-advisors offer college-planning tools and other financial-planning resources. And most will automatically rebalance your investments and take steps to reduce your investment tax bill.
Signs you may need a robo-advisor
You need to get started on saving for retirement but aren’t sure where to begin.
You want to start benefiting from stock market returns but don’t have a lot of time to investigate how to invest.
You have a lump sum you want to invest and grow for one or more future financial goals.
Expect your robo-advisor to recommend necessary changes to your portfolio over time, but the robots aren’t completely in charge. You can and should make tweaks if the recommendations don’t fit with your goals.
» Ready to get started? Check out NerdWallet’s picks for best robo-advisors.
What does a hybrid financial advisor do?
Most robo-advisor companies now offer a hybrid service that combines aspects of the robo-advisor and human advisor models. Expect access to low-fee, automated management of your portfolio on a day-to-day basis, with access to human advisors for more personalized assistance, as needed.
You may pay a little more for the option to contact a human advisor. Still, the cost is much lower than working with a human advisor full time.
Signs you might need the hybrid model
You want to keep investing costs down while being able to discuss things with a human, be it for financial planning, discussing goals or simply reassurance.
You’re juggling financial goals and have limited funds. The robo-advisor interface combined with access to human advice can help you prioritize.
The number of advisors and their availability can vary widely by provider, so consider how frequently you’d like advice and how — by chat, email or phone, for example.
» How do hybrids, robo-advisors and human advisors compare? Find an advisor that works for you.
Updated April 23, 2018.