Robo Advisor vs Human. Which Is The Best Option For You?
Ever since the inception of robo advisors in 2008, there’s been an ongoing debate on whether they are better than human financial advisors or not.
With their increasing demand, however, there’s also been the highlight on their performance and their flaws. Are they good? Are they bad?
Robo advisors are online platforms that use a computer algorithm to create and manage the investment portfolio of their clients. They are preferred due to their low management costs and their minimum deposits required to utilize their services.
On the other hand, financial advisors are human professionals experienced in financial planning for hire. Financial advisors are more expensive than robo advisors and depending on their clientele, can demand as much as $1M as a minimum deposit to get their services.
So, which one would you rather?
The option you choose largely depends on the service you need and how much cash you wish to invest. Robo advisors are great if you have little amounts to invest since they allow you to invest with as little as $5,000. Sometimes less.
Human advisors are the better option if you need answers to more personal questions like maybe planning a family or doing major life changes. They usually require more capital to invest with them and in some, a minimum of $200,000.
That is not to say all charge that. While some are on an annual basis, others have a flat rate or charge hourly fee. This is great for one-off sessions.
Pros of Robo Advisors
They are cheaper
Robo advisors charge an annual fee of 0.50% on average on total assets under management. (AUM)
Low minimum balance
Robots accept small amounts of capital as little as $1000 and some lesser than that.
No conflict of interest
Robots will manage your portfolio and only need the small fee to get done with you. On the other hand, while not all, some financial advisors look for situations where they can get some extra fees to charge you.
Easy to use
Since Robo advisors are computer programmed, to tech-savvy individuals and millennials, they are easy to use since it’s just answering some questionnaire and the platform will analyze everything for you.
Cons of Robo Advisors
You can’t select the assets
Once all is set, you can’t select the instruments you wish to add in your portfolio. The robot selects everything for you meaning you have no control over your money.
They’re not financial planners
Robots won’t guide you when you want to buy that new house or when you’re ready for a huge career change. They just open some positions for you and manage your investments.
But, they cannot advise you on everyday financial struggles.
They are – robots!
This means they are unemotional and can’t really console with you when the stock market crashes and you’ve lost all your money.
It’s expected of a robot to be unemotional. But the emotional touch in humans is important especially when you want to express such normal human emotions.
Pros of Financial Advisors
A human advisor will be able to express with your human emotions and share with you your journey.
Experience and knowledge
Due to their experiences, they can guide you through whatever you need answers and information about.
They get to know you on a personal level and offer their services according to your needs.
If you want to commit to something a financial advisor can guide you through it all. Robots can just send you alerts and reminders but won’t hold you accountable to your goals.
Cons of Financial Advisors
The larger issue with human advisors is they are quite expensive, unlike the robo advisors.
Conflict of interest
Some human advisors can look for ways to manipulate you and charge you ridiculous fees for their own interests.
Useful tips to make a right decision
In forex and crypto, expert advisors are a great option if you have basic knowledge of the markets and wish to have an automated system manage your account for you.
For the investors without much knowledge on forex or cryptos, a human financial advisor is a great option. Also, due to the nature of investing in these markets, if you want to have control over your account it’s better to find an advisor to guide you on how to control emotions.
If you are okay having an expert advisor control your account but remove the emotional pressure for you, then robots are a better option.
Managed accounts for big investments
For large accounts, a financial advisor experienced in the market is the best option. What matters is to find one that aligns with your goals and can open trades in the assets you want in your portfolio.