Investing can feel overwhelming, especially if you’re new to it, are exploring new types of investments, or have complex finances.
Working with a financial advisor is one way to invest, as is using an automated investing platform, also known as a robo advisor. But how do the two differ?
One key difference is straightforward: A financial advisor is human, while a robo advisor is not.
Here’s a snapshot of some additional differences:
|
Robo advisors |
Financial advisors |
---|---|---|
Personalization/Human interaction |
Less |
More |
Investment vehicles |
Generally ETFs and mutual funds |
A broad array |
Availability |
Online; human guidance offered on some platforms |
Online and in person |
Minimum investment amount |
Lower |
Higher |
Breadth of services offered |
Generally only investment management |
Comprehensive |
Personalization/Human interaction
Robo advisors
Less
Financial advisors
More
Investment vehicles
Robo advisors
Generally ETFs and mutual funds
Financial advisors
A broad array
Availability
Robo advisors
Online; human guidance offered on some platforms
Financial advisors
Online and in person
Minimum investment amount
Robo advisors
Lower
Financial advisors
Higher
Breadth of services offered
Robo advisors
Generally only investment management
Financial advisors
Comprehensive
Choosing the right option for you will depend on your short- and long-term goals, the level of service you’d like and the complexity of your financial situation, as well as other financial circumstances.
For example, if you want to invest your money but don’t have the time or experience to manage those investments, automated investing is a good lower-cost investment option that doesn’t require much involvement from you beyond the initial setup.
If you have more money to invest or more complex finances, a financial advisor might be a good choice for you. Financial advisors generally charge more for their services, but they will take a more comprehensive approach to managing your entire financial picture, from investing to estate planning.
This is another key difference between robo advisors and financial advisors: how they invest your money.
If you decide to work with an automated investing platform, the process is straightforward. You’ll be asked questions about how much you want to invest, your financial goals and how comfortable you are with financial risk, among other factors. The robo advisor will analyze your answers and use those insights to select investment vehicles, such as exchange-traded funds (ETFs), and build a portfolio for you.
For best results when working with a robo advisor, you should know:
You’ll provide the initial funding (which varies depending on the platform you choose) and then let the robo advisor build your portfolio.
In exchange for these services, you’ll pay either a fixed fee or a percentage of assets under management (AUM). In most cases, those fees will be less than what a financial advisor would charge.
It’s also worth noting that automated investment platforms aren’t necessarily completely digital. Many provide access to financial professionals who can work with you by phone or online to answer any questions you may have and provide insight on how the best approach for your goals.
Your first meeting with a financial advisor will be a deep dive into all areas of your financial life, including assets, debt and goals.
Your advisor will ask lots of questions aimed at uncovering your current and future needs—including some that you might not have considered. These could include future new vehicle purchases, medical costs, long-term care costs, future travel and more.
Next, they’ll help you assign realistic time frames to each of your needs and goals. For example, if you’re saving for retirement, your advisor will factor when you plan to retire into their planning, knowing your time in retirement could be upwards of 20 or more years.
With all this information, they’ll assemble a financial plan that meets your short-, medium- and long-term goals.
Importantly, a financial advisor helps you see the big picture. They’ll help you stay the course during market volatility and keep an eye on all your accounts, not just the ones you hold with their institution.
First, be aware that this doesn’t have to be an either/or situation. You could use both a financial advisor and automated investing if, for example, you want to invest for a specific short-term goal. How you decide to invest depends on your preferences and situation.
Want more guidance on selecting the right investment option for your specific situation? Take the investing options quiz.
For purposes of this content, a financial advisor is required to register with the SEC, which grants the Registered Investment Advisor (RIA) title. Financial advisors are legally obligated to act in your best interest and disclose any conflicts of interest related to managing your finances. It is possible to hold multiple titles; for instance, an advisor might be a CFP as well as an RIA. Always verify the title of a professional before you seek guidance.
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