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What Are Robo-Advisors And Should You Consider It?

Robo-advisors provide online financial advice or portfolio with minimal human intervention. They use algorithms to make thousands of calculations to come up with the optimum allocation of assets in your portfolio. They are easy to use, inexpensive and useful to new investors. Robo-advisors - should you consider it?

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Have you ever found yourself totally clueless when discussing investments?

If you were an investor in the past, you didn't have many options where to get help.  You could venture on your own and adopt a do-it-yourself approach. If you have the money, you could hire a financial investment advisor who can give you a professional opinion.

Today, another option is available. There is the availability of the so-called ‘robo-advisors'.  This answers the need for a low cost financial and investment planning advice for younger or newer investors.  These investors want to invest on their own but do not want to pay for the high cost of experts.

What Exactly Are Robo-Advisors?

Robo-advisors are a kind of financial advisers that provide online financial advice or portfolio with minimal human intervention. They became popular when people began searching for inexpensive but convenient automated opportunities.

Still not convinced?

Within minutes, robo-advisors can help you set up a diverse but customized portfolio right in the comfort of your desk.  They can also give you access to services once reserved for the ultra-wealthy investors.  You can now get your own financial planner or create tax-loss harvesting strategies.  These, and so much more, are attracting investors to make use of robo-advisors.

According to Business Insider, robo-advisors will be managing around $4.6 trillion by 2022.

By now, there's a long list of robo-advisors on the Internet as new ones are entering the market.  Meanwhile, the veteran robo-advisors are still churning out new offerings.  So, given a wide array of choices, how do you filter through the field to find the best robo-advisor for you?

Finding the best robo-advisors for you will depend on your financial situation and needs.  However, top robo-advisors have three top features:  low fees, low initial investment, and a comprehensive portfolio management service. You can use these three items as a basis for making your decision in hiring a robo-advisor.

Robo-Advisor Benefits

Robo-advisors use algorithms to make thousands of calculations to come up with the optimum allocation of assets in your portfolio.  They based these mathematical formulas on established investment principles found in resources like Modern Portfolio Theory and Efficient Market Hypothesis.  They then use your answers to their own questionnaire to determine what level of risk you want.  After that, their system will generate an appropriate mix of investments.

More people are using robo-advisors now because they are easy to use, they are inexpensive and helpful to new investors. So let’s get down to business:

Cut Your Costs

A robo-advisor is an alternative to a traditional human financial advisor.  Online platforms offer the same services as the traditional advisor but without much human intervention.  This system allows them to bring down the cost of the services to a fraction of the traditional costs.

The going rate for robo-advisors is a flat fee of 0.2% to 0.5% of the client's total account balance.  This is significantly lower than the typical 1% to 2% charged by a human financial planner. Commission-based advisers will even charge more.

Better Returns

Automated financial advisors can give investors better returns for their money.  This is because they don't have to surpass the initial 1-2% fee that most human financial advisors collect.  In order to surpass that fee, your investment must really do exceedingly well in a short time.

However, studies show that investing in index funds will produce better results for investors in the long run.  Most robo-advisors will normally advise you to invest in them.

Accessible And Efficient

Compared to human advisors, robo-advisors are more accessible.  They are there for you 24/7, generally.  The only thing that will keep you apart is the unavailability of an Internet connection.  Moreover, you need less amount of money to get started.  In traditional human advisors, you need an average of $5,000 as a minimum amount to register your account.  Most of the robo-advisor sites have a very low minimum amount requirement.  Betterment, a popular robo-advisor site, has no account minimum whatsoever.

Normally, human advisors will require you to have at least $100,000 in investible funds before they take you in. Some of the more well-known and established firms ask even more.  They prefer to offer their services to high net-worth individuals with a variety of wealth-management needs.  These are the guys who can afford to hire them.

These online platforms are also so much more efficient. Before, executing a trade involved a lot of tiresome activities. You would have to call or see your financial advisor, explain your decision, fill up some papers and wait.  Now, with your robo-advisor account, you can do all these things with a click of several buttons right at home. Plus, they carry out your transaction much faster.

Execute Advanced Instructions Automatically

Robo-advisors may not be the cheapest service to employ but they are probably the easiest to use. One of their best advantages is that there is no need for voluminous interactions with you.  You can set an automated monthly investment amount and the service will automatically invest for you.

It will also regularly re-balance your account and can even help you optimize your tax savings through tax loss harvesting.  You may save some money going D-I-Y but it's not going to be easier than getting a robo-advisor.

Available For Everybody

Well, technically, everyone can hire a robo-advisor.  The most distinctive feature of a robo-advisor is its ease of online access. However, digital platforms normally attract and focus on certain demographics and not the whole universe. For robo-advisors, these are Millennial and Generation X investors who are technology savvy and in the process of wealth accumulation. This population is comfortable sharing personal data online and has no trouble entrusting important tasks to technology.  That would even include banking and investment management.

Robo-Advisors Benefits

 Top 5 Robo-Advisors

What are the top robo-advisors you can use? Check out our five choices below:


Bettertment LLC is one giant of a robo-advisor. It has around $7.36 billion in assets under management, making it the biggest robo-advisor in the industry.  In July of 2016, it made financial history by breaching the $5 billion AUM mark. It is the first independent robo-advisor to do so.  Betterment trades through Apex Clearing Corporation just like their main competitor Wealthfront.  Betterment takes a passive approach to invest and uses proven investing strategies and technology to make it efficient.


Wealthfront is another giant in the industry with $5.5 billion AUM as of the end of March 2017. They also advocate passive investing. They will build you a personal diversified portfolio composed of low-cost index funds.  It will, of course, depend on your risk tolerance.  Wealthfront also uses Apex Clearing Corporation and makes investments based on modern portfolio theory.

Vanguard Personal Advisor Services

Vanguard Personal Advisor Services is the robo-advisor unit of SaveVanguard. SaveVanguard has been in existence since the 70's as a personal financial advisor.  It is the respected leader in low cost investing options for DIY with their low cost index funds. With the creation of the robo-advisor arm, the firm offers now a mix of human financial advice and robo-advisor technology.

Schwab Intelligent Portfolios

Schab Intelligent Portfolios' “zero free” structure has been drawing investors.  This is because Schwab has waived their account fees and commissions.  They earn from management fees from Schwab ETF's and choice third-party ETF's.  Although Schwab's accounts may be “free,” they charge the highest minimum balance to open an account.  The $5,000 minimum is the highest among the top robo-advisors mentioned in this list.


WiseBanyanSave began its operations in February 2013 and is one of the more inexpensive robo-advisors today.  They do not charge management fees for their service because they believe that technology has made the work easier. That is definitely good for the investors.  However, they also offer some services for a fee.


The arrival of robo-advisors has broken down the wall between the financial services industry and the average investors.  These online platforms made financial planning accessible to everyone and not just to high net-worth individuals.

Many people still have doubts about the viability of robo-advisors to provide all solutions to wealth management. They also point out that the technology is relatively new and they mostly execute transactions without human intervention.  Critics also highlight the lack of empathy and class, something that human advisors often manifest.  They claim that they are only good as an entry tool for starter investors with small accounts and limited experience.  To them, robo-advisors are not adequate for complex, advance financial planning such as estate and tax planning or trust management.

Automated algorithms do not react appropriately to unexpected problems or extraordinary events.  For example, if a young person receives a substantial inheritance, a robo-advisor may not be the practical option.

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