Robo-Advisor vs Financial Advisor – Which is Best?

robo vs human financial advisor

By contributing columnist, Hank Coleman

Robo-advisors are everywhere you turn. Or, so it seems. These automated online investment platforms appeal to new and younger investors, but they can be a good fit for seasoned pros as well.

The key to deciding whether to go robo-advisor or human financial advisor is to understand which one is right for you and your financial situation.

*This article contains affiliate links to help pay for this website. That said, our reviews are held to the highest standards of honesty.

To help you decide between robo-advisor vs human consider these questions:

Are you tired of paying high fees and commissions with a traditional financial advisor?

If yes, then go with a robo-advisor.

Does the investment advisor at your local bank seem to pitch you only their own products?

If yes, and you don’t like it, then go with a robo-advisor.

Do you need someone to walk you through your investment choices?

If yes, choose either a human financial advisor or a robo-advisor with access to financial professionals.

Bonus: Robo-Advisors with Human Financial Advisors

There are differences between a robo-advisor and a traditional financial advisor and overlap between the two. Each one has their strengths and weaknesses.

The best investment solution between robo-advisor vs human depends on several factors:

  • Your investment expertise
  • Your comfort level with DIY
  • Your investing style, risk tolerance, and goals.
  • Your net worth
  • The complexity of your financial situation

Today, choosing between a robo-advisor and human advisor isn’t black and white.

Many robo-advisors offer financial advisor access among their services.

Robo-advisors can work well for a variety people and today, robo investment advisors are so diverse that in many cases, they are difficult to distinguish between human financial advisors.

In fact, many human financial advisors are using robo advisors to manage their client’s investments, which enables the advisor to lower their fees and frees up time to work one-on-one with clients.

What is a Robo-Advisor?

A robo-advisor is a broad category of computerized financial advisors.

These money and financial managers create diversified investment portfolios influenced by computer algorithms. Most robo-advisors are based on Modern Portfolio Theory which designs the investment portfolios to offer the greatest returns for the chosen risk level.

Learn: Robo-Advisor FAQ

After responding to several questions about your goals, age, and risk tolerance, the robo creates a group of investments to match your needs. The portfolios typically range from conservative to aggressive.

Many robo advisors offer financial advisor access, borrowing, lending and other services.  

Robo-advisors typically manage your money with lower fees than human financial advisors.

Choose a robo-advisor with our Robo-Advisor Selection Wizard.

What is a Financial Advisor?

A financial advisor is someone who helps you manage your investments and may provide other services including tax and estate planning. Financial advisors come in many varieties with a laundry list of credentials.

When choosing a financial advisor it is important to understand the advisor’s:

  • Education, experience, and credentials
  • Fee structure
  • Whether they are a fiduciary (required to put your interests first) or not
  • If they have been sanctioned (use BrokerCheck to investigate the advisor)

The following comparison chart of robo-advisors vs financial advisors will give you an idea of which type of financial investment manager might be best for you.

Examine each feature, on the left side and determine if it is important to you or not.

This checklist will help you decide whether to go robo, choose a robo-advisor with a financial advisor, or hire a financial advisor.

Robo-Advisor vs. Financial Advisor

 Robo-AdvisorFinancial Advisor
Low CostX
High Minimum BalanceX
Zero or Low Minimum Balance X
Personal ContactX (a few robos)X
Targeted Personalized AdviceX
Can Choose AssetsX
Less Human Error/BiasX
401(k) Plan CompatibleX
Automatic RebalancingX
Automated Tax-Loss HarvestingX
Active Investing StrategiesX

Robo-advisor vs financial advisor - which is better. Get the pros & cons.

Here’s what you need to know about the differences between investing with a robo-advisor and traditional financial advisors.

Benefits of Investing with a Robo-Advisor

Robo-advisors are different than traditional financial advisors. From the cost, client interaction, investment selection, and more, robo-advisors can be a great choice for the right investor.

Here’s why robo investing might be best for you:

You Want Lower Fees

One of the biggest benefits to robo-advisors is the cost. In comparison with traditional financial advisors, most robo’s fees are quite low. And, your investments’ costs have a direct impact on your investments’ performance, especially over a long time horizon.

Bonus: Robo-Advisors With the Lowest Fees

Traditional financial advisors typically charge  1% or more of the value of your investment portfolio just to manage your investments. You may also pay transaction and other fees on top of the 1% management charge.

So,  if you had $1 million invested with a traditional financial advisor, you might pay $10,000 annually in management fees. That can quickly add up over the long term. Most robo-advisors on the other hand charge less than 1%. In fact, many robo-advisors have investment fees lower than 0.5% per year. Betterment charges a 0.25% fee for accounts up to $2,000,000 with no minimum investment amount when you open a Betterment Digital. (LINK) That’s a $7,500 per year savings over investing with a typical financial advisor.

In fact, some robo-advisors like M1 Finance and SoFi Invest don’t charge any investment management fees.

You Don’t Need Hand-holding (maybe)

Most robo-advisors don’t provide much if any, direct contact with investors. So, if you have questions or want to pick up the phone and ask an advisor why the stock market is down, robo-advisors may not work for you.

But, if you’re fine with your financial advisor not providing hand-holding services, robo-advisors can be a great automated approach to investing. You’ll need a sense of your investing goals and time horizon. And, you need to be prepared to ride out a market dip with a robo-advisor who you can’t call.

Although, several robo-advisors are offering human or almost-human financial planning as well.

Robo-Advisors with Human Financial Planner Access

Robo AdvisorManagement FeeInvestment Minimum
Betterment logo0.25% of AUMNoneSign up
personal capital logozero for free tools - 0.89% - 0.49% AUMzero for free tools - $100,000 for asset managementSign up
None$1.00Sign up
0.25% of AUM ($10,000 managed for free)$2,000Sign up
schwab intelligent portfolios logoBasic-None Premium-$30/month ($300 set up fee)$5,000Sign up
ellevest logo$1-$9 per month NoneSign up

You May Not Have a Lot to Invest

Most traditional financial advisors want to work with clients with a considerable nest egg. Since financial advisors typically earn a 1% fee based on your assets, managing large investment portfolios is how they earn their living. Many investors don‘t meet the minimum $250,000 to $1,000,000 requirements for a traditional financial advisor. Most robo-advisors have lower initial minimums and a few will manage your money if you only have $100.

Read: Top 5 Robo-Advisors With Low Investment Minimums

You Like the DIFY (do-it-for-you) Approach

With robo-advisors, you have to be willing to give up control over your investment choices. Robo-advisors are the perfect choice for investors who don’t have enough time, interest, or knowledge to pick the best investments.

You just fund your account, tell them when you plan to use the money, and decide how much risk you are willing to take. Some robo-advisors are goals -based and adjust the strategy based upon your goals. Ultimately, the robo-advisor will choose the optimum asset allocation based on their algorithms.

Benefits of Investing with a Traditional Human Financial Advisor

Many people still like to work with a traditional financial advisor. Financial advisors have a few key advantages despite the lower cost and rising popularity of robo-advisors.

Here’s why investing with a human advisor might be the right choice for you:

More Targeted Advice

Investing is not a “one size fits all” with a traditional financial advisor. You can receive specific advice about your family’s financial situation. Everyone’s situation is different or has some little wrinkle in it. Being able to address all the nuances of our lives is a big advantage for traditional financial advisors.

That said, Vanguard does start their robo-advisory process with human financial advisors and Personal Capital and Betterment also have a slate of advisors for consultation and advice.

You Like Meeting Face to Face 

If you like to meet face to face and look someone in the eye when you turn over a pile of money to him or her, then you’re not alone. A lot of people are still simply not comfortable conducting business solely online. Traditional financial advisors manage your investment portfolio and are also available to listen to your questions and fears. You have someone to call even if it’s to calm your fears or reassure you that you’re doing the right thing.

The firms that run robo-advisors typically have a customer service phone line you can call, but they’re there to answer questions about the service or website, not provide investment advice. With robo-advisors, there typically isn’t a single person responsible for your account.

As previously mentioned, there are a few robo-advisors that have  services where you can talk to a financial planner over the phone or via video chat.

SoFi invest offers automated investing with zero account management fees and includes financial advisor access. Take a look around the SoFi website.

Greater Control Over Investments 

Using a traditional financial advisor gives you more control over your investments. You have a greater say in how you want an advisor to invest your funds on your behalf. If you want your advisor to stay away from tobacco companies and shares of gambling stocks, it’s as simple as a phone call conversation with your financial advisor.

The same isn’t true with robo-advisors. Once you provide the robo-advisor with your time horizon and risk tolerance, the investing is hands-off for you. Investing with robo-advisors is designed to use a proprietary blend of exchange traded index funds (ETFs) that have a set asset allocation and automatic rebalancing. There’s no wiggle room for you to customize your investment portfolio and load up on a single stock or a specific industry if you wanted.

That said, customization to some degree is possible with robos. There are robo-advisors that offer socially responsible investments (LINK).

M1 Finance allows you to customize your own portfolio and the firm will rebalance for you. Check out the M1 Finance website.

While Axos Invest has a list of sector-specific funds that you can invest in.

Mistakes and Performance

Humans are prone to errors. We make mistakes. We’re often biased in our decision making. The same might be true for your financial advisor. The hype of beating the stock market index draws investors to mutual fund managers and financial advisors that have a history or reputation for trying to outperform the markets.

A friend’s financial advisor recommended a market-neutral and a sector specific fund, and both underperformed the S&P 500 index fund – a staple in most robo-advisor funds.

Humans have a bias where we think we are more skillful or knowledgeable than we really are. There’s a greater potential for humans to make a mistake, trading in and out of stocks in an effort to beat or time the market.

A robo-advisor isn’t prone to those kinds of human errors. But, then again, robo-advisors are only as good as the human-created investing algorithm.

The result of these human mistakes can be a return on investment that under-performs the stock market. In many cases, investing in an index fund outperforms an active investment approach that your financial advisor might use to try to beat the market.

That’s the beauty of robo-advisors.

Research has consistently shown that actively managed mutual funds typically underperform index funds and passively managed funds like those offered by robo-investors.

Robo-Advisors vs. Human Financial Advisors Wrap Up

Robo-advisors offer a great alternative to traditional financial advisors. They are a safe, low cost, and with a hands off approach to investing. If you don’t need all of the services offered by a traditional financial advisor, you don’t meet the minimum required initial investment, and don’t need specific, individualized attention, then a robo-advisor may be a great choice for you.

Finally, both robo-advisors and traditional financial advisors have their distinct differences. You should weigh your options and find an advisor that fits your preferences and your family’s needs. And, as the robo advisory industry evolves, you’ll find more robo-advisors with a human touch and more financial advisors with automated investment options.


Disclosure: Please note that this article may contain affiliate links which 
means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t  believe is valuable.

4 thoughts on “Robo-Advisor vs Financial Advisor – Which is Best?”

  1. Comprehensive post. I prefer robo-advisors, for now. My only concern is that, if I had a lot of money to invest (like more than that protected by SIPC insurance), I don’t know if I’d feel comfortable handing it over to a start-up. In that case, a robo-advisor from a more established company like Vanguard might make sense.

  2. That’s a viable concern, given the great number of new start-up robo’s. Yet, I wouldn’t worry about the established stand alone robo-advisors, ie Personal Capital, Wealthfront, Betterment etc. But certainly the Vanguard’s and Schwab etc. robo’s have a much longer track record. Thanks for writing in Miguel

  3. Hi, really interesting Post and comparison. In my Opinion a Robo-Advisor is a more valuable Service for People like me. If you have not Hhundred-thousands of Euro to invest and if you want to invest on lowest possible Cost-Level a Robo-Advisor is a perfect Solution. In Addition: In the Past I used a human Financial Advisor and thanks to him and his “Analysis” of the Market I lost not less Money. My Robo-Advisor is just after 2 Years of Investment much better in his Performance as my Human Financial Advisor ever was! From my Side: A Clear PRO Robo-Advisor! Regards, Markus

    1. Hi Markus, Robo-advisors are great for younger investors, just starting out. Regardless of where you live, there are robo-advisors available across the globe. Search for a lower fee robo-advisor if you’re just starting out and don’t need many bells and whistles.

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