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The Pros and Cons of Robo-Advisors – Are They Worth it?

Last Updated on November 24, 2020 by Barbara A. Friedberg, MBA, MS

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

Are Robo-Advisors Worth it?

Robo-advisors have been making headlines lately as a great substitute for traditional personal financial advisors. But is robo investment advice worth the hype? Find out the pros and cons of robo-advisors and learn if a digital investment advisor is right for you.

Consider how robo investment advice stacks up against a human financial advisor and which works better for your lifestyle.


*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.

What is Robo Investment Advice?

Robo advisors vary, depending on which platform you choose. Some robo-advisors are exactly what they sound like: based primarily on algorithms, the automated investment advisors use pre-programmed methods to create efficient investment portfolios.

Although they are programmed to be as accurate as possible, some people might be worried about entrusting their investments to something that lacks a personality. For these individuals, a robo-advisor platform that offers a human connection may be a great alternative. This may be primarily an algorithm-based advisor with human customer service support, or a human who depends heavily on a computer to make investment recommendations.

Personal Capital, Betterment and SoFi all offer human financial advisors to supplement their computerized advice.

Overall, robo-advisors are becoming strong competitors in the personal finance field. Yet, their limitations have been called into question by some who cite the lack of personal touch as a reason for distrusting the algorithms.

Robo investment advice can be confusing. If you are undecided about whether or not to use a robo-advisor, consider the following advantages and disadvantages.

Robo-Advisor Pros and Cons
Well designed investment portfoliosLack the customization of financial advisor portfolios
Low minimumsMany lack face-to-face advisors
Low feesLack services like tax and estate planning
Easy to useMost lack alternative investments & strategies


Robo-Advisor Pros and Cons

Cost: How Robo-Advisors Stack Up

Robo-advisors tend to be cheaper than the competition. Since financial advisors have to make a living and cover the costs of their place of business, their employees, and other miscellaneous expenses that come from owning a brick and mortar business, the financial advisor fees are often higher than the robo-advisor’s fees that have minimal overhead.

It is not uncommon to see annual management fees for robo-advisors of about 1/3 the cost of other financial advisors. These robo-advisory management fees are in addition to exchange traded fund or ETF fees. Although, every mutual or exchange traded fund has an underlying management fee.

Additionally, once the robo-advisor’s platform is set up, the company can serve thousands of clients with the same overhead. As long as there are sufficient customer service representatives to meet client demand, the per client cost is much lower for a robo-advisor than for a human advisor – and that is another reason why you get top level investment advice at a low price with a robo-advisor.

Really, there isn’t much of a con here – what’s better than saving 66-80% of the normal fees charged by financial planners?

Bonus; 2020 List of Robo-Advisors

Investing Minimums

Low investment minimum robo-advisors are another tic in the “pro” column.

The great thing about robo investment advice is that you can benefit from top level investment management with a small initial investment. Physical businesses need to make money in order to pay for their staff, electricity, and so on. High fees and high minimum investments are more common with financial planners.

Since robo-advisors have fewer expenses, they can afford to serve smaller investor accounts. This is great news for millennials and people on tight budgets who cannot ordinarily afford to invest. The platforms enable small investors to make as great a return on their money as possible, no matter what amount the client begins with.

Although there are some financial planners who also offer low minimum investment requirements they aren’t as plentiful as the robo-advisors willing to take on the small investing guy or gal.

For small investors, robo-advisors come out on top.

Bonus; 7 Best Portfolio Management Tools for Investors>>>

Personalized Investing Advice-Can Robo-Advisors Compete?

When it comes to the robo advisor pros and cons, this is one area that people can’t seem to agree on. Is the robo investment advice really as good as the investment advice of a financial professional?

Robo-advisors are becoming more advanced every day, so they are increasingly likely to provide you with personalized investing advice. The investing advice and plans provided by robo-advisors are based on a myriad of details that you provide, ranging from your age and investing style, to your retirement goals. Your robo-advisor will take your answers to these questions, and plug them into algorithms designed to give you the most personalized investment portfolio possible.

That being said, a robo-advisor will not be able to improvise. If you have a unique situation that does not come up during the initial question phase, it will not be considered. A robo-advisor would not be able to probe for more information if it sensed you had more to say in regards to a question.

Robo Investment Advice-Pros and Cons-Still on the fence about robo-advisors? Here's your answer.

For those investors seeking a more personalized touch, the robo-advisors with access to financial advisors are a good alternative.  These robo-advisors have human advisors interwoven within their platforms:

Additionally, many traditional financial advisors are lowering their fees and adding digital investment advisor platforms to their suite of services.

The final tally of pros and cons of robo advice for personalized investment services is mixed. Some robo-advisors have online customer service reps without any investment or financially advisory background. While others, like Wealthfront have credentialed customer service personnel. Then there are robo’s with financial advisors and advisors with digital investment management.

Personal Treatment from a Robo-Advisor

This is one area where robo-advisors may fall short. Although they are designed to take your unique situation into consideration when designing your investment portfolio, they are not designed to strike up a conversation about your kids or a new lunch spot.

Although some people will not mind the absence of small talk, for others this is a very real factor in choosing whether or not to invest using a robo-advisor. Going to visit your  financial planner can be a comfort, particularly during dips in the market. The reassurance that someone has “got you” can make all the difference in difficult patches.

Robo investment advice firms attempt to compensate for this by creating specific robo-advisory products for specialty groups of people, like women. Still, they may not have the comforting factor that face-to-face contact can have.

When considering the pros and cons of robo-advisors, personal contact is generally a negative for the all-digital platforms.

Stability and Predictability of Robo-Advisors

Banks have been around for a long time, and although mergers happen, consumers rarely panic. The friendly bank on the corner will always be there, we trust. But what about robo-advisors? Will they stand the test of time?

The good news is that robo-advisors are a booming business. Some closures do happen, such as the recent demise of Hedgeable. But all evidence suggests that robo-advisors are here to stay. Robo-advisors are filling a need for people interested in quick, easy, and affordable investments – and there are many of these people! So it is unlikely that robo advisors will completely disappear any time in the near future. Although you may see some pending mergers and acquisitions in the robo investment advice arena.

Ease of Access

Here, robo-advisors take the cake. Robo investment advice never sleeps; you can check or change your investments no matter what time it is.

Most robo-advisors are also easy to access across your various electronic devices, so it may even be possible to check your investments from your smartphone on your commute. This is invaluable for people who want to monitor their investment portfolios on the go.


Despite the decline of “banker’s hours” in favor of weekend and evening banking, financial planners are just not able to provide the same 24/7 availability that their robotic counterparts are. And Betterment even offers the option to text with a financial advisor. This can put financial planners at a disadvantage when working with people who have unconventional work schedules or difficulty reaching the office during business hours.

Investing Options

Robo-advisors used to be more limited than traditional financial planners with regard to breath of investment choices. Yet, with the advent of M1 Finance with access to 1000’s of investment choices and other robo’s offering more than 20 index funds from which to choose, the distinctions between robo-advisor and financial advisor are diminishing.

Learn:  How to Choose a Robo-Advisor, Ask These 7 Questions

Yet, the majority of robo-advisors do offer narrower services than financial advisors. The reason for this is that robo-advisors rely on algorithms to determine appropriate investments; programming a robo-advisor to take all possible investment types into consideration would be unreasonable, at least at this stage. In general, many robo-advisors have a limited number of ETFs within their platforms. There are only a few robo-advisors with access to  individual stocks and bonds or unique types of products.

However, robo advisors certainly offer enough investing opportunities. Research shows that you don’t need more than 20 stocks to sufficiently diversify the equity portion of your investment portfolio. And one exchange traded fund (ETF) typically owns hundreds comany’s stock. Yet, with new platforms launching every month, you’re certain to find a robo that fits your style. There’s even the opportunity for investing with a cryptocurrency or bitcoin robo-advisor.

Tax Efficiency

Another robo-advisor pro is that many robo-advisors offer tax-loss harvesting in their taxable accounts. This service offsets taxable capital gains, by selling funds that have losses. The losing investments are replaced with similar funds, to keep the asset allocation constant.

This activity reduces your tax bill and will ultimately improve returns.

Although financial advisors also perform this service, the low cost and automation at robo-advisors make this an attractive feature.

Robo-Advisor Alternatives

If you prefer a one stop investment option, you might consider a target date fund. These combinations of stocks and bonds, included in one fund, are designed for the retirement savings goal. Although they can be used for other goals as well. With a target date fund, you choose the date you’ll begin withdrawing the money. The fund starts out with an aggressive investment mix of a greater proportion of stock funds and gradually becomes more conservative with more bonds, as the target date approaches.

Another robo-advisor alternative is the FREE M1 Finance platform. This site has do-it-yourself FREE trading of over 6,000 stocks and exchange traded funds. M1 also offers pre-made portfolios from a wide variety of categories (similar to a robo-advisor).

M1 will rebalance your investments according to your prefered percentages in each stock, fund, or pre-made portfolio.

Robo-Advisors vs. Humans

Luckily, you don’t need to make the choice between a robo-advisor or a live planner.

There are many hybrid robo-advisors that offer both digital investment management and live advice. In fact, SoFi Invest is one of the few FREE robo-advisors that also includes human financial planners.

There are even low fee digial robo-advisors that have a la carte financial planning packages. Both Ellevest and Betterment have extremely low fees and access to low-cost financial planning. We like this because you only pay for the service that you need.

So, if you’re comfortable with an all digital platform, there are many from which to choose. But the growing robo advisory trend is to offer digital platforms and accessible human financial advice.

Robo-Advisor Pros and Cons – Should I Use a Robo-Advisor? 

There is no one-size-fits-all approach to investing, no matter what medium you use to invest. Considering your own lifestyle needs and your investing personality is the first thing you need to do to consider whether or not a robo advisor is the right fit for you.

In a nutshell, there are many robo-advisor pros:

  • Offer professionally designed investment portfolios
  • Affordable, and offer low or no minimum balances
  • Personalize your portfolio based on a series of questions
  • Can be accessed 24/7, often times from your phone

These benefits make robo advisors a good fit for:

  • Beginning investors, who need some minimal assistance
  • Millennials
  • People on tight budgets
  • Busy individuals
  • People with basic investing needs

Other individuals may find robo-advisors a comfortable place to put at least some of their assets as well; the ease of use combined with on-demand access means that even individuals who do business with financial planners can make use of a robo-advisor from time to time.

There are also robo-advisor cons:

  • Those without financial advisors lack the “personal touch”
  • Cannot go beyond their pre-programed questions when creating your investment portfolio
  • Can be slightly limiting if you are looking for more complex investments

All in all, robo-advisors offer an alternative to traditional financial planners and are worth serious consideration. Whether or not the benefits outweigh the negatives depends entirely on your own financial situation, lifestyle and personality traits. Consider the pros and cons of robo advisors carefully before making any decisions.

Finally, robo investment advice might just be suitable for your needs.


Are robo-advisors safe?

Robo-advisors are typically as safe as your bank or financial firm. They all use high level encryption and security protocols. They also provide insurance in case the robo advisor investment company fails.

Can you make money with robo-advisors?

Yes. Robo-advisors systemtize your investing. As long as businesses continue to grow, it’s likely that by investing with robo-advisors you can grow your net worth.
During the short term, all investing is less certain and returns can go up and down.

Are robo-advisors a good idea?

Robo-advisors are a sound way to build wealth for intermediate and long-term financial goals. Because they are low fee and wisely managed, they can help you reach your financial goals.
But, as with all investments, there is risk, or the chance that you might lose money. In the long term, investmenting have been shown to be a wise strategy to reach money goals.

How do robo-advisors work?

Answer a few questions about your goals, financial situation, and risk tolerance. Then the robo-advisor presents a well diversified investment portfolio, designed to help you meet your financial goals. The robo-advisor manages the investments to keep you on track.

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.

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Barbara A. Friedberg, MBA, MS

Barbara Friedberg, MBA, MS brings decades of finance and investing experience to Robo-advisor Pros. She is a former investment portfolio manager and taught Finance and Investments at several universities. Barbara Friedberg's published work includes Personal Finance; An Encyclopedia of Modern Money Management (Greenwood Press), Invest and Beat the Pros-Create and Manage a Successful Investment Portfolio and How to Get Rich; Without Winning the Lottery. Follow her on twitter